It’s a question that we get all the time. The truth is that car insurance offers multi-faceted coverage that is personalized to the driver. It is never a one-size-fits-all purchase. In this article, we will dive deep into understanding car insurance and the importance of purchasing the right coverage and limits.
Money for Your Lost, Stolen or Damaged Car
Whether you own the title on your car, monthly finance payments on it, or lease it from a dealer, you probably invested a lot into your vehicle. If it is damaged in an accident or due to other circumstances, repairing or replacing your car could cost thousands without the right coverage. Fortunately, there are two types of insurance protection – collision and comprehensive – that can help pick up the pieces. Understanding the difference and what they each cover is important to ensure you are fully protected against a major financial loss.
Collision insurance is exactly what it sounds like – Coverage for your vehicle if you are in an accident. Whether you collide with another vehicle or veer off the road and hit a tree, collision coverage helps to take care of the repairs to your vehicle. If your insurance company determines that your vehicle is damaged beyond repair, then you will be compensated for the loss of your car so that you can find a replacement.
Comprehensive insurance may sound like the total package, but its name is deceiving. You need both collision AND comprehensive insurance to ensure your vehicle is fully protected against damages or loss. Comprehensive insurance covers damages to your vehicle caused by non-accident events, such as vandalism, theft, or even run-ins with wildlife.
Should You Purchase Collision and Comprehensive Insurance?
When it comes to collision and comprehensive coverage, you may not have a choice. Banks and dealers are likely to require you to purchase coverage for physical damages if you finance or lease your vehicle. Beyond that, the coverage may be at your discretion, but going without it could lead to major losses and leave you without a means of transportation. Repairs can cost thousands of dollars, and a complete loss could mean buying another vehicle without the value of your existing car as a trade. Could you afford to repair or replace your car out of pocket?
Either You Have It, or You Don’t
When it comes to collision and comprehensive insurance, you either have it, or you don’t. There is no coverage amounts to choose since insurance companies automatically cover your car for its worth, also known as its ‘Actual Cash Value.’ The only exception would be in the case of a specialty vehicle, such as a collector’s car or antique vehicle, which might be insured for its ‘Agreed Value.’
In fact, the only decision you have to make is how much of a deductible to select. Your deductible is the amount you will pay out of pocket toward the cost of a collision or comprehensive claim. With some insurers, that could be as little as $100 or as much as $1,000 or more. You should choose a deductible you could reasonably afford in the event of an accident. Just keep in mind that higher deductibles typically result in lower premiums, and vice versa.
Money for the Property Damages You Cause
Driving carries major financial responsibilities. You are legally and financially responsible for any damages you cause to other people’s property as a result of owning or operating a vehicle. That is why state law requires all drivers to carry a minimum amount of liability coverage, though minimum coverage amounts vary across state lines. Unfortunately, the minimums required by the state are not enough to protect your income and assets against a major accident-related lawsuit.
Imagine that you slid on a patch of black ice, skidding off the road, through a fence, and into the living room of a home. Maybe you crossed the median in the highway and totaled a brand new $55,000 Mercedes. In either scenario, you are at-fault and could be responsible for tens of thousands of dollars in damages. Even if a victim’s insurance company initially pays for the damages, you will be pursued for reimbursement. That could land you in court with a major lawsuit if you do not have enough liability coverage.
The property damage liability coverage on your insurance policy helps cover repair or replacement of vehicles, fences, light posts, and even homes you may damage while operating your car. Contact one of our team members today for help determining how much coverage might be right for you.
Money for Harm You Cause Others
If you injure another driver or pedestrian, how much could you be sued for? The answer depends on some factors, such as the circumstances that led up to the accident, the extent of the victim’s injuries, the cost of future medical bills, the value of lost wages, and whether you were partially or total at-fault. Bodily injury liability insurance, which is mandatory coverage her in Wisconsin, helps protect you against lawsuits that could otherwise lead to financial devastation.
Bodily Injury Liability Coverage Options
Your insurer may offer bodily injury liability protection as either a split limit or combined single limit (CSL). Split limits, which are expressed on your policy as two different numbers, indicate the amount of bodily injury damages in thousands the insurer will cover per person and for the accident as a whole. So a 100/300 split limit would pay $100,000 for each injured person with a maximum of $300,000 in total coverage available for all injured parties in the accident. A combined single is expressed a single number and pays up to one flat amount in total bodily injury damages per accident with no per-person limits.
How Much Coverage Do You Need?
Here in Wisconsin, drivers are required to carry a 25/50 split at a minimum, although we almost never recommend such low limits. If you face a major lawsuit with low-limit or minimum coverage, your entire financial future could be at risk. Medical bills can easily total hundreds of thousands of dollars, and compensation for emotional distress can add to that cost. If a court also imposes punitive damages, such as for intoxicated driving or texting behind the wheel, your financial liability could soar. Having high bodily injury liability limits can protect your savings, assets, and future income against seizure, liquidation, and garnishment.
Money to Protect You and Your Passengers against Uninsured or Underinsured Drivers
Some drivers fail to carry adequate liability coverage, which could affect you after an accident. If you are injured by an uninsured driver or a driver with too little insurance coverage, your uninsured motorist (UI) or underinsured motorist (UIM) protection can help fill in the gaps. UI covers your damages if the at-fault driver has no insurance at all, and UIM bridges the difference between the limits on an at-fault driver’s insurance and the value of your loss. UI and UIM are perhaps the most important coverage on your policy since it covers you and your passengers if you are injured in an accident.
Money to Help with the Smaller Things
Aside from your liability and personal losses after an accident, there are several other immediate expenses you could face. Perhaps you have a high health insurance deductible that requires major immediate out-of-pocket costs, regardless of who was at fault for your injuries. Maybe you need to rent a car to use while your car is repaired or until you can find a replacement. Here at Doug Hansen Insurance, we can help you custom-tailor your car insurance policy to include coverage for the ‘small things,’ such as a rental car, towing, and medical payments coverage.
Beyond Car Insurance
If you have high liability coverage limits, you are off to a good start, but even the highest limits still might not be enough to protect you against an extreme scenario. The immediate and future medical bills alone could soak up the entirety of your high-limit coverage leaving you financially responsible for any other compensatory damages. If you happen to injure a young professional, such as a physician or a lawyer, a court could award millions of dollars to the victim. In situations like these, umbrella insurance can pick up where your primary liability leaves off, extending your coverage by $1 million or more. Given the value of an umbrella policy and its affordability, we recommend that most drivers seriously consider this important coverage.