The Right Amount of Insurance to Buy

It is a known fact that insurance of any kind (not just car insurance) is boring. We just know that it is something that we all need to have but most of us don’t know very much about it, just that it is necessary and we need it. This is especially true for your car where in most countries driving without insurance is an offence.

One of the biggest questions for many people buying car insurance is how much they actually need. Most car owners will simply say that they need comprehensive coverage, the make and model of the car and let the insurance companies come up with a car insurance quote by themselves. Most agents (that that are worth a grain of salt) will naturally try to sell you the most insurance they can. It is the economic prerogative of every agent and company to try sell you as much insurance as possible.

With this highly biased siding towards over insurance most customers aren’t aware that they are actually getting too much insurance for the real value of their cars. Most don’t know that they are wasting money on insurance coverage that they can’t possible get back even under the most severe of claims. To help customers have a more balanced view of the valuation of their insurance there are 4 very important questions that they need to ask before proceeding with an insurance quote.

1) What is the minimum amount of insurance for your state?
Depending on which state or even country, there is a legal minimum for car insurance that you must adhere too. Most insurance companies and insurance agents will know the legal minimum but will normally never disclose the information to you. It is up to you to find out your legal minimum is. As an example, California has a relatively slack minimum. $15,000 for death/injury to one person. $30,000 for injury/death to more than one person. $5,000 for damage to property. For this information I went to the California DMV site located at http://www.dmv.ca.gov . They normally come in figures like 15/30/5 in this case. Some other states like Washington have more strict requirements at 25/50/10.

Once you have this baseline you can then build a foundation for the amount of car insurance that you want. You will at least know how much you need at the minimum and look upwards to further coverage should you require them.

2) What do the minimums cover?
Now that you have gotten the bare minimums for your car insurance, you need to ask if it is enough for your needs. Most of us don’t know what the 25/50/10 means and it is vitally important that we find out what it means to us. You will need to define what it means and how it relates to you. Below is the definition of the insurance terms so you can better understand them:

Definitions
Bodily Injury Liability: It is basically coverage to anybody else that might be a victim in your accident. It also provides for any legal costs or claims that victims might win should you get sued. As this involves all the medical expenses etc, you can appreciate that it can be quite costly if you have an accident that involves many people or people who are hospitalized for a long time. If your coverage isn’t enough then you will be forced to dip into your own personal assets which is very bad.

Comprehensive Coverage: This is the one insurance package that basically tries to cover every possible scenario. It will cover your can and also probably cover anything else that you may be driving at the time. Under most circumstances it will also cover natural disasters like floods, fires or even damage by animals.

Collision Coverage: It is basically coverage for your car should you hit someone or if someone hits you. It pays for the repair of your car minus the deductibles.

Medical Payment / Coverage: This is the coverage that covers your medical expenses and also coverage for your passengers. Not many people know it also covers you even if you are a pedestrian that is hit by a car since it is also technically a “road accident”.

Uninsured Motorist Bodily Injury Coverage: This is basically coverage that you take out for yourself should some irresponsible motorist injure you and your passengers and isn’t insured. Depending on the state and country sometimes this will also cover the cost of repair for your vehicle.

Personal Injury Protection Coverage: Extra coverage other than for medical to you. This might be for funeral services or any other auxiliary expenses.

Property Damage Liability Coverage: This is basically coverage for whatever property that you might damage with your vehicle in an accident. It will also cover legal defense should the other party decide to sue you for damages at a later stage.

3) What else is available if you can afford it?
Under most circumstances the state minimum for car insurance is always relatively low to cater for those that aren’t so well to do. In most circumstances the state minimum isn’t sufficient to cover your car’s insurance needs. It is a minimum in the purest sense of the word. With the minimums in mind it is now necessary for you to build up your insurance from there. With a firm grasp of your budget you can start adding to your insurance. Most online insurance providers will allow you to get multiple car insurance quotes with different options.

4) Can you afford not to be insured?
This is the last question that you should be asking yourself. You have to be 100% sure that you can afford to pay the bills for coverage items that you have omitted or reduced. In most circumstances like personal injury or medical coverage, the limits should be set high because prolonged health charges can really bankrupt someone. You must also look at how important your car is in your life. Can you perform your job without it? If you can then you can consider lowering your Collision cover etc. Your car insurance must look at your lifestyle too.