Car Insurance

The content contained on or made available through this website is not intended to and does not constitute as legal or investment advice. Please use and refer to the information at your own risk, and consult with a professional before making any finance-related decisions. Refer to the full Terms & Conditions here. Last updated January 1st, 2020.

 

Takeaways

  1. Understand the basics of auto insurance

  2. Research state laws and mandatory minimum coverage

  3. Determine the coverage amounts that best suit your car and financial situation

  4. Consider purchasing an Umbrella policy to protect your net worth

  5. Shop around at reputable companies each year for the best rates

 

Auto insurance is broken down into multiple components that, when combined, create your policy.   Many of these components are mandated by state law, as they help to financially protect individuals from property damage or personal injury when they are not at fault. Below is a list and description of each major component:

 

  • Collision: Coverage that insures your car from damage due to an accident. This type of insurance is typically only required when you are financing or leasing a car. Otherwise, it is up to you whether it is worthwhile to have your car insured.

 

  • Comprehensive: Comprehensive includes everything covered by Collision, while also adding protection against things out of your control (such as theft, vandalism, damaged caused by animals, forces of nature, etc.). The Collision and other portions of comprehensive coverage may have different deductibles and limits.

 

  • Property Damage Liability (PDL): In case you are at fault for an accident, PDL covers the other party for damage to their car. State requirements vary; however, you will be on the hook for any amount owed that is in excess of the elected coverage limit. For this reason, $50,000+ is recommended.

 

  • Bodily Injury Liability (BIL): If you are at fault, BIL covers the other party for personal injury, pain/suffering, funeral expenses, lost wages, etc. There are two BIL coverage limits: per person and per occurrence. Again, you will be on the hook for any medical bills and other liabilities beyond your coverage limits. $100,000+ per person/$300,000+ per occurrence is recommended.

 

  • Medical Payment (MP): Regardless of who is at fault, MP will cover you and your passengers’ out of pocket medical expenses. In most states, this coverage is optional. But it is an affordable way to quickly pay any medical costs not already covered by health insurance. MP often has no deductible or copay, and is both narrow (only covering medical expenses), and affordable. If you do elect MP coverage, the most common limits are $5,000 and $10,000.

 

  • Personal Injury Protection (PIP): Similar to MP, PIP covers you for medical expenses regardless of who is at fault. However, PIP is much more comprehensive and often includes coverage for: lost income, childcare, survivor benefits, and funeral expenses. PIP is mandated in some states, with coverage limits varying widely between them. Additionally, PIP is relatively higher cost and often comes paired with a mix of deductibles and/or copays. Suggested coverage depends heavily upon your unique circumstances, and may range from $10,000 to $100,000+.

 

  • Uninsured Motorist: This coverage takes effect when the other party is both liable and either uninsured or underinsured. It will cover you for damages to your car as well as medical expenses and lost wages.

 

  • Umbrella Coverage: If you are looking to purchase auto insurance, you may also want to look into Umbrella coverage. Umbrella policies offer liability protection in excess of what is provided by primary insurance, such as auto and homeowners. For instance, if you are at fault for an accident that results in $500,000 of claims against you, but your PDL and BIL only cover $300,000, you are liable for the remaining $200,000. This is where Umbrella coverage kicks in. Standard policies begin at $1 Million worth of personal liability coverage, and are relatively affordable. They do, however, require certain primary insurance coverage minimums (e.g. $100,000/$300,000 BIL). So if you have a net worth that you would like to protect against medical bills and potential lawsuits, Umbrella policies are a great way to gain peace of mind.

If you are a frequent driver and/or have a net worth that you would like to protect, it is essential to have sufficient coverage. And if your net worth is significant enough, Umbrella Coverage is an affordable way to further protect yourself.

Conclusion

 

As mentioned earlier, each state has its own laws regarding auto insurance coverage limits. Research and become familiar with your state’s requirements. In most cases, states only require the bare minimum in coverage. Assess your own financial situation and elect coverage amounts that best suit your needs.

 

In terms of cost, there are many variables that go into a monthly premium. These include: the car you drive, the area in which you live, how much you drive, your age/sex/marital status, etc. Each insurance company will have a different formula that takes these variables, combines them with your coverage elections, and calculates a premium. For this reason, the best thing you can do to lower your auto insurance rates is to shop around. Find a reliable company that offers the lowest premium.

 

Lastly, auto insurance sometimes interacts with other coverage you may already have, such as health and homeowners insurance. Check the fine print of what is and what is not covered, as well as how the benefits coordinate with one another. For instance, if you have rich health benefits, you may only need to purchase the minimum required PIP coverage. Also, Homeowners insurance sometimes covers certain costs related to auto accidents. Many companies offer both auto and homeowners/renters insurance and provide large discounts for “bundling” these two services.

The content contained on or made available through this website is not intended to and does not constitute as legal or investment advice. Please use and refer to the information at your own risk, and consult with a professional before making any finance-related decisions.

© 2020 London Levinson LLC