1. Do I always need to buy insurance when I rent a car? Am I not covered by my own policy?

If you have fully insured your own vehicle, including collision and comprehensive coverage, and rent a vehicle for pleasure only (while on vacation, for example), you do not need to buy extra insurance from the rental company. In fact, in most states, your basic rental fee by law will include liability coverage for damage or injury to others. But different rules apply when you rent a car for business purposes, so check with your agent for details.

If you do not have your own insurance, be aware that many car rental liability policies cover you only at the state's required minimum. Also, you should buy the collision and comprehensive coverage offered by the rental company for your own protection. Plus, do not buy a collision damage waver (CDW) from the rental company assuming it is insurance. A CDW simply releases you from financial responsibility if you damage the vehicle you are renting, provided you comply with the terms of the rental contract. But those terms can vary considerably, and CDWs are not state-regulated, which means they are technically not insurance.

It's always a good idea to review your policy before renting a vehicle and, if necessary, contact your agent for clarification.

2. What happens when I loan my car to someone? Is that person covered by my policy? Am I still covered?

Yes. Liability and coverage for physical damage (i.e., comprehensive and collision) always follow your car. So, if a friend borrows your car and has an accident, you're still protected against the cost of damages or injuries. Plus, if the driver of your car is insured, his/her policy will also be available to cover the cost of damages and injuries.

The same rules apply when you borrow someone else's vehicle - your own insurance follows you no matter whose car you are driving. But the vehicle owner's policy is the key coverage if you have an accident.

3. What actually happens when I report an accident?

After an accident, you should call your agent as quickly as possible, to help you complete a claim form, determine what exactly happened and evaluate any damages or injuries. Your agent then will contact your insurer's claims adjuster - usually within an hour of your report - whose job is to work with you to fix the problem. While compensating you for auto repairs or medical expenses is easy and immediate, determining liability is more complicated. The adjuster will begin the settlement process, the length of which will depend on the cooperation of the other party.

The amount of compensation for your loss can vary according to the adjuster's analysis of the damage. You do not have to accept the first amount of money you are offered, if it is lower than the cost of your repair or recovery. While you may have to do some homework to prove your reported loss is valid, it's worth it to be certain your insurer lives up to the provisions of your policy.

Remember, negotiating with an adjuster is just business - insurers simply want to settle claims fairly in light of possible fraud. While it's your insurer's responsibility to root out false claims, you pay the price in the end. In fact, you spend nearly a dime on every dollar of your premium to cover the false claims of others. So, try to keep an open mind when working with your adjuster to settle on a price that's fair to both you and your insurer.

4. Why and how are policies priced for different drivers?

Drivers are grouped according to the level of risk each one poses - i.e., the amount of loss incurred by insurers within various categories of policy holders. For various reasons, drivers are categorized by:

• Sex - Men have more accidents on the road than women.
• Age - Drivers under 25 (and, for some insurers, under 30) are considered at higher risk of having an accident.
• Marital Status - Married drivers tend to have fewer accidents than single drivers.
• Personal Driving Record - Years of driving experience, accidents, speeding tickets and drunk-driving offenses are all factors in determining how much of a risk you pose as a motorist.
• How You Use Your Vehicle - If you commute by car during rush hours, you're at greater risk of having an accident than if you only drive for errands and recreation on the weekends. Drivers who use their own vehicles for business also are considered to be at greater risk.
• Type of Vehicle - The value, size, weight, age of your vehicle - even the cost of replacement parts - are essential to determining the price of your insurance. Larger, heavier vehicles are considered at lower risk than smaller, lighter ones. Plus, more expensive cars are costlier to have repaired than economy models.

The cost of your insurance policy is based on the average cost of covering actual losses, spread out over your particular "rating group" as a whole. Of course, you may never have an accident or have your vehicle stolen, and therefore will never need to be compensated. But others in your category may not be so lucky. Your premium will help to pay for their losses, just as their premiums would help to pay for yours. In other words, you are investing a little today in case you need a lot tomorrow; your investment is pooled with others, and the pool pays for your loss.

For example, if you are a 23-year-old man and you park your new sports car on a downtown street in a large city, you will likely pay more for insurance than a 37-year-old woman who parks her four-wheel-drive in the suburbs, simply because - based on average losses - you have a greater chance of having an accident or being the victim of auto theft.

5. What steps can I take to reduce my rates?

Insurers often discount their rates in order to encourage good driving practices and the use of safety and security precautions. Depending on the insurance company, you can often lower your rates from 5 to 35 percent.

Sometimes the investment you make in your vehicle is worth the discount, and sometimes it's simply worth some piece of mind. For example, the purchase of anti-lock brakes merits a discount from nearly every insurer, but the discount probably will not pay for the brakes (which cost several hundred dollars) during the normal life of your vehicle. Anti-lock brakes are touted, nonetheless, as a life-saving feature and are given serious consideration when safety is a top priority.

Insurers generally offer discounts for:

• Safety Features - Anti-lock brakes, air bags and passive restraint systems (i.e., automatic seat belts).
• Defensive Driving - Clean violation record, driver's-ed courses for teenagers and defensive driving or accident prevention courses for adults (insurance discounts for the latter are required in some states),
• Security Systems - Alarms, electronic locks and disabling devices.
• Changing Driving Habits - Commuting by public transit, using a company vehicle for work-related travel and car-pooling.
• Formal Agreements Not to Drink and Drive - The availability of a discount for signing such an agreement varies among insurers and states.
• Buying Home Owners and Auto Policies from the Same Company - If you own a home and an automobile and you are insured by two different companies, check into the cost of carrying both policies by one insurer. Your agent can give you guidance as to which insurers offer discounts.

You can also lower your insurance rates by requesting higher deductibles, which is the amount of money to pay before you make a claim. Increasing your deductibles on collision and comprehensive coverage from $100 to $250, or even $500, will bring your rates down. Moreover, you may not even need collision and comprehensive coverage if you drive an older car. Ask your agent which discounts are available to you.