Purchasing car insurance is about much more than finding a great rate; it’s about finding the right coverage. Often, drivers ask us, “How much car insurance is enough?” or “How do I know which types of coverage are right for me?” Our answer is always the same – it depends on an assortment of factors that are unique to each person. Ultimately, car insurance should be designed to protect the policyholder, not leave him or her vulnerable to risks. In this article, we will explore reasons by having the right types of coverage, and ample limits is an essential part of long-term financial security.
Money for Your Lost, Stolen or Damaged Car
What are the odds that your vehicle will become damaged at some point while you own or lease it? Statistics show that drivers file claims for an average of three to four accidents during their lifetimes, although some file many more than that. Of course, that’s not accounting for damages caused by non-collision events, such as weather damage, theft, vandalism, and run-ins with wildlife. Instead of spending thousands of dollars to repair your vehicle or much more to replace it, add comprehensive and collision insurance to your policy to protect against physical damages to your car.
Collision – pays to repair or replace your vehicle if it is damaged in a car accident.
Comprehensive – pays to repair or replace your vehicle when it is stolen or damaged due to non-collision events.
Do You Need Both Types of Coverage?
Since collision and comprehensive cover damages related to different types of events, you need both forms of coverage to protect your financial investment in your vehicle fully. Unless you are okay with absorbing the loss of your vehicle and buying another car out-of-pocket, we do not recommend going without this important coverage.
In many cases, drivers are actually required to purchase and maintain physical damages coverage. This is usually due to a contractual agreement between drivers and the lenders or dealers they finance or lease their cars. Collision and comprehensive assure lien-holders and lenders that their financial interest is safe.
Deductibles and Limits
When you file claims for damages to your personal vehicle, your insurer will require that you pay a deductible. This is your ‘share’ of the damages and is an amount that you personally select when purchasing your coverage. Most insurers offer a wide range of deductible options, from as little as $100 to as much as $1,000. While a high deductible might not sound like something you would want to pay, consider that they typically translate to lower insurance premiums. However, you should only choose an amount you can afford. If $1,000 is more than you could pay toward damages to your car, go with a smaller amount instead.
Unlike other types of car insurance coverage, collision and comprehensive do not have ‘limits’. The insured value is pre-determined by your insurance company and is usually based upon the actual cash value of your car. This is the amount the insurer is willing to pay toward repairing your vehicle. If the cost of damages exceeds that amount, the insurer will likely reimburse you for the ACV minus your deductible.
When You’re Responsible for Property Damages
When drivers get into collisions or run their cars off the road, they often damage other vehicles and property in the process. If you are at fault for an accident, you can be held financially responsible for any damages you cause. That is why drivers here in Missouri are required by law to carry a minimum amount of property damage liability insurance. Unfortunately, the coverage required is often far too low to cover all of the damages in an accident.
For example, if a driver backs into the bumper of a car in a parking lot, the damages might fall within the realm of minimum coverage requirements. If that same driver runs a stop sign and totals a brand new 2017 Toyota Land Cruiser, the damages could be closer to $85,000. The same could be said of damages to someone’s home or business. In those cases, $10,000 of minimum coverage just won’t cut it.
If you are underinsured for an at-fault accident, and financial liability that exceeds the limits of your coverage will transfer to you personally. Victims and their insurance companies can sue you in an attempt to recover their losses. If you lose your defense, you could be on the hook for tens of thousands of dollars out of your own pocket.
Continue reading part two of “How much car insurance is enough?”