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Auto insurance

Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Auto insurance provides property, liability and medical coverage: Property coverage pays for damage to or theft of your car. Liability coverage pays for your legal responsibility to others for bodily injury or property damage. Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses. An auto insurance policy is comprised of six different kinds of coverage. Most states require you to buy some, but not all, of these coverages. If you're financing a car, your lender may also have requirements. Most auto policies are for six months to a year. Your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium. What does owning a home have to do with car insurance? Quite a bit, when it comes to the rates consumers pay for auto coverage, a new analysis finds. Consumers pay about 7 percent more on average for annual car insurance premiums if they rent their home rather than own it, even if they have stellar driving records, according to the Consumer Federation of America’s analysis of premium quotes from the major auto insurance companies. In some markets, the difference is more extreme, depending on the insurer. Quotes for auto insurance premiums for renters in Louisville, Ky., averaged 13 percent more than those for homeowners, while one insurer in that market, Farmers Insurance, quoted a rate that was 47 percent higher. J. Robert Hunter, the federation’s insurance director and a former state insurance commissioner in Texas, said the analysis showed how insurers’ use of nondriving criteria like homeownership can penalize lower-income consumers, even if they have pristine driving records. Renters in the United States have a median income of about $28,000, compared with about $63,000 for homeowners, according to Federal Reserve data cited by the federation. The federation has done several analyses of factors used to set car insurance premiums and objects to the use of nondriving criteria, like credit scores and college degrees, in determining rates. The practice is unfair, the federation has argued, because carrying minimum auto insurance is mandatory in most states. “People are being charged extra just for being poor,” Douglas Heller, a consumer advocate who helped conduct the analysis, said in a call with reporters. Insurers justify the practice as necessary to correctly price auto policies. Accident records from state and local authorities may not always be complete, so additional criteria must be used to set premiums, said David Snyder, vice president for policy development and research with the Property Casualty Insurers Association of America. He added that rates were reviewed by state insurance regulators to make sure rating standards comply with the law. James Lynch, chief actuary with the Insurance Information Institute, an industry group, said factors unrelated to driving, including renting or owning a home, were used in setting premiums because they were valid predictors of loss. “The rates are actuarially justified,” he said. For its analysis, the federation sought quotes for minimum liability coverage in 10 cities from the nation’s seven largest insurers (State Farm, Geico, Allstate, Progressive, Farmers, Liberty Mutual and Nationwide). Two quotes were obtained from company websites for a hypothetical 30-year-old female driver with a 2005 Honda Civic and a “perfect” driving record. The only variable that changed was whether the driver owned or rented her home. Quoted rates varied widely by insurer within individual markets. In Baltimore, Liberty Mutual quoted a rate $636 higher for a renter, compared with $66 more for Allstate. The only insurer that did not vary premiums based on renter status in any of the tested cities was Geico, the analysis found. Its quotes were the same for the renter or homeowner in all markets tested. A spokeswoman for Geico did not respond to an email seeking comment. Nationwide also provided identical quotes in three markets (Baltimore, Houston and Portland, Ore.). In one market, Chicago, Allstate quoted a rate 11 percent lower for the renter. The study also found no difference in rates quoted in Oakland, Calif.; state law in California restricts the use of homeownership, credit scores and other nondriving factors in setting premium rates. Here are some questions and answers about auto insurance: ■ How can I get the best rate on my car insurance policy? Both consumer advocates and insurance industry representatives agree that rates vary widely by insurer. So it makes sense for consumers to seek quotes from several companies. ■ Are there any discounts for having more than one policy with the same insurer? Companies often offer discounts if a consumer buys more than one type of policy. It’s common for a discount to be given if a shopper buys homeowner’s and auto coverage from the same insurer, for instance, and many companies also offer such “multi-line” discounts to customers buying renter’s insurance, which protects the contents of a rented property, Mr. Snyder said. Always ask if any discounts are available, like those offered to good students or to people — especially those over 55 — who take special driving classes. The consumer federation’s analysis assumed the driver did not buy any other policies from the same company. ■ Where can I find out the minimum auto insurance coverage required in my state? The National Association of Insurance Commissioners offers links to state insurance departments where details are available. The association also offers a consumer guide to auto insurance.