We don’t need to tell you how bad inflation has been, especially in the last few years. And since wages haven’t kept up, many of us are trying to figure out what bills we can lower before we mortgage the furniture to buy groceries. Maybe that’s a slight exaggeration, but the fact is that many of us are looking for ways to reduce our expenses, and the first target of that search is often the car insurance bill. Some drivers are even canceling their insurance altogether, which is not wise.
The state requires us to have at least some liability coverage. If we are paying off the car, the finance company also requires us to have collision and comprehensive insurance. The motivation may be to go with the minimum coverage needed so we can get lower monthly payments. But this may not always make the most financial sense.
The lowest premium may result in the highest deductible. We may find that we unknowingly cause an accident without enough coverage to pay for the damage caused to the other car or the other driver’s medical bills (it happens). On the other hand, we may be involved in an accident caused by another driver, but they do not have insurance. so what? Or we may have our car totaled and find out we don’t have enough coverage to pay for it. And then there are optional add-ons that can save us money when we get into trouble.
You can reduce your deductible
So you shopped around and found the lowest premium, or monthly payment, you could find. Perhaps it was for the same amount of coverage as any other plan with much higher premiums. Before patting yourself on the back for your smart shopping skills, did you check what the deductible amount is on your plan? The deductible is how much you have to pay for repairs before the insurance company will start paying. In other words, if your deductible is $2,000 and your car gets in an accident, you have to pay the first $2,000 to get it fixed, and the insurance company will pay the rest. And it would be better for you not to even think about what could happen if you collide with a very expensive car.
Unfortunately, what usually happens is that the lower the premium, the higher the deductible amount. If your deductible is so high that you can’t afford to pay it, if you ever have an accident, you could be out with a car you can’t fix, even if you’re paying to insure it. But by increasing your premium, you can significantly reduce that deductible amount. according to to insureThe most common deductible is $500. Most people could probably scrape that much together if necessary. The good news is that some companies have “disappearing” deductibles, where they deduct a little from your deductible each year you don’t file a claim.
You don’t have enough liability coverage
Times are tough, so you opted for the minimum coverage you could get and still stay legal on the road. We understand, and it’s good for you to be responsible and make sure you’re covered. However, state-mandated minimum limits on liability insurance coverage are usually not enough to cover damage to another person’s vehicle or their medical bills if you cause an accident. Take Florida, for example. Florida Bar Association The notes state that minimum coverage is $10,000 for personal injury and $10,000 for property damage liability insurance. The problem is that the average accident costs $5,000 to $60,000. If you cause $60,000 worth of damage or injury, and you only have coverage for $10,000, you’re on the hook for $50,000.
This $60,000 figure is not unrealistic, considering all the things you may have to pay if you are liable in an accident. There’s lost wages, car rental fees while the other driver is getting his car repaired, emergency room bills, ambulance bills, towing, and of course, getting the other car repaired. So, how much liability coverage should you get? Insurance Information Institute Recommends obtaining $100,000 personal injury protection per person and $300,000 per accident. forbes calls that amount of personal injury coverage “good” and the $250,000 per person/$500,000 per accident “even better.” It also recommends a similar amount for property damage coverage.
You may not be covered if you collide with someone who is uninsured
Think about all the people who only have state-mandated coverage. Now, imagine they hit you and you have a six-figure hospital bill or your car bill is full, and it costs much more than the minimum coverage. And just because the state requires insurance doesn’t mean every driver on the road has it.
Again, take Florida as an example. Although the state requires that every vehicle be insured to be registered, approximately 20% of drivers in Florida are uninsured. Florida Policy Project. When you add those irresponsible drivers to those with only state-mandated coverage, chances are very good that if you collide with another driver, they may not have enough insurance to cover you. You can sue the other driver, but if they’re so broke they’ve quit paying for insurance, collecting may be like squeezing blood out of a turnip, as the saying goes.
This is where an uninsured/underinsured policy comes in. If you are hit by such a driver, you will be covered up to your policy limits, minus whatever is covered by their insurance. What should be your coverage limit for this policy? Forbes recommends a minimum of $100,000 per person/$300,000 per accident to $250,000 per person/$500,000 per accident for both personal injury and property damage.
You could get stuck paying for the entire car
Just because you have full coverage doesn’t mean you’re completely covered. Why? First of all, “full coverage” is not actually an insurance industry term. There’s liability, which covers damage or injury you cause to others, as well as collision and comprehensive coverage, which pays if you cause damage to your car, it is stolen, or it is damaged through means beyond your control. But the thing about collision and comprehensive policies is that, at best, they only pay for the value of your car, not including your deductible. This is the problem.
Some drivers end up owing more on their car than it’s worth. This can happen in many ways. You may have chosen a longer loan term, such as 96 months, because you wanted the lowest monthly payment. The car market may fluctuate, or perhaps at the time you purchased your car, you rolled over what you still owed on your trade-in to the loan for your existing car. These scenarios could lead to the loan being in trouble. For example, at the time your car was stolen, you still owed $10,000, but the insurance company will only pay $6,000 because that’s what it was worth.
One way to avoid getting stuck paying for a car you no longer own is to get gap insurance. This type of coverage will pay whatever is left on the loan after collision or comprehensive payment.
It is worth considering some alternative riders
The law will often let you get away with going for the cheapest policy, which means opting out of the coverage you want if bad things happen. Collision and comprehensive policies aren’t required by law, but if your car hits a pole or it’s stolen, you’ll be glad you have them. Some insurance companies offer roadside assistance riders as an addition to your policy. This could be good if your car breaks down while traveling on the interstate, miles from the nearest garage.
The average tow bill costs around $100 and if you’re far enough away from the shop you can easily see a bill of over $200. As one of its complimentary benefits, Costco offers roadside assistance to some members. Another optional add-on is rental car reimbursement. If your car is in the shop for several days, you will need alternative means of transportation. Over time, rental costs can add hundreds of dollars to the cost of an accident.
We’ve talked a lot about the benefits of increased coverage here. However, you may argue that you do not need the increased coverage because you are a careful driver. But no one plans for accidents to happen, which is why they are called “accidents.” In the end, having coverage and not needing it is better than having it and not needing it.
