Purchasing and Insuring a Vehicle

Overview of Purchasing and Insuring a Vehicle

• Chapter Significance: Buying a vehicle represents a significant commitment in terms of financial expense and long-term responsibility. It is characterized as a process rather than a one-time event.
• Purchase Philosophy: Since a vehicle is one of the largest purchases an individual makes, it is critical to find the right match based on three main pillars:
      1. Safety
      2. Reliability
      3. Affordability

Factors in Purchasing: Safety

• Selection Priorities: It is critical to choose a vehicle with features designed to prevent crashes and minimize injuries.
• Vehicle Body Style and Risk:
      * Midsize Sedan: Generally recommended as a better choice than a van, $SUV$, or sports car.
      * Vans and Sport Utility Vehicles (SUVs): These are described as "top-heavy" and therefore more susceptible to rolling over during a crash.
      * Sports Cars: Purchasing a "sporty" vehicle may tempt the driver to speed or engage in reckless driving behaviors.
• Critical Safety Features: Consumers should look for late-model vehicles equipped with specific systems:
      * Anti-lock braking system (ABS).
      * Daytime running lights (DRLs).
      * Electronic stability control (ESC).
      * Multiple airbags.
      * Adjustable and lockable head restraints.
• Resource Information:
      * AAA Office: Provides the brochure Buying a Safer Car, which contains crash-test ratings.
      * Online Resources: Further information can be found at AAA.com or safercar.gov.

Factors in Purchasing: Reliability

• Reliability Objective: Selecting and maintaining a reliable vehicle provides "peace of mind" and prevents the majority of breakdowns.
• Tips for Ensuring Reliability:
      * Look for a Warranty: Aim for vehicles with a remaining factory warranty or purchase an extended warranty through reputable sources like $AAA$.
      * Avoid Excessive Mileage: High mileage relative to the vehicle's age often indicates heavy or abusive driving, which leads to abnormal wear on mechanical components.
      * Check the History: Maintenance and crash-repair histories should be reviewed.
          * CARFAX: $AAA$ members can receive discounted vehicle history reports at AAA.com to check for past crashes, flood damage, or other title issues.
      * Pre-purchase Inspection: Before buying, have the vehicle inspected at a repair facility to ensure it is mechanically sound and roadworthy. $AAA$ Approved Auto Repair facilities provide this service for a nominal fee.
      * Issues with Older Vehicles: While inexpensive to purchase initially, older vehicles often have higher long-term maintenance costs, poorer gas mileage, and lack modern safety systems.

Factors in Purchasing: Affordability and Costs

• Total Cost of Ownership: Owning a vehicle includes initial costs and ongoing operating expenses.
• Initial Vehicle Cost Strategies:
      * Pre-owned vs. New: If a new car is out of reach, a previously-owned model is the best solution. Research market prices to avoid overpaying. $AAA$ clubs provide pricing info by year, make, and model.
      * Certified Used Cars: Many auto manufacturers offer certification programs for low-mileage, leased, or single-owner vehicles.
          * Benefits: Extension of the factory warranty and increased resale value.
          * Drawback: Typically more expensive than non-certified used cars.
• Ongoing Operating Costs:
      * Expenses: Insurance, maintenance, repairs, and fuel.
      * Teenage Drivers: Insurance costs are exceptionally high for teenagers. Potential discounts include completing driver training programs or providing proof of good grades.
• Fuel and Environment:
      * Mileage: High-mileage vehicles reduce costs and environmental impact.
      * AAA Resource: The Gas Watcher’s Guide brochure provides tips for maximizing miles per gallon ($MPG$).

Alternative Power Sources

• Diesel: Often includes biodiesel.
      * Efficiency: Gets more miles per gallon than gasoline.
      * Availability: Fuel is less available than gasoline in the $U.S.$, though more popular in Europe.
• Ethanol: A form of alcohol often mixed with gasoline.
      * Impact: Reduces petroleum usage and produces fewer harmful emissions.
      * Energy Density: Contains less energy per unit than gasoline, resulting in lower miles per gallon.
• Electric: Powered entirely by electricity without an internal combustion motor.
      * Impact: Zero harmful emissions.
      * Constraint: Range is currently more limited than gas/diesel, though battery technology is improving.
• Hybrids: Features two propulsion forms: a gasoline motor and an electric motor.
      * Function: The electric motor is powered by a battery pack charged by the gas engine and the vehicle's brakes.
      * Efficiency: Allows for smaller gasoline motors and fewer emissions. In some cases, the gas motor remains inactive for low-power needs.
      * Regenerative Braking: Converts friction from braking into stored energy, resulting in higher mileage in city driving.
      * Plug-in Hybrids: Certain models allow for charging via an electrical socket.
• Other Sources: Exploration continues for compressed natural gas, liquid hydrogen, and solar power.

Types of Automobile Insurance

• Liability Insurance: The most important protection. It protects the policyholder from claims made by others for injury or loss in a crash where the policyholder is at fault.
      * Legal Consequences of No Insurance: Courts can mandate the sale of real estate and personal property to pay judgments. Driver licenses can be suspended until a judgment is satisfied.
      * Coverage Extent: Protects the owner and anyone driving with permission.
      * Subtypes:
          1. Bodily Injury: Covers injury or death to others up to policy limits.
          2. Property Damage: Covers property belonging to others up to policy limits.
• Medical Payment: Covers medical, hospital, or funeral expenses for the driver and passengers regardless of who caused the crash.
• Collision Insurance: Covers repairs to the policyholder's vehicle regardless of fault.
      * Examples: Running off the road or damage from an unattended vehicle whose owner does not take responsibility.
• Comprehensive Insurance: Covers damage from non-collision events: fire, theft, falling objects, explosions, earthquakes, windstorms, hail, floods, or vandalism.
• Uninsured Motorist: Protects against bodily injury losses caused by uninsured or hit-and-run drivers.
• No-fault Insurance: Allows an injured party to collect from their own insurance company without litigation to receive immediate financial relief.

Selecting and Buying Insurance

• Financial Responsibility Laws: States set minimum security requirements for drivers. This is often expressed in figures such as $25/50/10$:
      * $25$: Up to $25,000 per person for bodily injury or death.
      * $50$: Up to $50,000 per occurrence for bodily injury or death (multiple people).
      * $10$: Up to $10,000 for property damage to others.
• Inadequacy of Minimums: Legal judgments often exceed state minimums due to inflation and high court awards. Increasing coverage limits does not necessarily lead to a sharp increase in premiums.
• Deductibles: Most motorists carry a deductible between $100 and $500.
      * Mechanics: The driver pays the initial amount (e.g., $100 or $500), and the insurer pays the balance.
      * Cost Management: Accepting a higher deductible reduces the annual premium.
• Policy Specifics: A policy is a legal contract. It outlines the kinds, amounts, and conditions of coverage, as well as grounds for cancellation and claims reporting.

Insurance Discounts and Rate Evaluation

• Factors Affecting Cost: Miles driven, age, geography, vehicle type, driving record, and car/vanpooling.
• Specific Discounts:
      1. Safe Driving Record: Discounts for years without tickets or collisions.
      2. Multi-car Discount: For insuring two or more cars with the same company.
      3. Student Discount: For young drivers maintaining high grade-point averages.
      4. Driver Education Credit: For completing standard driver education or adult improvement programs.
      5. Occupation/Habits: Better rates for teachers, former military, government workers, farm bureau members, and non-drinkers.
      6. Safety Features: $ABS$, airbags, alarm systems, and tracking systems.
• Vehicle Impact on Rates: Always check insurance rates and availability before purchasing a car.
      * High Performance: Expensive and difficult to insure.
      * Compact/Low-horsepower: Often qualify for discounts.
      * Older Vehicles: Three-to-five-year-old vehicles with low mileage are cheaper to insure due to decreased market value.
• Financing Warning: Dealer-included insurance may only cover collision and comprehensive to protect the lender; it often excludes liability and medical payments.

Rental Vehicles and Insurance

• Insurance Options: Rental companies must offer collision and liability insurance. Before purchasing, verify if your personal auto policy or credit card provides coverage to avoid redundant costs.
• Loss-Damage Waiver (LDW): Relieves the renter of liability for loss or damage to the rental car for an additional daily fee. This only covers the vehicle itself.
• Restrictions: Review contracts for:
      * Geographic Restrictions: Limits on driving out of the state or country.
      * Driver Limits: Coverage may only apply to the primary driver, not passengers.
      * Rental Extensions: Insurance may be void if the vehicle is kept past the return date without an official extension.