How much car insurance do you need? If you’ve ever shopped for coverage, you’ve probably asked yourself that exact question. The answer, however, is not as cut and dry as you might think. Insurance is all about shielding your assets and future income against financial damages. With so many different ways you could experience a loss, it is important that you have the right types of coverage, as well as the right limits. In this article, we are diving deep into the types of car insurance coverage and reasons you need ample limits.
Damages to Your Vehicle
Statistically speaking, it is bound to happen sometime. Whether you hit a tree, collide with another vehicle, or suffer weather-related damage, you will probably need to file a claim for repair or replacement of your vehicle. There are only two types of car insurance that cover physical damages to your vehicle – collision and comprehensive. While they both help ensure your vehicle will be repaired if it is damaged, they cover very different types of events.
Collision vs. Comprehensive
There is no need to choose between collision and comprehensive insurance since most drivers need them both. Collision coverage is the part of your insurance policy that pays for repairs to your vehicle after a car accident. The damage must come from a collision-related event, whether with another vehicle, a tree, a curb, or some other object. Comprehensive takes care of damages caused by events other than collisions, such as damaged caused by inclement weather, vandalism, or run-ins with wildlife. It can even cover the cost of replacing your vehicle if it is stolen.
You need only to choose a deductible, which will be the amount you contribute out of pocket toward the cost of a claim. Deductibles come in many sizes from as little as $100-$250 all the way up to $1,000 or more. The bigger your deductible, the lower your premium. However, we never recommend selecting a deductible that is more than you can comfortably afford after a claim.
There are no limits to choose from since insurers pre-determine your coverage based on your vehicle’s valuation. If your vehicle is ‘totaled,’ the insurance company provides compensation for your loss based on your vehicle’s actual cash value. If you happen to have an antique car or collector’s model, your vehicle may instead be insured based on an agreed value.
Do You Need Physical Damages Coverage?
For most people, collision and comprehensive insurance makes sense. For some, it may even be mandatory. After all, lenders who lease vehicles or loan money to finance vehicles typically require borrowers to purchase physical damages coverage. Even if you are not required to purchase coverage for your car, however, you should still consider adding this important protection to your policy.
Besides your home, your vehicle is likely to be one of the biggest purchases you’ll make. Repairing it can cost thousands of dollars, but replacing it could cost much more. Could you afford to be suddenly without transportation? Would you be able to purchase a new vehicle without affecting your budget or financial future?
Damages to Other People’s Property
You feel a jolt and hear that dreaded crunching sound. You just ran a stop sign and plowed right into the side of a brand new Lexus SUV. The vehicle is destroyed and will need to be replaced to the tune of $55,000. You know you have property damage coverage, but how much? Is it enough to cover the bill, or will you be forced to dip into your savings and income to pay for the damage?
This is the story many drivers face every day. They find out their property damage liability falls short of what they need to cover their financial responsibility for property damage in an accident. The State of Arizona requires all drivers to carry a minimum amount of property damage liability coverage, but it barely scratches the surface of what it would cost to replace a brand new vehicle, much less a luxury vehicle. Sure, the victim’s insurance company may pay for the initial repairs or vehicle replacement, but it is also likely to sue you for recovery of those damages.
Money for Harm You Cause Others
Your liability in a car accident can go far beyond damages to other people’s vehicles and property. If someone is injured – whether another driver or a pedestrian – you may be responsible for medical bills and other expenses, such as rehabilitative care and lost wages. From texting and driving to tire blowouts and weather-related collisions, it does not matter how the accident happens – only that it did and that you were completely or partially at-fault. Bodily injury liability insurance helps protect you and your assets against financially devastating lawsuits and liabilities caused by bodily injuries in a car accident.
Bodily Injury Liability Coverage Options
Insurers offer bodily injury liability protection in one of two different ways – split limits and combined single limits. Split limits are listed in your policy as two different numbers delineated by a forward slash (i.e. 100/300 or 250/500). The first number in the sequence is the amount of coverage in thousands that the insurer will provide per person in an accident. The second number in the sequence is the amount of total coverage in thousands the insurer will cover per accident. Combined single limits are a little more straightforward. It is typically listed as one number (i.e. 300 CSL). This number indicates the total amount of bodily injury liability the insurer will cover in thousands for an accident with no per-person limitations.
State law requires drivers to carry a minimum amount of bodily injury liability coverage. Here in Arizona, the minimum required limits are 15/30. Going without it could result in fines and penalties, but simply having the minimum bodily injury liability protection is still not enough to reduce your risk vulnerability. In the case of liability protection, having high enough limits is essential. Otherwise, you could be financially ruined for life.
How Much Could You Be Sued For?
Awards for bodily injury liability vary by circumstance and typically consist of both compensatory and punitive damages. Compensatory damages may include medical bills, future medical bills, lost income, and even emotional distress. Depending on the person you injure and the extent of the injuries sustained, those costs could easily total hundreds of thousands or even millions of dollars. Add in the punitive damages a jury may impose as punishment for gross negligence, such as for drinking or texting while driving, and it is easy to see why having the right coverage limits is so important. If you are underinsured, you could lose all of your savings and face a lifetime of wage garnishment until you satisfy the judgment.
Money to Protect You and Your Passengers against Uninsured or Underinsured Drivers
If a court awards money to you for harm sustained by you and your passengers in an accident, the at-fault driver and his or her insurance are required to pay. If that driver does not have the means to pay – whether due to having too little coverage or no coverage at all – your uninsured motorist (UI) or underinsured motorist (UIM) protection can pick up the slack. UI is coverage for your personal losses when the at-fault party has no insurance at all. UIM takes care of the shortfall when an at-fault driver does not have high enough insurance limits to cover your losses. Because it is guaranteeing financial coverage for any injuries you and your passengers sustain in an accident, it’s easy to see why this is perhaps the most important coverage on your car insurance policy.
Money to Help with the Smaller Things
Accident-related expenses can add up quickly and go beyond the cost of injuries, property damages, and liability. What will your health insurance deductible cost you out-of-pocket? How much will it cost to have your car towed after an accident? What will it cost to find temporary transportation until your damaged vehicle is repaired or replaced? Fortunately, car insurance policies can be custom-tailored to take care of even the ‘small things’ that can add up to major expenses. From towing and rental car coverage to medical payments insurance that can help with medical bills regardless of who is at-fault, there are several coverages available to minimize the financial burden of an accident.
Beyond Car Insurance
There are some extreme cases when even the highest limits of available liability coverage are not enough. For example, if you cause an accident that paralyzes a young physician, you could be responsible for $500,000 in medical bills, several million dollars in lost future income, and compensation for emotional distress. In this case, even high-limit liability coverage would barely cover the medical bills, leaving millions in damages still to be paid out-of-pocket. In this type of situation, an umbrella policy could offer extended liability protection of $1 million or more. We recommend that all of our clients strongly consider an umbrella policy given its very affordable price and the value of the coverage.
Here at Smart Move Insurance, we help Phoenix area drivers determine exactly how much property damage liability protection they need to protect their assets, savings, and future income against lawsuits.
