Per-Mile Car Insurance
Also known as pay-as-you-drive, per-mile insurance coverage charges fees based on how much you drive. A relatively new theory introduced in Texas in 2002, it means that people who drive less pay less. The new legislation recommends that drivers can choose between the current method of paying car insurance (sometimes called "time period insurance") and the per-mile method.

Here's how it works: An insurance company assigns your car to one of its rate groups (numbered 3 to 27) according to your zip code, car use and type, driver type, and other information about your household the company obtains. Your car might be put into a group paying $400 a year, and if the company determined that the average for cars in your group was 10,000 miles a year, the alternative mile rate for your group would be 4.0 cents a mile.

If you chose the mile rate instead of the annual rate, you might initially buy 2,500 miles for $100 (= 4.0,/mi. x 2,500 mi.) plus whatever fees they tack on. These miles would be added to your car's current odometer reading. Before these miles were all driven, you would have to buy more miles to stay legally insured.

Besides reduced profits, what auto insurance professionals really loathe is the threat to their credibility by direct individual control of insurance expense and the fear that we'll find out how much we're really getting screwed on an individual level. According to an agent at a company we promised would remain nameless, they refer to the practice of overcharging for cars driven less than average for their annual rate group as "skimming the cream." How nice.

How Much Insurance Is Too Much?We've established that we need insurance, we've discussed the different types available, but where's the limit? How much is too much? If you drive like a real lunatic with very little disregard for human life or limb, not to mention property, you're stuck between a rock and a hard place. On one hand, you are the perfect candidate for the most insurance possible, but on the other, because it's been proven that you drive like a moron, you might be deemed too high a risk to be insured through normal avenues. The right policy for you is, more than likely, the only policy you can get, one from Bob's Insurance and Fish Bait out on the Interstate. If you don't pay your premiums, guess where they get the bait from?

For the rest of us deemed sound of mind, we have a wide variety of choices as to the level and cost in which we can be insured, so the question for us is not if we can get insurance, but how much insurance is enough and will the bare minimum do? Is the state-mandated minimum enough for your personal driving habits or choice of lifestyle? Is the car in question your primary driver or a third toy car? Perhaps it is a classic that you would only drive on weekends to car shows. Or is it a racecar and you're trying to be the next demolition derby champ? If you answered yes to any of these, then the bare minimum insurance required by law is not for you.

Because of the ever-increasing costs associated with accidents and medical bills for even the slightest injury, the Insurance Information Institute (III) recommends a minimum of $100,000 of bodily injury protection per person and $300,000 per accident. If your personal net worth is more than $300,000, additional liability insurance may also be needed to cover higher court awards from an accident.

If you are in a type of job that requires a lot of driving, or in a high-profile position that earns you buckets more money that the average schlepp, you may also consider purchasing an umbrella or excess liability policy. These policies pay when your basic coverage is exhausted, and can cost as little as $200 to $300 per year for a million dollars in coverage. Also, if you have your homeowners and auto insurance with the same company, check out the cost of umbrella coverage with this company first, since package rates are often less expensive. Basically, once your insurance limits have been met by the injured party or entire populations of towns in some cases, they can come after your bank account, your house, your paycheck, anything to "make whole" the situation again. Umbrella policies will guard against this.

How do you stack up?OK, we have a good idea what is out there, what we need and how we might go about getting it. But what happens after you call for a quote? What happens on the other end of the phone while we are on hold listening to a nasally rendition of I Will Always Love You? Basically, how do we, as individuals, get pigeonholed into group rate coverage without us actually knowing it? How do they decide how much of a risk we are to the safety of the world? It's called the rating process, and the single greatest influence on this process is claim frequency. This does not mean how many times you have specifically made an insurance claim, although that will have an additional effect. Claim frequency measures how often an insured event occurs within a group relative to the number of policies contained in that group-and not just any group, your group. People sharing characteristics with a group of other people who have a tendency to run into things on the road frequently will be charged more for insurance coverage. You see, it isn't your irresponsibility that's costing you an arm and a leg to drive a Yugo; it's that of those around you.

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