by Carrie Lowrance
Car insurance. Everyone needs it, it’s the law. A lot of us wonder, how much do I really need? What if I have a high risk driver in the household? What is the difference between liability, comprehensive, and collision coverage?
It can get a little confusing, especially if you are a first time buyer. It’s very important to understand what coverage you have and how it works. Here are some explanations and guidelines to make things clearer.
As a young person starting out, you don’t really have much of anything. You probably have a ‘hoopty’ car with something missing or a bad paint job.
My first car was a white Mazda 323 with no radio, air conditioning or electric windows. Talk about bare bones. When you are in this situation you are commonly known as “judgement-proof.” This means that you may lose your case if someone decides to take you to court over an accident.
Why you ask? Being ‘judgement-proof” means you have no real assets to take. If you were older with some cash in the bank or an expensive piece of jewelry on your finger or around your neck, things would be different.
SHOULD I BUY MINIMUM LEVELS OF CAR INSURANCE?
In the insurance levels below, the first two numbers refer to bodily injury which is what pays the hospital bills. The first number is per person, the second number is per accident. The third number is the property damage limit, which repairs or replaces the car of anyone you hit.
*In most cases, minimum liability insurance is not enough to pay for major damages in accidents and to property. It is the absolute minimum you need to drive legally.
*50/100/50: As you get older, your net worth will rise. As it does, raise your coverage to match. What is your net worth? What you own minus your debts. Assets can include the current worth of your house, what is in your checking and savings accounts and if you have investments, the value of your stocks. Liabilities include all your debts like car payments and credit card bills.
*100/300/100: Financial experts say this is the level for the typical middle class family. These earners have a pretty adequate savings account. Moving to this level of insurance does not cost exponentially nor will it cost double what you were paying before. It may only raise your rates a few dollars a month.
*250/500/100: If you eventually own an expensive home or have saved diligently to the point of being in the millions, although you don’t think of yourself as rich, supplementing this with an umbrella policy is usually recommended. The policy should extend your protection by 1 million or more. This is relatively cheap.
Do I Need UnInsured Motorist Car Insurance?
Every state is different. You may be required to buy uninsured motorist coverage which pays your medical bills if someone hits you who is un-insured.
Under your state you may only be offered this coverage which you can turn down. However, if you decide to purchase this coverage it will be available in the same amounts as liability coverage.
You may even be required to have uninsured property damage. This covers some but not all of the damage done to your car. In most states, uninsured property damage does not cover hit and run accidents.
Check online about the required coverage in your state but sometimes if you have health insurance and collision coverage you possibly have to purchase these insurances. However, your insurance agent may advise you to keep them regardless. This is because both can minimize your financial losses due to deductibles and coverage caps.
WHAT ABOUT COMPREHENSIVE AND COLLISION?
If you are still paying on your car you are required by the bank lending you the money to have comprehensive and collision. These insure that your car will either be repaired or replaced. Remember, liability only fixes the cars of the other properties.
Like with other coverage, you need to pick a deductible for comprehensive and collision. Any damage below that amount is your responsibility. It is recommended that you keep deductibles low while still paying off a car. When you are done paying off the car, get an emergency fund built and raise your deductible to match that amount.
If you own your car outright, talk to your insurance agent about dropping these coverages. He or she can offer great advice to guide you.
What about medical payments and personal injury protection?
Check and see if you live in a no-fault state. If you do, you may be required to buy personal injury protection. This way your injuries in a collision are always covered up to your limits regardless of who’s at fault. This usually covers for lost wages also.
Medical payments are optional in most states, but check anyway. If you don’t have your own health insurance, your insurance agent will probably recommend keeping this coverage. If your health plan is high coverage however, medical payments may help pay the deductible.
As you can see, there are many aspects to car insurance. Asking the right questions and picking the right levels will have you driving worry free. There is no such thing as a dumb question regarding insurance. The last thing you want to find out after an accident is you made an accident picking your coverage.