How To Choose The Right Car Insurance
What type of car insurance should I have?
One of the keys to protecting your family’s financial security is to choose the right car insurance.
Not choosing the right car insurance can easily cost you thousands of dollars in avoidable costs. Most of us choose whatever car insurance the person on the other end recommends.
As well-intentioned as auto insurance representatives, no one will care as much about your family’s financial security as you do.
You have to take control of your family’s financial life by reviewing your car insurance so you can make the most informed decision.
CHOOSING THE RIGHT CAR INSURANCE FOR YOUR FAMILY INVOLVES REVIEWING:
Auto Liability Coverage
Comprehensive & Collision Coverage
Other Car Insurance Options
Selecting The Right Car Insurance Deductible
AUTO LIABILITY INSURANCE
What is auto liability insurance?
Auto liability insurance is what your auto insurance provider pays to the other person if YOU caused the accident. Nothing goes to you.
Your state probably has minimum liability insurance requirements
You should have at least your state’s minimum. Minimum coverage varies by state. To help you understand how auto liability coverage works, I'll use my home state, Georgia, minimum insurance coverage, 25/50/25, as an example.
What do the auto liability numbers mean?
The numbers mean the following:
Bodily Injury Per Person:
This is the maximum your insurance provider will pay each person you insure. For my home state Georgia, the state minimum is 25, which is $25,000. If you only have Georgia's minimum coverage, that means your insurance company will only pay a maximum of $25,000 for bodily injury, meaning you may be responsible for paying any amount over $25,000.
Bodily Injury Per Incident:
Your insurance provider will pay the total amount for all people injured in an accident you caused. In my example, using my home state, the minimum coverage is 50, which is $50,000. If the total injuries are more than $50,000, you may be responsible for paying over $50,000.
Property Damage Liability:
Total amount your insurer will pay for property damage.
With a new car costing averaging about $40,000, if your property damage coverage is too low, you’re one fender bender with an expensive car away from having to pay thousands of dollars in avoidable out-of-pocket expenses.
Auto Liability Coverage Guidance Amount
For most middle-class families, a rule of thumb for coverage is 100/300/100 in auto liability insurance coverage. If unsure, contact your auto insurance carrier representative for help.
COMPREHENSIVE AND COLLISION COVERAGE
Unlike liability insurance, which only pays the injured party, comprehensive and collision coverage pays you. The following breaks down both types of coverage:
What is Comprehensive coverage?
Your insurance company pays you a certain amount of money for non-collision damages. This typically covers the following:
Falling Objects
Fire
Broken Windshield
Contact with an animal
Natural Disasters
What is Collision Coverage?
This type of insurance pays you for vehicle repairs due when you're hit by another vehicle or object. A few examples:
Hit by another car, whether it's your fault or not
Your crash into a fence or tree
Who should consider Comprehensive and Collision Coverage:
Your car is less than ten years old or
You cannot afford to replace your car or repair collision damage
Your car holds its value well
In most cases, it’s mandatory if you have a car loan.
Who should consider skipping Comprehensive and Collision Coverage:
Your annual premium is more than 10% of your car value
Your car is worth less than your deductible
You have enough saved to replace or repair your vehicle.
Bottom Line
As long as you’ll be financially OK if you had to replace or repair your vehicle, then dropping coverage is a consideration.
OTHER TYPES OF AUTO INSURANCE TO CONSIDER
Uninsured Motorist Insurance
Uninsured/underinsured motorist insurance (UM) covers you if the accident was the other driver’s fault and the driver fled the accident, did not have any insurance, or did not have enough insurance.
Medical Payment Coverage (MedPay)
It covers you, your family, passengers, and even pedestrians’ medical costs regardless of fault.
Gap Insurance
Gap insurance helps you pay off your auto loan if your car is totaled or stolen and you owe more than your car’s worth.
Rental Coverage:
It typically covers the cost of renting a car if yours is being repaired due to a car accident.
Roadside Assistance
This is a service that helps you if you need your car breaks down. Roadside assistance may include:
Towing
Repairing a flat tire
Vehicle unlocking services
Fuel Delivery
Help to get you out of a ditch
f your auto insurance does not include Roadside Assistance, consider adding coverage.
SELECT THE RIGHT CAR INSURANCE DEDUCTIBLE
A deductible is how much money you have to pay out-of-pocket before your auto insurance starts paying. Auto insurance deductibles typically range from a few hundred to a few thousand dollars, with $500 being a popular option.
In general, the higher your deductible, the cheaper your premiums. But a more affordable premium now also means you have to pay more out-of-pocket if you file a claim.
A high deductible may make sense if you:
Have savings to cover the deductible amount
Ok, taking the risk of having to pay more if you have to file a claim
Unlikely to have a car accident- rarely drive, only drive locally, etc
A lower deductible may make sense if you:
If you don’t have savings to pay for a high deductible
You drive in a large city, drive a lot, more prone to be in an accident
You are risk-averse and like knowing you don’t have to pay a lot for a deductible if you are in an accident.
A good rule of thumb is that the deductible should be an amount you can pay if needed.
RECAP
Choosing the right car insurance coverage comes down to your personal needs. The things to consider as you select your coverage are the following:
Auto liability coverage
Comprehensive and collision coverage
Consider other essential insurance coverage
Selecting the right car insurance deductible
NEXT STEPS
Use this blog as a guide, contact your insurance carrier and review the following:
Do you have the right amount of auto liability insurance? The rule of thumb is 100/300/100 for most middle-class people.
Do you need collision and comprehensive coverage?
Other auto insurance coverage to consider?
Your deductibles and are these deductibles amounts you can quickly pay if needed?
Taking these few steps can save you thousands. Years ago, I wrote a blog about reviewing car insurance. As I was writing, I realized the last time I checked my coverage, I called my carrier. I had an older car, so I only had liability coverage. After reviewing my insurance, I added uninsured insurance coverage to have coverage still even if I’m involved in a hit-and-run. Two months later, I was involved in a hit-and-run.
Because of my coverage, my insurance company paid me for my car (it was totaled), and I even got a small amount for pain and sufferin
