Auto Insurance
Since I wrote about my thoughts on cars last week, I thought I would write about auto insurance this week as a follow-up. Most people, even those who you might consider financially responsible, don’t look through their insurance policies to evaluate if the coverage they have is appropriate or if they’re paying too much. A lot of the time I think this may be because they find it to be too confusing and overwhelming. Do you know what coverage you have, or did you just take what the agent told you to? Hopefully, this article can give you some tips to figure out if you have the right insurance in place and/or save you some money.
If you have a car, then you need to have auto insurance. Period.
When most people think of auto insurance, they think of how to repair or replace their vehicle if they have an accident. However, his might be the least important part of an auto policy.
Auto insurance policies are made up of many different types of coverages but the four that most people are probably familiar with are liability coverage, collision insurance, comprehensive insurance, and uninsured/underinsured motorist insurance. Please keep in mind that this is not a comprehensive list of the coverages available through an auto insurance policy. This is simply a sample of the coverages that I think most people are familiar with and that I think I can help provide some context around in a brief article.
Save Some Money
First, I’ll start by giving you a tip that may be able to help you save some money, since that’s my favorite part. If your insurance is with a big company that you see advertising on TV all of the time, then you might be paying too much for insurance.
That almost sounded like something that you’d hear on one of those insurance commercials.
Not only could you be paying more than you need to, but those big companies also often end up on lists of the worst insurance companies. Using an independent insurance agent who is able to provide you with quotes from many different insurance companies may allow you to replace your current coverage with similar (sometimes better) insurance for the same (sometimes lower) price.
Why?
They’re not tied to only writing policies from one company. An independent agent is able to shop around for you to find the coverage that you need at a competitive price. Someone who works directly for an insurance company is only able to quote you policies from that company without any competition to give you better coverage and/or lower price. Just like you compare the name brand to the store brand at the grocery store (is this only me?) you should be shopping for insurance coverage. Most of the time the store brand is pretty much the same as the name brand but is cheaper.
Yeah, but I’ve been with the same agent or same company for 1,000 years.
Alright, I get it. Have an independent agent run quotes for you. If they come back cheaper than your current policy, then send it to your current insurer/agent and ask them if they’ll match it. When they say that they can’t ask the individual you’re speaking to if they’ll write you a check for the difference. If they won’t, then I don’t see why you should have an allegiance to them. I’m trying to help you make sure that you’re not paying more than you need to and to keep more of your money in your pocket.
Three other easy, but potentially less impactful ways to money on insurance (not just auto) are by paying your premiums annually instead of monthly, increasing your deductible, and getting rid of the add-ons that you don’t really need.
Liability Insurance
I think most people probably inherently think of collision coverage as the most important part of their insurance policy. However, I’d argue that liability is by far the most important coverage.
Liability insurance provides you with protection against claims of injuries or damages caused by you. There are two forms of auto insurance liability coverage: bodily injury liability coverage and property damage liability coverage. For example, imagine you cause a car accident and someone in the other car gets hurt. Liability insurance would cover legal fees, medical costs deemed to be your responsibility, and the damage to their vehicle that you caused, up to your coverage limit.
Up to your coverage limit…
A lot of people skimp on liability coverage and go with whatever’s cheap, and sometimes they only choose the state minimum, which seems like a good idea on the surface until something happens. In Indiana, the minimum amount of auto insurance liability coverage is $25,000 bodily injury per person, $50,000 bodily injury per accident, and $10,000 property damage per accident. These limits are commonly quoted like this: $25,000/$50,000/$10,000.
Those dollar amounts can be breached very quickly, leaving you to figure out how to pay once your policy has paid up to your coverage limit.
Now, imagine that you caused a car accident and you injured someone to the extent that they’re no longer able to work. What if they sue you for that injury and those years of lost earnings? Consider your own income and the number of years that you have left until retirement. Multiply those numbers. That could be extremely high if the person you injured were a high earner such as a CEO or surgeon.
Low liability coverages may save you money in the short-term but could come back to haunt you in the long-term. You need ample liability coverage in place to protect yourself from being on the hook and having to figure out how to pay for something like this if you’re in an accident and pursued to pay for the costs. Without ample liability limits in place, you’ll be responsible for covering legal costs and any payouts you’re found responsible for. Even with low liability coverages in place, you may be responsible for paying if the costs breach your limits. Think you’ll be fine because you “don’t have any money”? Your wages could be garnished to pay back any amounts that insurance and other assets couldn’t fulfill.
Many insurance companies will provide you with limits up to 250/500/250, but you can obtain additional liability coverage through an umbrella policy. While increasing your liability limits will increase your premiums, increasing your deductible will decrease your premiums. If you’re concerned with your level of auto liability coverage and want to increase it, then it may be wise to look into also increasing your deductible to see if you can receive the higher coverage without drastically increasing your premiums. A deductible increase from $500 to $1,000 isn’t that much more out-of-pocket, but could decrease your premiums significantly.
Collision Coverage
This is the coverage that pays to repair or replace your vehicle if you’re in an accident. While liability insurance pays for damages that you’re liable for to others, it won’t pay for damages to your vehicle if you’re at fault. Additionally, if someone else causes an accident that you’re in and their liability coverages aren’t high enough to pay all of the costs, then your collision insurance pays to repair or replace your vehicle.
Sometimes, it’s okay to drop your collision coverage if you drive an old beater that isn’t worth much and you have the money to replace it, but that’s a different discussion for another day.
Comprehensive Coverage
Comprehensive coverage pays for damages to your vehicle resulting from things other than an auto accident such as hail damage or when that tree limb you’ve been parking under finally falls on your car. Comprehensive coverage also pays to repair or replace your vehicle due to things such as a natural disaster or theft.
Uninsured/Underinsured Coverage
Along with liability, uninsured and underinsured coverages are the most important part of your auto insurance policy. There are many more people who drive around under- or uninsured than you think. In 2015, it was estimated that 1 in 8 motorists are uninsured. If you’re in an accident that someone without insurance causes, then uninsured motorist coverage will pay for medical expenses for you and your passengers. If you’re in an accident caused by one of those people with the low, or state minimum, liability coverages mentioned above, then the underinsured coverage that you have on your auto policy will pay. Without these coverages in place, you’d have to figure out how to come up with the money to pay for your medical bills yourself.
Depending on your policy, these coverages may not pay for damage to your vehicle.
Other Coverages & Riders
There’s a whole other world of auto insurance coverages and riders on your insurance policy that we haven’t even hit on here. A lot of the time, these are things that you don’t really even need but were tacked on by your agent “for your protection”. Take out your policy and look at everything that’s added onto it in addition to the main coverages that we covered above. How many of these things have you ever needed, or will ever need? This may be an area of your policy where you can cut some things out and save some money.
Conclusion
Having adequate liability coverage and underinsured/uninsured motorist coverages are a must to protect yourself from financial disaster. Beyond that, there are many more coverages and riders that you could add to your auto policy, but that may not be necessary or even beneficial to you. Be responsible and protect yourself by paying for the coverage that you need and cutting out the things that you don’t.
