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 so you can increase your Liability protection 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 so even a minor incident will fully exhaust them. They will be used up pretty quickly that insurers will have to charge enough for this frontline exposure. However, there is a high chance most claims will not be higher than the basic already covered.
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 rates are 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 a 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.
Secondly, 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.
Furthermore, the number of automobile insurers who 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 is why most companies don’t feel like it is a worthy investment to go after such a 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 car insurance cost and protection it offers. The results can be eye opening in most cases.
Why You Need Larger Third-Party Coverage
Motorists may ask why they would need more when statistically they have a less of a chance of ever needing it. Fundamentally, you buy vehicle insurance not because you expect something financially ruining happening but on the off chance that it may happen on one unlucky day.
You know exactly how much you can lose when it comes to insuring your own auto. However, nobody can predict the size of a possible Liability claim. You need to always think about the worst-case scenarios when buying a policy. And it doesn’t have to be a multi-vehicle collision on the highway. A simple mistake can lead to large financial losses as well.
For example, a motorist tried to pass the railway crossing before the barriers went down but failed and clipped it, raising alarms on this busy line. As a result of a simple mistake during the rush hour traffic, hundreds of trains were cancelled. The train company calculated all the losses they suffered and all the penalties they have to pay for delayed trains and came up with a rather large bill for his insurance company.
People work all their lives to accumulate just enough wealth so that they can have a comfortable life when they retire. In a scenario above, all your savings and even your home would be on the line if you don’t have the Liability insurance to cover for such a damage. A big train company wouldn’t let it go until they exhaust every avenue to get their money.