Costs of owning a car

The costs of owning a car can be broken down into two categories ­ variable and fixed. Variable costs included fuel, oil, maintenance and tires, and are directly related to the number and type of miles driven. The cost of repairs is also included in this category.

Fixed costs include insurance, license and registration, taxes and depreciation. Though these may vary from car to car or place to place, these costs are established by business conditions beyond control of the car owner and have less to do with how or when the car is driven.

Variable costs
See Figure 13

Fuel and Oil -- The best way to determine your fuel and oil operating costs is to develop your own figures. As an example, see the accompanying table.

Oil consumption, though not a major expense also varies, and it should be figured in the same way. Remember to add the cost of every oil change. For example, a typical motorist may have the oil changed every 6,000 miles, less often if his car is a recent model. One or two quarts of oil may be added between changes. Simply add what you spend on oil during the year, divide the total by the number of miles driven, and add this amount to your variable costs. Generally, the cost of oil represents approximately 3% of the cost per mile for gasoline.

While the most accurate figures are obtained by keeping a record each time you buy gas or oil, it may be sufficient to make the test several times during the year.

Maintenance -- Expenses for tune-ups, maintenance, and service items depend largely on the age of the car. The newer it is, the smaller these expenses probably will be. However, even a car under warranty requires regular checkups and service. Money "saved" by neglecting needed service and repairs will usually show up in the form of increased depreciation. This can be prevented by following a regular maintenance schedule.

The only way to determine accurately the cost of maintenance is to keep a record of all expenditures. It's a good idea to keep a small notebook in the glove compartment for this purpose.

Tires -- If the car is driven with reasonable care and the wheels are kept properly aligned, tire wear will be kept to a minimum. On the other hand, over or under inflation, high speeds, hard cornering, rapid acceleration, and quick stops all contribute to fast tire wear and increased costs of car operation.

Fixed costs
See Figure 14

Insurance -- There is nothing uniform about insurance premiums. The costs depend on the amount of coverage, where you live, and the purpose for which the car is used. To determine insurance costs, simply add the premiums of all policies you carry that are directly related to car operation, such as property damage and liability, comprehensive and collision.

License, registration fees and taxes -- These payments are usually due once a year. No two states use exactly the same schedules. Determine what you spend for license and registration and add the total to your fixed costs. Taxes, such as property or use taxes, should be treated in the same way. Sales or excise taxes, which are paid only when the car is bought, should be considered a part of the total purchase price and not included in calculating annual operating costs.

Depreciation -- Depreciation is the largest single expense in owning a car. It is the difference between what you paid for it and what you would get in a trade-in or resale. Depreciation also is the most difficult cost to determine. cars depreciate at different rates, depending on their appearance, mileage on the odometer, and the demand for your particular model at the time you want to dispose of it.

Due to economic conditions and fuel availability, the depreciation of specific makes and models will vary considerably. One figure the average motorist might use to estimate depreciation is the difference between the current market price of his used One figure the average motorist car and the price of a comparable might use to estimate depreciation is the difference between the current market price of a comparable new one with the same optional equipment.

Insurance
See Figure 15

There are nearly 132 million motorists driving over 90 million insured cars on the nation's highways. Millions of other cars are not insured simply because owners cannot afford it.

car insurance is a $15 billion business that is essentially a game of chance. Insurance companies collect premiums from the people they insure, betting on the chance that they will not have to pay off for bodily injury or property damage claims. It's a risky business with a small profit margin (less than 5%) and the cost that you pay (your premium) is determined by the degree of risk.

Figure 15 Every car driven on the road should be insured for financial security.

How your rate is determined

The business of insuring cars is based on statistics and probabilities. There are seven factors taken into consideration by an insurer.

Geographic environment -- Rates are based on the geographic area in which you live. Statistics have shown that most accidents occur within 25 miles of your residence. No matter where an insured person has an accident, if he is at fault or if a claim is paid, it is statistically recorded in the area in which he resides. The territories are rated high or low depending on the experience of the company with drivers living in the territory. If your territory has a high accident record, high medical costs, or high repair costs, your insurance will probably cost more.

Who uses the car -- The age of the persons driving the car will affect the amount of the premium. Drivers under the age of 24 are involved in 25% of all accidents and are therefore higher risks. The statistics also reveal that male drivers are involved in accidents more than female drivers are and that married males under 30 and married females under 25 are less likely to be involved in an accident than their single counterparts.

How the car is used -- You will usually be charged a higher premium if you drive your car more than 10 miles to work, less if it is used for pleasure purposes only. cars not driven to and from work are usually subject to lower premiums.

Driving record -- Statistics prove that the drivers who have had accidents previously or who have been convicted of serious traffic violations are more likely to be involved in an accident than drivers with clean records. Many companies surcharge traffic violations and "at-fault" accidents within the last three years.

Type of car -- The make, model and engine size are prime rate-determining factors. Studies by the Insurance Institute for Highway Safety show that:

• Within each size group, 2-door models have more injury claims than 4-door models.
• Sports and specialty cars have the highest injury claims.
• Subcompacts have the highest percentage of collision claims. Among cars of the same size, sports and specialty models have larger collision claims than other models, and 2-door models frequently have larger claims than 4-door models.

Cost of each claim -- car repair charges, hospital bills, and financial awards vary greatly from area to area. Inflation in the costs of body parts, hospital costs, and repair costs, result in higher premiums.

Discounts -- Most companies will offer discounts to young drivers who have successfully completed a driver education course, owners of compact cars, and families with more than one car (on the theory that each car is driven less).

Types of car insurance

Car insurance protects you against three kinds of risks:

1. In case someone is hurt in a car accident in which you are involved (liability).
2. In case, you destroy someone else's property (property damage).
3. In case your car is stolen or damaged (collision or comprehensive).

Liability insurance

Until 1970, insurance policies protected you; in the event, someone was hurt in an accident through "bodily injury" liability and "medical payments" insurance. If the accident was judged your fault, the bodily injury portion of your policy covered the medical payments of those you injured. Your medical payments insurance covered the medical bills of yourself and any passengers in your car. If the accident was the other person's fault, you collected from his insurance policy under the same arrangement. This system is known as "fault-based," since it involves a question of who was at fault and often resulted in interminable court cases.

Since 1971, 26 states have adopted what has come to be known as "no-fault" insurance. This means that anyone involved in an accident submits claims to, and collects from, their own insurance company, regardless of who is at fault. On the surface, this seems a smooth and equitable way of handling things. However, there is a hitch. In some states, under certain circumstances, even if you are covered under a no-fault policy, persons who are badly injured in accidents can take you to court and sue for additional amounts. In order to sue, damages must exceed a "threshold" amount, which varies from state to state, but it can be as low as $400.

For maximum protection, although you may have no-fault, you need "Bodily Injury Liability."

Property Damage Insurance

As the name implies, this part of the policy covers damages caused to other people's property by your car. It usually covers you if you are driving your own car, someone else's car (with his or her permission), or if someone else is driving your car with your permission.

Comprehensive and Collision Insurance

Comprehensive insurance covers damage to your car that results from anything other than a collision. Collision insurance pays the bills if your car is damaged in an accident with another car or if you damage your car, backing into a telephone pole for example.

Both Comprehensive and Collision are sold on a deductible basis. This means that for any claim that you submit, you must pay the deductible amount yourself, before the insurance takes over.

Reading the fine print

Most auto insurance policies follow a regular form, with each part setting down specific information and conditions.

Declarations -- Includes information about the person taking out the policy, the amount of the policy, the kind of coverage, cost, the date and time coverage begins and the date the policy expires.

Insuring agreements -- States what the policy will cover.

Exclusions  -- states what the policy will not pay for, sometimes referred to as the "fine print." Some typical exclusions are:

• Intentional damage to your own automobile.
• Damages caused when your automobile is being used as a public or delivery car unless the declarations portion of your policy states that it will be used for this purpose. LI>Damages caused while your automobile is being driven by employees of a garage, parking lot or auto sales agency.

Conditions give the policy rules and your duties in case of a loss, such as:

• Report a loss to the company as soon as possible.
• Use reasonable care to prevent further damage to your car.
• Cooperate with the company in settling claims.
• File proper proof of loss.
• Forward all documents concerning suits under your policy to your company.

Endorsements cover changes which must be made in your insurance policy. When this happens, changes are typed on a form called an endorsement, signed by a company official, and attached to your policy.

Typical coverage

Some of the typical coverage afforded by insurance is described below.

Liability covers damages that are the result of negligence on your part. $l0,000/$20,000/ $5,000 means that if you have an accident that is your fault, you are covered for $10,000 for any one person you injure, $20,000 for more than one person, and $5,000 for property damage. Bodily injury liability is the $10,000/$20,000 portion of the policy. Property damage liability is the $5,000 portion of the 10/20/5.

You may decide that you need more than just the basic amounts of liability insurance, and higher limits are available. Higher liability coverage will protect you from losing any assets you may have, such as savings accounts or property, should you lose a lawsuit and the person you injured is awarded a sum higher than that covered by no fault.

Personal injury protection or PIP (known as "no-fault") pays for reasonable medical expense and loss of income or earning capacity. PIP is usually available with deductibles, and your premiums will be lower if you choose one of these deductibles.

Physical damage coverage includes those coverage available to a car owner for damages to his car, such as comprehensive, collision, fire, lightning, combined additional coverage, theft, towing, and labor costs.

Collision coverage protects you from losses when your own car is damaged in an accident. Carrying collision insurance is usually voluntary. However, you will be required to reject it in writing.

Basic property protection is a less expensive form of collision that pays for full damages to your car if an accident is not your fault. Broad form collision is full collision coverage. It pays for all damages to your car if an accident is not your fault and for damages above, a deductible if the accident is your fault.

Comprehensive coverage protects your car from losses other than those caused by collision. Common losses such as fire, theft, windstorm, hail, flood, vandalism and glass breakage, malicious mischief, or riot are covered under comprehensive.

Fire, theft, and combined additional coverage is an alternative to comprehensive coverage and usually covers the same as comprehensive except for glass breakage. It applies to "named perils" which are specifically listed in your insurance policy.

Towing and labor costs pays a stated amount for towing and labor costs in an emergency.

Medical payments insurance pays for medical, surgical, or dental expenses. It will pay up to the limits you have chosen regardless of fault.

Uninsured motorist coverage pays if you are hit by an uninsured motorist and your loss of income and medical bills are more than the $5,000 paid under the personal injury protection portion of your no-fault policy.

Your car insurance shopping should include a scrutiny of all discounts and rate structures available.

Shaving insurance costs
See Figure 16

Auto insurance rates take a big bite of the family budget, especially when young drivers are involved. Here are a few suggestions on how to save money on your policy.

First, you might consider buying collision and comprehensive coverage with higher deductibles. Collision coverage can be reduced about 17% when the deductible is changed from $100-$200. Going from $50-$100, deductible for comprehensive could work out to a 20% saving. Carefully evaluate the need for collision and the amount of deductible, but don't skimp on bodily injury or property damage liability.

Another possibility is to drop collision insurance entirely on an older car, because regardless of how much coverage you carry, the insurance company will pay only up to the car's "book value." For example, if your car requires $1,000 in repairs but its book value is only $500, the insurance company is required only to pay $500.

Investigate special discounts offered by some companies in some states. They may be available for young drivers who have successfully completed driver education courses. There also are special discounts for those with good driving records, for college students attending a school more than 100 miles from home, for women over 30, and for families with two or more cars.

The lowest premium should not be your only goal. You should consider that you want to get the satisfaction you're entitled to when you make a claim and that your claims will neither increase your premium in the future nor be grounds for canceling your policy.

If you stay with your present company and have an accident, your company will consider your previous record. If you are getting good service from your present company, making a switch may not be to your advantage in the end.

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