How much car insurance do you really need? How do you ensure you are not overpaying for too much coverage? While these are good questions to ask, they emphasize the wrong mindset when it comes to insurance. It’s good to save money, but not at the expense of your car insurance coverage. In this article, we will discuss why having the proper limits and the right types of coverage should be the primary concern.
Money for Your Lost, Stolen or Damaged Car
Do you depend on your vehicle for transportation? Do you have the funds to repair or replace it if it were damaged, stolen or destroyed? For most people here in the Madison area, their cars are among the most valuable assets they own. If something happened to your vehicle, collision and comprehensive insurance could help pick up the pieces and get you rolling again.
Collision Insurance
Collision insurance is coverage that pays for damages caused by car accidents. This includes single-car accidents and collisions involving multiple vehicles.
Comprehensive Insurance
Comprehensive insurance is coverage that pays for damages to your vehicle that are caused by events other than collision. Examples include hitting a deer in the middle of the night or waking up to find that your vehicle has been vandalized in your driveway overnight.
Both types of physical damage coverage are necessary to protect your vehicle against damages or loss fully. If you need to file a claim, then you will pay a deductible you select at the time you purchase your coverage. The deductible could be as little as $100 or as much as $1,000, but just be sure not to select a deductible that costs more than you could afford to pay out of pocket in the event of an accident or another covered event.
In most cases, insurance will pay for repairs to the damages on your vehicle. However, some vehicles are damaged beyond repair. In those scenarios, insurers compensate policyholders for their loss based on the actual cash value of the vehicle. There may be exceptions for antique and collector’s cars, which may be covered for an agreed value instead.
We recommend collision and comprehensive coverage to most of our clients due to the major financial benefits that can be realized by adding it to a car insurance policy. While the coverage is optional, some drivers may be required to purchase it to satisfy the terms of a loan financing agreement.
Money for the Property Damage Liability
Wisconsin drivers are required by law to carry property damage liability coverage on their car insurance. Unfortunately, the limits required by the state are often too low to cover the full extent of damages you may be responsible for in an accident.
Ultimately, car insurance is about more than legal compliance; it’s about protecting you against major financial loss. If you only carry the minimum amount of coverage, it is you who suffers – not other people. Having car insurance doesn’t change your financial liability in an accident; it just shifts the responsibility of payment from you to your insurer. Once the limits on your policy have exceeded, any remaining damages fall on your shoulders to pay.
For example, imagine sliding across an icy bridge and into oncoming traffic. You cause an accident that totals two different vehicles – both of which you are financially responsible. You max out the limits on your liability coverage but still have excess damages of $30,000. You are sued for the remaining damages and forced to liquidate assets to satisfy the debt. Had you chosen higher limits for your property damage liability, all of the damages would have been covered with no out-of-pocket costs for you.
Liability coverage should be personalized according to your individual risk exposure and coverage needs. It is possible that you could benefit from higher limits – especially if you have high income or extensive assets to protect. Our team will be happy to assist you in evaluating your individual coverage needs and helping you select limits that are right for you.
Compensation for Harm You Cause Others
No one wants to injure another person, but if you are at fault for a collision, that is what could happen. Approximately 2.5 million people go to hospitals every year for accident-related injuries. Here in Wisconsin, at fault drivers are responsible for injury-related expenses, such as medical bills, lost wages, and more. In some cases, there are also punitive damages to pay – particularly for drivers who were being negligent in causing the collision.
Bodily injury liability insurance is mandatory in Wisconsin, but the minimum limits are too low to cover liability for a large claim. This type of insurance will cover your liability, but only up to the limits of your policy. If your limits are too low, you could be responsible for paying the damages out of your savings, income, or liquidation of assets.
Split Limits vs. Combined Single Limit (CSL)
You will select your bodily injury liability limits when you purchase your policy. Insurers may offer coverage as a combined single limit (CSL) or a split limit. A combined single limit does not restrict the available coverage per person – only per accident. That means a 300 CSL would provide up to $300,000 total bodily injury liability coverage for all victims combined in an accident. A split limit provides maximum coverage per accident and also caps available coverage per individual. It appears on your policy as two separate numbers. A 250/500 split, for example, covers up to $250,000 per individual victim and up to $500,000 total bodily injury liability per accident.
Money to Protect You and Your Passengers against Uninsured or Underinsured Drivers
Although all drivers must have bodily injury liability coverage, many go without insurance altogether. Not only are they breaking the law, but they are also putting you and your passengers at risk. If an uninsured driver injures you, uninsured motorist protection (UI) can help cover your losses. You can also add underinsured motorist protection (UIM) to your policy, which helps cover damages that exceed the limits on an at-fault driver’s policy.
Money to Help with the Little Things
How much money would you want to pay out-of-pocket after a car accident? Even with coverage for physical damages, injuries, and liability, there are still other ‘small’ expenses to pay. Perhaps your car will need to be towed to the nearest body shop. Maybe you will need a rental car while your vehicle is repaired. There could also be co-pays and health insurance deductibles for immediate medical care. Instead of fretting over the little things, consider personalizing your insurance policy with coverage that minimizes your financial burden after a collision.
Beyond Car Insurance
Liability is often the most expensive component of a car accident – particularly if you are at fault for a traumatic injury, multiple injuries, or a fatality. Damages can quickly exceed even the highest bodily injury liability limits, resulting in million-dollar lawsuits that threaten your financial future. For that reason, drivers should consider purchasing an umbrella policy, which offers supplemental liability protection at an affordable price. If you cause an accident, your primary car insurance coverage will pay for damages up to the limits of your policy. Then, your umbrella policy will provide a continuation of payment, extending your liability coverage by an additional $1 million or more.
For more information about supplemental liability insurance or any of the other coverage types mentioned in this post, contact the team here at Homewood Insurance today.