It is no surprise that you need to spend a lot of money when you want to buy state required minimum automobile insurance. But anything above can be purchased at next to nothing prices that you can increase your liability defence against third party claims substantially by spending only slightly more dollars. There are two main reasons for this.
First of all, the limits set are pretty low that even a minor incident will result in fully exhausting them. So, they will be used up pretty quickly that underwriters will have to take this front line exposure into account. However, there is a high chance that most claims will not be higher than the basic covered already with them.
The basic state required limits are like soldiers on the front line. They are definitely exposed but the soldiers behind them may have a much better chance of escaping uninjured. This substantial change in degree of risks is the essence of why additional liability vehicle insurance is much cheaper than the basic required.
What most people don’t know is that coverage and rates are not directly correlated. In fact, they can be considered negatively correlated in that when the coverage goes up the rate applied goes down. In simple English, the more you buy the cheaper it gets.
The logic behind it is very simple. When you have the minimum required of say $50,000 this policy would pay under most circumstances if a claim were made. Anything above this amount has a very little chance of paying because the damages must be over $50,000 for the additional coverage to be useful.
The fact is that there are many claims under $50,000 but only few that are above this amount. So, the risks of car insurance company having to settle bigger claims than $50,000 is low and therefore the premiums are cheap. This logic is widely used among underwriters. That is why you may be able to get a lot more coverage if you could stretch the budget just a little bit further.
The second reason is that underwriters don’t have to push basic liability auto insurance hard because everyone has to buy at least this much. They need to concentrate on making extra amounts attractive for motorists if they want to sell more. That is why you can purchase sufficient liability car insurance if you could increase the budget only few dollars a month.
Furthermore, the number of companies that are willing to sell only the minimum is limited because most of them consider people looking for a bare-bone plan to be high risk due to their financial position. They are statistically likely to drop out or switch just after one term that most of them don’t feel like it is a worthy investment to go after such market segment. This reduces competition and that results in expensive prices.
Hopefully, this highlights the need to get several quotes and experiment with different levels until you find a good balance between cost and protection. Also, try increasing deductibles and see the difference in price. It will be eye opening in most cases.