Should You Have Uninsured Motorist Coverage?

Photo by Thomas R Machnitzki
Photo: Thomas R Machnitzki

It is mandatory to have valid car insurance at all times in every state. That being said, some statistics from the Insurance Research Council (IRC) indicate that over 14% of drivers nationally are uninsured–that means, if you’re in an accident, you have a 1 in 7 chance that the other driver isn’t insured.  That quite a risk!  Plus, these statistics vary widely from state to state, with states such as California, Alabama, and Mississippi having uninsured rates of 25% or higher, and our home state of Indiana having a higher-than-national average of 16%. Keep in mind, these statistics don’t even include underinsured drivers, which can be almost as problematic.

These rates have been on the rise since the recession, as researchers have uncovered a close correlation between the health of the economy and the number of uninsured motorists on the roads. Of course, common sense says you don’t want to be in an accident with such a driver, but the consequences depend on your state’s laws.

Tort versus No Fault

In “tort states,” such as Indiana, the motorist at fault is required to pay damages. So if you get into an accident with an uninsured or underinsured driver, and they are at fault, you could be in trouble.  If they don’t have insurance, chances are they won’t have the assets to pay your damages either. Currently, 38 states are tort states.  In these states, you should have uninsured/under-insured motorist coverage on your vehicle at all times.

In “no-fault states,” fault doesn’t matter. Each driver pays his or her own damages. That means your insurance will cover you, even if the other driver was at fault in the accident. In these states, uninsured motorist coverage–or UM/UIM as it’s called–isn’t as important. However, it can still help you in the event that you incur severe damages, and you are either unable to sue the at-fault driver (your ability to do so is somewhat limited in no-fault states), or else you can sue but the other party doesn’t have sufficient assets to pay your damages.

UM Coverage on a Financed Vehicle

There are many major lenders who require that you carry this type of insurance throughout the life of any loan you may have on your vehicle. If you let coverage lapse, some states allow lenders to acquire coverage for you, then add it to the balance of your loan. Since lenders are not required to find the least expensive coverage or even consult you about which company they use, you can have thousands of dollar added to your balance over the life of your loan.

Luckily, uninsured/under-insured motorist insurance is a fairly inexpensive addition to a standard car insurance policy.

What Does “OAC” (On Approved Credit) Mean When Financing a Car?

When obtaining a car loan, there are often varying degrees of loan rates offered. Typically the best rate is only available “OAC,” or “on approved credit.” OAC is a standard that relates directly to one’s credit score. The better one’s credit score is, the more likely one will be to secure an OAC rate.

When one goes to purchase or lease a car, the dealership will run a credit check on the customer. Whether the applicant qualifies for an OAC rate is then determined by the credit score. Typically, a good credit score will result in a lower rate while a bad credit score will result in a higher rate, but typically the lender or dealer will not disclose the actual score necessary to secure an OAC rate.

People establish credit when they get credit cards. Someone who pays their cards off and doesn’t have a negative credit history will probably have decent credit. Someone who has a lot of cards with high balances and some blemishes on their credit report will generally have a poor credit score, but that does not mean someone with bad credit cannot get a loan.

Maintaining a good credit score which translates into a good OAC rate is essential for individuals who are looking to buy or lease a car.