Henry Wells, from Springfield, Mass., was never formally introduced to New Yorker Evelyn Thomas, but their meeting on May 30, 1896, marked the exact moment the four-wheeled future collided with the two-wheeled past, literally. Thomas, on her Columbia bicycle, and Wells, in his brand-new Duryea Motor Wagon crashed during an early road race through the city. When the dust settled, Thomas, with a broken leg, was sprawled in the street next to her badly bent Columbia, while Wells sat upon his Duryea completely unscratched. Score one for burgeoning technology.

Entering the scene were several of New York's finest to scratch their heads and wonder what to do about this unprecedented turn of events. This accident was between one of those newfangled horseless things and a bicycle. What were they supposed to do? In the end, the injured Miss Thomas was taken to the hospital and Mr. Wells was dumped into the clink (both via horse, ironically). Two historic firsts were entered in the record books. Miss Thomas was the first person to be hospitalized due to a traffic accident, and Mr. Wells became the first person arrested for a traffic accident. Unfortunately, history leaves us no word as to what happened to the now priceless Duryea, and modern mentalities are left to wonder what happened to Wells' insurance rates.

The Insurance Of Yesteryear
The infancy of modern insurance, in all its countless forms, got its start nearly 1000 years ago, as the two main concerns of economic growth were fire and accidents at sea. To fight the effects of pirates, poor navigation and storms, in 1063, merchants in the trading port of Amalfi introduced what became known as the Amalfi Sea Code. Under the Code, any merchant whose ship was lost was reimbursed from a pool of money to which all members contributed.

In England, a year after the Great Fire in 1666, Dr. Nicholas Barbon, a local dentist operating under a charter granted by Charles II, opened an office to transact fire insurance in London. More accurate predictions of losses came from his office, and with these, the beginnings of precise insurance rates began to be based on actuarial tables of possibilities and predicted events.

By 1688, Edward Lloyd's famous coffee shop on Tower Street became the informal site of a thriving marine insurance center where merchants, bankers, seafarers and underwriters came together to do business. This was the basis of the insurance business as we know it. Today, of course, there are hundreds of companies offering thousands of policies to millions of people, and auto insurance specifically is the most used type of personal insurance in the world.

One Day On The Road
Consider this all-too-common scenario: You're driving your brand-new M3 home from the dealer and it collides with a Mack truck in the middle of an intersection. You bounce onto the sidewalk, over someone's front lawn and into their living room. It's your fault; you were watching the chase scene from Bullitt on your dash-mounted DVD and weren't watching the road. Classic mistake. Nobody's too seriously hurt, but the truck driver's got a sore neck and the guy in the living room will need to start looking for a new coffee table... and wall. As you clamber out of your now-shortened BMW with a not-so-bright look on your face, a bolt of lightning arcs out of the sky, hits your M3 and it bursts into flames.

It has been indeed quite the odd day.

Undaunted by the lightning or perhaps still fazed from the collision, you exchange insurance information with both parties (more than likely the fire department will show up to mop up what's left of the Bimmer) and somewhere far away, little pea-eyed office cubicle workers scurry into action. The juggernaut begins to roll. A claim is filed, an investigation has begun, and someone will have to write a check (three of them actually). The whole multitrillion-dollar process grinds into gear just to take care of little old you and your spot of bad luck. But how?

The Grand Scope Of Conventional Insurance
To cut through the cobwebs, conventional car insurance can be broken down into three basic areas of coverage: liability, collision and comprehensive. Under liability, bodily injury liability insures you against the claims of other people who are injured in an accident you caused. The six sessions of chiropractics for the truck driver is on your dime, along with whatever mental anguish the guy in the house has for having to dodge the hood of your car. In addition to the trucker's medical expenses, he could also claim lost wages, mental pain and suffering and a host of other not-so-obvious maladies for which Larry H. Parker can get him $2.2 million. Also under liability, property damage insurance pays for any damage you cause to the property of others, like the shredded fiberglass fender of the big rig and the new wall and coffee table (and the cat) for the guy in the house. It could also include damage to other property, such as city-owned sidewalks, signs-anything that you FUBARed, basically.

Liability Coverage
Liability insurance is for the benefit of the "victims" of your McQueen-like maneuver. The end goal of the insurance company is to "make whole" again the people on the business end of your BMW, meaning they want to make sure to erase any physical evidence of your amateur stunt driving.

Your insurance policy usually describes the amount of liability coverage you have as "split limits." Suppose your limits of liability coverage reads 50/100/50. In this example, $50,000 is the maximum the insurance company will pay for bodily injuries to each person in the accident. The maximum amount paid for all bodily injuries, no matter how many people are hurt in the accident, is $100,000. The maximum amount paid for damage to someone else's property in the accident is $50,000. Both levels of liability may also be shown as a single limit, e.g., $100,000 Combined Single Limit (CSL).

Many states require drivers to carry a minimum amount of liability insurance of approximately 25/50/10 (your state may vary, as California is much lower, 15/30/10). That's not a whole lot of coverage, considering how sharply medical bills can skyrocket when someone gets infamous whiplash soon after they speak to a lawyer. In addition, some states have "no-fault" laws, meaning your auto policy must pay medical bills for injuries suffered in an auto accident regardless of who caused the accident or what the outcome was.

Collision And Comprehensive Coverage
If you bought the car outright and hold the pink slip, collision and comprehensive coverage are optional, but if the bank owns any part of your car, it'll require you be fully covered for any kind of incident. Collision coverage pays for physical damage to your car as a result of an accident for which you are at fault. Essentially, collision covers human error and free-will activity, while comprehensive coverage takes care of everything else, namely, in our scenario, the lightning strike and the impending conflagration.

Collision and comprehensive coverage usually do not pay for a total loss, such as your BMW in our scenario, and companies will want a little money up front first. You will be charged a deductible every time you make a claim, an out-of-pocket initial payment before your insurance payment takes effect. This is to keep you from filing frivolous claims for nickel and dime stuff. Suppose, for example, you have a $250 deductible on your policy. On a loss of $1,000, you would pay the first $250 and your insurance company would pay the remaining $750.

Depreciation will also affect the amount you recover for the damages incurred by your car. As your car ages and its value declines, the amount you would collect for a total loss declines as well. Your insurance company reimburses you for the actual cash value of your car or the sum of its parts at the time of the loss (not when you bought it). For example, if your car was purchased for $40,000, you will get less than your original purchase price to replace it due to the car's "natural" depreciation in value, regardless if you never drove it and rubbed it daily with a diaper. In the company's eyes, it is like any other BMW on the road.

Uninsured Motorist Protection
Let's alter the M3 scenario a little: The truck hit you, the deadbeat driver doesn't have any form of insurance and the devil will be ice skating before you collect a dime for your damages. In layman's terms, you're up the creek. Lucky for you, you've got uninsured motorist protection on your policy that will pony up the cost of damages and injuries resulting from being hit by an uninsured driver or by a hit-and-run. Happy days prevail.

Specialty Car Insurance
Though some offer similar coverage to the conventional insurance polices described above, the policies of specialty insurance companies are based on "agreed value," meaning if you and your agent agree that your car is worth $16,500 and you total it in an accident, they will shell out $16,500, period. No ifs, ands or buts.

This agreed value is set using a variety of parameters: the owner's word, an appraisal, and comparable values from a Kelly Blue Book or Hemmings Motor News to name two, not to mention research into that particular car's market.

Created for the collector car and classic marques that don't see much of the light of day, specialty insurance, though vastly less expensive than a conventional policy, has a regime of restrictions that will keep your beauty parked more often than not. The majority of the companies we spoke with only allow a limited amount of miles a year (usually 2,500), and those miles must be to and from shows, parades or club-related functions such as Sunday drives and cruises. There's no showing off your car to your buddies at work, no vacations, no errands, and it certainly can't be your primary mode of transportation.

This form of insurance may help you if you own a classic Porsche, an antique Lancia or a car that is rarely seen on the road, but probably wouldn't do you any good if you're trying to cover a new Benz or an R32. Specialty car insurance companies just won't understand what is so special about a new car. There is an exception, of course. Filling the void is Hagerty Insurance, which has discovered there is a very viable market for non-standard collector cars, the third-car toys that see little of the road and more of the car-care products. Usually known for insuring cars at least 25 years old, Hagerty now offers a policy that caters to newer cars, such as your BMW, whereas other specialty insurance companies wouldn't come near people like us unless the BMW in question was made by Franz-Joseph Popp himself.

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.

We would expect things like a driving record, geographic territory, gender, age, vehicle use and type of car to affect your specific rate, but we're willing to bet you didn't see this coming: Insurance companies are black holes for personal information. Nothing escapes them thanks to the database companies that make their money by selling information about you, including, get this, your credit report.

California is one of a handful of states that doesn't allow credit checks to be used to establish annual rates, but nearly all insurance companies outside of those states use your credit score in deciding auto insurance policy premiums and to place you in a rate class (like preferred, standard or high-risk) and to decide whether or not to allow you to pay in installments. Supporters say there is a direct correlation between your score and the likelihood that you'll make a claim, but critics maintain that it permits insurers to charge higher premiums to lower income households. Nearly all say they use it for new business only, but we discovered some companies check for each renewal as well as new policies.

What the insurance industry calls "credit scores" are actually "insurance risk scores," which are to evaluate your stability. The Auto Club calls it a "soft check" when they discuss your finances with Experian, but they're just doing it to establish stability, so they say. So, if you've paid your bills in a timely manner and you've had accounts open for a long time, you would be considered more "stable" than someone who has been delinquent and opens and closes accounts frequently.

If you've managed to create a terrible driving record for yourself, you may be stuck in your state's assigned-risk pool, which is the last resort, the bottom feeders of the insurance world. In this pool, you're going to pay the highest rates going, but make sure to shop around thoroughly before you jump into the pool (it's shallow). Companies like Progressive Insurance Co. and California Mercury Casualty Co. primarily insure nonstandard drivers, meaning they insure anyone, as we discovered. Also check out Freeway Insurance and Eastwood Insurance, as they both cater to the Jerry Springer crowd.

Practical application
Having learned way too much about the auto insurance industry to maintain a healthy compatibility with ourselves, we are ready to put all of this information into some sort of contextual use. Let's find the best insurance program to meet our specific needs. Earlier, we discovered that we need insurance because it is required by law, and that we need even more insurance because it is required by the terms of our car loan, but we don't have to limit ourselves to mainstream.

Let's get out the yellow pages and make some calls to some glassy-eyed cubical workers in the insurance business. Come on, it'll be fun. The vehicle in question is the barely used 2004 BMW M3 from our scenario (minus the pyrotechnic ending, naturally). It had 8,000 miles on it when you bought it, and as a third car, you only plan to use it approximately 3,000 miles a year at the utmost. We'll not only see if we can get some regular insurance quotes from our calls, but we'll see if they offer any programs or policies that would fit you better than tacking this car onto any existing policy in your family or one of its own. Considering the value of the car (around $40K), we'll go for full coverage, so if somebody so much as looks at the car the wrong way, we want it paid for!

Throwing out the line, the first company we land on the hook is the Auto Club of America (877/222-7868) where we spoke with Robert, who handled our quote in about five minutes. The highest deductible they allow is $2000; they don't cover aftermarket equipment; and there are no allowances for specialty cars. Robert explains that if you're in a certain profession, such as a doctor, teacher or lawyer, you could get a discount (doctors and lawyers are safer drivers, so statistics show), while the rest of us get stuck with a $1,128 bill each year to cover the BMW with the barest of full coverage. We ask about liability only, and Robert, who appreciates a fine BMW, strongly advises against it, but reluctantly gives us a $324 quote for the minimum the law allows.

Now we'll go the other direction. What's the maximum amount of insurance you could get to cover this car and any type of accident it could possibly get into, with no scenario too outlandish? The limits would be a million dollars for damages, medical, etc., each, plus all of the bells and whistles. The quote is... drum roll please... $2,249. That's all. For twice the price each year, your BMW, the driver, those riding in it, the people and places around it and the very world itself is fully covered against calamity.

Next up to bat are the good people at All State (800/255-7828), who needed spousal information before processing any quote, whether you plan to let your wife drive the car or not. They hung up on me after I questioned the validity of the exclusion, and when I called back (in a huff), another person explained that since spouses are exposed to the car on a daily basis, the likelihood of them driving it is high. Similar to our quote from Progressive, it would cost more to keep her off of the policy than it would to keep her on it. End result: it would run you $1,160 to fully cover the BMW, with a surprisingly high $800 a year for liability only. All State won't cover aftermarket parts of any kind and the only discounts they offer relate to good driving and anti-theft.

One aspect we didn't want to overlook in our consideration was the specialty insurance market, so we contacted Travis at Hagerty Insurance (800/922-4050). Hagerty has a developing program that will offer coverage to more modern vehicles, such as exotics, special interest vehicles, tuners, and low-riders. With an agreed value policy, the coverage on the insured vehicle is more complete than it generally is with a standard policy. Your $40K car is actually insured as a $40K car, and the vehicle will not be depreciated in the event of a total loss. Though a collector policy may be slightly more restrictive in reference to vehicle usage-limited miles per year, driving to and from car related events, etc.- with all your parameters punched into the system, we were surprised it was so affordable (about $750 per year), especially considering it met the needs of your intended plans.

Jesus at Progressive (800/776-4737) was most helpful, but his rates blew the others out of the water ($760 for liability only and $1,818 for full coverage), and his company had an upfront disclaimer that sternly warned us they were going to probe your various orifices to learn about your potential for risk. For the first two companies, we were playing it safe. You represented a mild-mannered editor with a clean life and a nice new car. Since Progressive is known for insuring most anyone, we wanted to push the envelope and see where they start to flinch.

One DUI on your record would cost you $3,554 a year to insure the BMW; two speeding tickets would make it $3,368; and a serious accident with nearly $1,000 in bodily harm pushed it close to $4,000 a year. But what if you were a complete degenerate? How much does degeneration cost in today's America? A lot. If you caused an accident that resulted in great bodily harm while driving on a suspended license and were arrested for reckless driving, the insurance would be $5,110 a year. What shocked us more than that is that the company would still insure you. Progressive wouldn't flinch at anything we threw at them. It seems they will insure anyone, the only exception being someone convicted of insurance fraud. Duh.

21st Century Insurance was quick with their quote, and Lisa informed us they only check credit reports to decide for payment options on your premiums. They allow a professional discount and, we're happy to report that an editor is considered a professional (little do they know). Since their rates were the cheapest among our candidates ($334 for liability only and $1,420 for full coverage), we opted to change the deductible from the highest they allow ($1,000) to $500 to see how much it affected the bottom line. The lower deductible raised the annual premium to $1,730, a $310 increase.

Finally, Denise at Geico Direct (800/861-8380) offered the most discounts; we didn't qualify for them, but at least they were offered. She quoted us $820 for full coverage on the M3 and only $266.22 for liability only. Since you like to modify things beyond their normal function, it's lucky they cover aftermarket equipment up to 10% of the car's value. After that, you'll have to up your coverage.

One of the criteria for our insurance was that the car wouldn't be driven too much, thinking that the less it's driven, the less risk you'd take and the less it would cost. Instead of a 3,000-mile cap on your annual BMW adventures, we pushed it to 20,000 miles, a hefty amount of driving for anyone. Though your projected time on the road increased by more than 600%, the rates only increased 30% to $1,176.80 for full coverage and $381.80 for liability only. So, we're sacrificing 17,000 miles of M3-induced smiles, laughter and near-death experiences on the Interstate for a measly $350 savings?

Come to think of it, it just doesn't seem right to keep such a beautiful car locked away in the garage when there are roads to explore, tires to squeal and clutches to burn out.

You can draw your own conclusions from the examples above about which company is best to provide for you a sense of security. Perhaps you need more from an insurance company than you saw here, or perhaps you like to gamble with your life by not having insurance at all. And if you do, remember this: There are three million injuries and 40,000 deaths in the United States each year because of car accidents (that's one person dead every 13 minutes and 10 people injured every second of every hour, all day long).

According to the National Highway Traffic Safety Administration, 26% of all drivers (no matter what risk group they belong to) have been in an auto accident in the last five years. Auto insurance has become a necessary evil in our lives, a shield against the irresponsibility of others and the carelessness of our own actions.

Protect yourself, if not from yourself, then most certainly from everyone else on the road. They all drive like crap.

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