The importance of finding the right balance between being over and under insured in vehicle insurance cannot be overstated. Being over insured leads to unnecessary expenses for protection that one could afford, while being under insured leaves individuals vulnerable to significant financial losses. The key is to transfer the risks for potential financial hardships to a reliable vehicle insurance company and personally finance the rest. By doing so, you can ensure affordable premiums while still having highly protective coverage to safeguard your financial well-being.
Arranging automobile insurance coverage may sound an intricate task but there are a few key points to be mindful of to achieve a balanced policy purchase based on the value of your automobile, your assets, budget and risk preferences. Let’s discuss them further below.
Sufficient Liability Coverage
Almost every state requires vehicle owners to have mandatory liability insurance but its limits are often insufficient. For example, the minimum amount set could be as low as 15/30/10, which equals $15,000 for a single person, $30,000 for multiple injuries and only $10,000 for property damage. Should you be at fault for an accident with injuries and damages these limits are likely to come short to compensate for all the damages and injuries you caused.
Now if you compare that with the average settlement or court awarded figures in serious injury incidents and you get a bleak picture. Most legal experts suggest that claims could be inflated two to four times when you add pain and suffering and other legal and administrative costs. Typically severe car accidents can routinely total up to $50,000 – $100,000 of third party claims. Could you afford to pay $20,000 – $70,000 out of pocket because your basic liability car insurance limits are reached without paying for all the losses? This assessment is still modest and losses could be much more substantial.
Securing adequate liability auto insurance coverage is of utmost importance because it resembles an unfathomable pit, and the extent of potential liability claims remains uncertain and boundless.
On average, motorists are involved in 3 – 4 accidents in a lifetime. Auto accidents are the leading cause of injury in the US with 2.5 million Americans going to ER and over 200,000 victims being hospitalized annually. This may be a simple reading but it would be a problem if you were to cause a collision that resulted in harm and more. Opt for a much higher liability vehicle insurance limits than the basic. Coverage like 100/300/100 should pay for most damages, if you end up causing a traffic accident.
Uninsured Motorist Coverage
On the other side of the equation for settlements, you have the risk of Uninsured Motorists hitting your car and hospitalizing you. In the same scenario above, if you are the victim of such a driver with limited or no auto insurance you may not have any recourse if you don’t have Uninsured Motorist coverage on your policy either. The responsible person may not have any meaningful assets that may make it pointless to go after them for compensation of your losses. When you increase your own Liability limits, you can increase Uninsured Motorist limits by the same amount too, providing you have it.
Around twenty states currently mandate Uninsured Motorist Coverage as part of the minimum requirements. Otherwise, this coverage is optional but worth adding to your policy in most cases.
Optional Collision and Comprehensive Coverage
It is important to know that liability car insurance coverage compensates only third parties assuming you are responsible for the losses. If that is all you have, you are left unprotected for your damages and injuries. That is why you need to consider adding the following optional covers on your automobile insurance to ensure you are not left high and dry.
First you should consider having Collision Coverage to protect the value of your own vehicle, especially if it is less than 8 years old. To pay for repairs or replace a vehicle totaled in a crash can be an expensive proposition, especially when the prices have been steadily increasing. Collision coverage protects your vehicle in case of collisions, no matter who was at fault.
While you are looking into your own losses, it is always wise to add Comprehensive Coverage as well. It pays for damages to your automobile from fire, theft, flood, storm and other mishaps like trees falling onto it. Liability, Collision and Comprehensive are the three essential components of a standard full coverage auto insurance.
Nevertheless, if you have an older car that has lost most of its value, you may decide to save your money since Collision and Comprehensive coverage can be expensive, depending on your risk profile and the state you live in. Especially, if you have enough savings to pay for repairs and replacements, it may be a prudent decision to assume the risks of your vehicle suffering any damages and save the premium.
Increasing deductibles is another way of reducing your car insurance premiums. If you clearly need Collision and Comprehensive coverage but the quotes are coming well over your budget, you may need to consider increasing deductibles to find a balance between affordability and protective coverage. Just make sure that you don’t overdo it by increasing deductibles to a level you would struggle to pay in case of a claim.
Personal Injury Protection or Medical Payments may pay for your and your passengers injuries in an accident, regardless of fault. These options may be very helpful for motorists who don’t have health insurance. But if you have a good health insurance plan, you may want to consider the costs of adding PIP on your policy and you may decide based on costs to add it on to your policy or leave it out.
No fault states and few others require a minimum Personal Injury Protection or Medical Payment as part of minimum coverage required.
Optional Add-ons
If your automobile is damaged and requires insurance paid repair, can you go without a vehicle for several weeks? If you desperately need a vehicle for the commute, you may need to consider adding Rental Car Reimbursement on your automobile insurance coverage. Usually, it is not an expensive add on but you should check the price and decide if it is worth the money. You may not need this coverage if you have good public transport networks in your city or you have access to another vehicle or you can rely on getting a ride from family and friends in worst case scenarios.
Especially if you have an older and less reliable vehicle, you may want to consider adding Roadside Assistance coverage to your policy. Depending on the company, this coverage can be fairly cheap and much cheaper than having a separate Recovery Services membership.
Typically, you may need to have Collision and Comprehensive coverage on your policy before you can add Rental Car Reimbursement, Roadside Assistance and other add ons to your policy.
Certainly, lacking the appropriate policy could leave you liable for substantial damage payments, potentially reaching tens of thousands of dollars. Attempting to save a few dollars each month on car insurance might seem prudent at first, but it can turn into a “penny-wise and pound-foolish” blunder. Similarly, unnecessarily spending thousands of dollars over the years to cover risks that pose no significant disruption to your budget and may never even materialize is imprudent. This is precisely why policyholders must dedicate time to review their automobile insurance coverage and strike the right balance.
Factors Affecting Vehicle Insurance Premiums
Your risk profile and factors affecting your rates play a significant role in decision making. For example, if you live in a state with low premiums it may be an easier decision to add Collision and Comprehensive coverage to your policy because you can still afford the premiums comfortably. On the other hand, if you are a high risk driver who pays twice or even three times higher rates than an average driver, you cannot add coverage on your policy easily. So, It is essential to know what affects the cost of your car insurance coverage. Insurers consider several key factors when calculating premiums:
- Driver profile: Your age, driving experience, and driving history, including any previous accidents or traffic violations, play a significant role in determining your auto insurance premium. If you have a history of accidents or traffic tickets, you might be considered a higher-risk driver and may face higher rates that make it harder for you to choose your coverage freely without the heavy financial implications due to high premiums. In such cases, you may need to look for solutions like usage-based auto insurance or strategies like buying an older automobile and going for liability only coverage.
- Car type: The make and model of your vehicle also impact your insurance premiums. Generally, the more expensive the car, the higher the premium, as expensive cars often cost more to repair and replace. Additionally, high-performance vehicles tend to have higher insurance rates due to the increased risk associated with owning a faster car. If you have a good driving record, high credit score and you are over the age of 25, you may still find affordable vehicle insurance coverage even with a car that is usually slightly more expensive to insure. But the costs can be detrimental when you have a combination of a risky car and other risk elements on your details like a teenage driver on your policy. In extreme cases, you may even have to either replace the car or give up some valuable coverage to achieve affordable vehicle insurance costs.
- Credit history: In many states, insurers can factor in your credit score when determining your insurance rates. They argue that credit history is a good indicator of the likelihood of making claims. Again, if you have a great credit score, you have much more freedom to choose your car insurance coverage since you can get low rates that make it more affordable. If you have a poor credit score, you may consider usage-base or pay-per-mile policies because those programs reduce the weight of credit score in premium calculations since they are heavily reliant on the driving patterns and/or mileage monitored through telematics.
- Local factors: Local weather patterns, traffic conditions, and the likelihood of accidents in your area can also influence your auto insurance rates. Also state regulations affect the premiums. Average premiums are fairly affordable in some states while the others can have high rates that can make it harder for motorists to even afford the basic liability coverage let alone considering other coverage options.
Look for Discounts
When you and your car are considered low-risk and you have a good credit score, not only can you get discounts but also low rates. Otherwise, you may need to look for other discounts that have nothing to do with your risk profile, like full-payment, online and advance purchase discounts.
The Importance of Shopping Around
When it comes to car insurance, not all policies are created equal. Rates, coverage options, and customer service can vary significantly between insurance companies. Most experts recommend shopping around at least once a year to get the best deal possible. Get a few quotes and consider your options. Always remember to compare coverage on offer as well. Even though you asked for the same coverage, some companies may offer higher liability coverage limits and lower deductibles.
The Significance of Choosing a Top-Rated Insurer
While cost is a critical factor when choosing car insurance, it’s not the only one to consider. Opting for a top-rated insurer that offers not only competitive premiums but also fair and fast claim settlements, exceptional customer service, thorough policy reviews, and proactive help and advice can make a significant difference in your insurance experience.
While shopping for auto insurance might seem like a daunting task, it is well worth the effort. By understanding the factors that influence premiums, regularly comparing policies, and selecting a top-rated insurer that provides comprehensive coverage and excellent customer service, you can arrange cost-effective and protective vehicle insurance coverage tailored to your needs.
Considering Life Changes
Life changes, such as marriage, adding a teen driver to your policy, changing your daily commute, or acquiring a new vehicle, can impact your insurance rates. It’s essential to ask your insurer about the cost implications of these changes and compare rates from different carriers to find the best option each time you go through such changes.