Does it matter if you have more than minimum coverage? When it comes to car insurance, we know you have questions about what is important and what is not. There is no one-size-fits-all policy or the perfect amount of coverage for everyone, but there are important guidelines that everyone should keep in mind when choosing coverage. In this article, we will explore the ways that car insurance protects policyholders against financial loss and learn reasons why having the right types of insurance and adequate limits are essential.
Coverage When You Damage Your Car
Your car is more than a means of transportation; it’s an investment. In recent years, the average purchase price of a new vehicle has exceeded $33,000. Whether you purchase new off the lot or prefer a used model that is “new to you,” chances are you have a lot of money wrapped up in your car. If an accident were to happen, could you afford to lose the value in your car? Would you feel comfortable purchasing a replacement vehicle or relying on alternative transportation?
For most people, going without physical damages coverage for a personal vehicle is not a good idea. In many cases, it could be a violation of a loan or lease agreement that requires a borrower to purchase and maintain coverage for physical damages. It also puts you at risk of a major financial loss if your vehicle is damaged, destroyed, or stolen. With the right insurance coverage, you can minimize your out-of-pocket costs in the event of an accident.
Two Types of Physical Damages Protection
Personal car insurance separates physical damages protection into two separate types of coverage – collision and comprehensive. Collision insurance helps pay for vehicle repairs if your car is damaged in a single or multi-car collision. Comprehensive insurance takes care of damages caused by events other than collision. Examples include theft, vandalism, fire, falling objects, and run-ins with wildlife.
Limits and Deductibles
Collision and comprehensive insurance generally do not have policy limits to choose from. Instead, most insurers will automatically insure vehicles for their actual cash value. There are sometimes exceptions for old antique vehicles and collector cars, which may be insured for an agreed value between the policyholder and the insurer.
Any claims made against your collision or comprehensive coverage will be subject to your deductible. This is the amount of money you agree to contribute toward the cost of future damage claims. You can select a deductible ranging between $100 and $1,000 depending on your insurer, your budget, and your preferences. Opting for a high deductible typically translates to lower premiums and greater upfront savings. However, you should not choose any amount beyond what you could reasonably afford to pay in the event of an accident.
Compensation for Damages to Property that isn’t Yours
It’s one thing when only your vehicle is damaged in an accident. It is another when you are at fault for a collision or other incident that results in damage to someone else’s car or property. Fortunately, your car insurance policy automatically includes property damage liability coverage since it is required by state law, but are your limits high enough?
Here in Minnesota, all drivers must have a minimum of $10,000 in coverage. While that might be enough to repair a bumper after a fender bender, it does not come close to covering the cost of replacing a brand new SUV you totaled or rebuilding the front of a house you plowed into after losing control of your car.
Let’s say you cause $75,000 in damage during an accident. Your insurance will only pay $10,000 of the bill, sticking you with a balance of $65,000. The victim’s insurance company covers the upfront cost of the damages and then sues to recover the losses. You are forced to liquidate your savings and assets, as well as make payments from your future income until the debt is satisfied.
It is situations like this that we wish to help our clients avoid. We offer personalized liability risk evaluations and can make recommendations for coverage based upon your individual needs.
Compensation for Harm You Cause Others
Drivers responsible for a car accident are not only responsible for the property damages they cause, but also for victims’ injuries. As a driver in Minnesota, you need bodily injury liability coverage to protect your income and assets against expensive lawsuits that could otherwise threaten your financial security. The law requires all drivers to carry the state-required minimum bodily injury coverage, but we here at Patriot Insurance recommend much higher limits. If your bodily injury liability limits are too low to cover your financial responsibility, your personal assets and income may become vulnerable to liquidation or garnishment.
Drivers who drink and drive, text behind the wheel, or show negligence when driving could face both compensatory and punitive damages. However, even the safest drivers may find themselves responsible for an accident. You could hydroplane during a storm, skid on black ice, blow a tire on the Interstate, or simply be in the wrong place at the wrong time. It does not matter how it happens; it only matters that it did happen and you are totally or partially at-fault.
Split Limits vs. Combined Single Limit (CSL)
When you select your bodily injury liability limits, your insurer may offer you a combined single limit (CSL) or split limits. A combined single limit is a maximum amount in thousands that the insurance company will pay toward to the total bodily injury liability damages after an accident. A 300 CSL, for example, pays up to $300,000 total damages with no individual claims limit.
Split limits pay a maximum total amount per accident, as well as a maximum amount per individual victim; this may appear on your policy as two separate numbers, such as 250/500. In this case, the first number indicates the insurance company will pay as much as $250,000 per individual injured in an accident, but no more than $500,000 in total damages for all injured parties combined.
Money to Protect You and Your Passengers against Uninsured or Underinsured Drivers
As a policy-holder, you and your passengers’ safety are of utmost importance to us here at Patriot Insurance. One of the most important steps you can take to protect yourself and your passengers is to purchase uninsured (UI) and underinsured motorist (UIM) protection. UI helps cover your injuries if an uninsured driver hits you. UIM helps fill in gaps left behind by drivers with too little bodily injury liability coverage.
As a resident of Minnesota, you also benefit from the addition of personal injury protection, or PIP. This mandatory insurance serves as the primary coverage for you and your passengers’ injuries regardless of fault in an accident.
Money to Help with the Little Things
Small expenses can quickly eat into your budget after an accident – particularly if your car is towed or you need to rent a car while your vehicle is being repaired. At Patriot Insurance, we offer a wide range of extra coverage types to enhance your car insurance policy and personalize it to meet your needs. Talk to one of our helpful team members to find out how additional coverage could minimize your financial burden and save you hundreds or even thousands after a collision or other covered event.
Beyond Car Insurance
Finally, we recommend considering the addition of supplemental liability insurance to help cover any excess that may exceed the limits of your primary coverage. In extreme cases, bodily injury and property damage claims can soar far beyond the maximum available coverage on your car insurance policy. If you hit a young doctor, for example, you could have to pay hundreds of thousands of dollars in medical bills, as well as a few million in lost future wages.
Umbrella insurance is a separate policy that works in tandem with your primary coverage. Once you exhaust the limits on your primary coverage, umbrella insurance picks up the excess with additional limits of $1 million or more. Considering its affordability and the financial hardship it could spare you and your family, we recommend contacting our office to find out if umbrella insurance could be right for you.