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 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.
Continue reading part two of “How much car insurance is enough?”