We hear it all the time – how much car insurance do I really need? There are many drivers with what we like to call, ‘Goldilocks syndrome’. They do not want to spend more than necessary for car insurance, but they also do not want to come up short on coverage. So how do you get a policy that is just right? The answer can be slightly different for everyone since coverage should be customized according to each individual’s risk vulnerability and needs. In this article, we will discuss the features you should be looking for in a car insurance policy and why it is so important to have the right limits.
Your Vehicle is Damaged, Destroyed, or Stolen
If you are an average driver, you will file between three and four claims for collision-related damage during your lifetime. Of course, that doesn’t include other damages inflicted on your vehicle by non-collision events, such as wild animals, inclement weather, and vandalism. With the risk of damage so high, why go without coverage for your personal car? After all, the cost to repair a damaged vehicle can be thousands of dollars, and the cost to replace one is much more.
Collision and Comprehensive Insurance
Collision and comprehensive provide coverage of physical damages to your vehicle. If your vehicle is damaged in a car accident, you will file a claim against the collision portion of your policy. If your vehicle is stolen, vandalized, pelted with hail, or damaged when you hit a deer in the middle of the road, the claim will go against your comprehensive coverage. Together, collision and comprehensive provide complete protection for your vehicle, whereas going without one or both leaves you vulnerable to risk.
We typically recommend collision and comprehensive to all drivers who rely on their vehicles for transportation or who wish to protect the value and investment they have in their cars. If you lease or finance your car, however, you may not have much say in the matter. Many dealers and lenders require borrowers to maintain physical damages coverage as part of their financial agreement. If you have not paid for your vehicle in full, you may be subject to these terms.
Claims, Limits, and Deductibles
Filing a claim against your collision or comprehensive insurance will trigger your deductible. A deductible is the amount of money you are willing to contribute toward the cost of repairing or replacing your vehicle. Many people choose deductibles as high as $1,000, since greater out-of-pocket claim costs can result in lower insurance premiums. Others prefer lower deductibles – often around $100 or $250 – to help minimize the financial burden when filing a claim.
There are no limits to select when purchasing your collision and comprehensive coverage. Most insurers will automatically insure your car for its actual cash value (ACV), although antique and collector cars may be insured for an agreed value. If your vehicle is severely damaged with damage repair estimates that exceed your car’s ACV, it may be considered a total loss. In these cases, you will receive reimbursement for your vehicle’s actual cash value minus the cost of your deductible.
You Damage Someone Else’s Property
When you crash your car, you don’t just pay for your own vehicle – you also pay for whatever you ran into. When you cause damages to someone else’s car or property, how will you pay for repairs or replacement? Here in Minnesota, all drivers are required to carry a minimum amount of property damage liability insurance, although that coverage may not cover your entire liability. If you hit a $75,000 SUV, for example, you might have to pay tens of thousands of dollars out of pocket even after the limits on your insurance policy have been met.
Here at Pentagon Insurance, we advocate for high-limit property damage liability protection. Having adequate limits on your coverage can help protect you, your assets, and your income against expensive claims and lawsuits.
Continue to part two of “How much car insurance is enough?”
Thom Grubbs is an insurance agent and partner at Pentagon Insurance Agency in Elk River, MN. Outside of work, Thom likes to bowl, fish, spend time with his family, and volunteer at his church. Get in touch with Thom and let him make life a little easier by talking over your situation.