Car insurance policies are made up of several different types of coverage that work together to protect the policyholder. Here at Pagel & Associates Insurance Agency, we often have clients who ask us how much car insurance is enough to fit their needs. Everyone wants to save on car insurance, but skimping on coverage is not the way to do it. In this article, we will explore reasons you need the right types of coverage and why having adequate limits is so important.
To Repair or Replace Your Damaged, Destroyed, or Stolen Vehicle
Collision and comprehensive coverage work together to make up the physical damages portion of your car insurance policy. Both pay for repairs or replacement of your vehicle if it is damaged, destroyed, or stolen due to a covered event. As the name implies, collision insurance covers damages to your vehicle in a car accident, whether you drive the car into a neighbor’s home or cause a multiple-vehicle pileup on your morning commute. Comprehensive coverage fills in with coverage for damages that are not collision-related, such as hail dents, vandalism, or a crumpled hood after you hit a deer.
We recommend that nearly everyone carry both collision and comprehensive insurance. Together, these two important coverage types can minimize your out-of-pocket losses in the event of an accident or another covered event. If you lease or make payments on your vehicle, you may be required to maintain both collision and comprehensive coverage to satisfy the terms of your lease or loan agreement.
Deductibles and Coverage Values
Comprehensive and collision insurance do not have coverage limits. Once you purchase coverage, your insurer will automatically insure you for the actual cash value of your car, or ACV. This is the amount of money your insurer is willing to invest into repairing your vehicle. If repairs exceed the ACV, the insurer will provide you with a reimbursement for the actual cash value of your car before your accident, minus your deductible.
Deductibles apply to all physical damage claims against your collision and comprehensive coverage. You will select a deductible amount when purchasing your policy. Low deductibles of $250 or less make filing a claim much more affordable, but higher deductibles of $500 to $1,000 can significantly lower the cost of your insurance premiums. The deductible you choose should be a matter of personal preference and affordability. If you need help determining which deductible to choose, contact one of our helpful team members for assistance.
To Repair or Replace Someone Else’s Damaged Property
It’s not just your vehicle you have to worry about in a collision. If you cause an accident that damages another person’s car or property, you can be held financially liable for it. Fortunately, property damage liability insurance can help pay for repair or replacement of other people’s property when you are at fault.
Unlike collision and comprehensive coverage, property damage liability insurance is not optional. State law requires that all drivers have a minimum of $10,000 in coverage, but that is hardly enough to pay for all of the damages in a serious accident. If you drive off the road, through a fence, and into the living room of a nice home, you’re looking at a bill for up to $50,000 or more. If you cross the centerline on the highway and hit a brand new 2017 Audi you’ll need closer to $45,000 to cover the other driver’s loss.
The victim’s insurance company will probably cover the initial loss and then pursue you for compensation. Your insurance company will pay down your liability up to the limits of your policy, but that could still leave you with a big bill. Imagine having to empty your nest egg or make payments from future income to satisfy a settlement or judgment against you. If you had high enough property damage liability limits, you could relax knowing you are covered.
Compensation for Harm You Cause Others
In addition to property damage liability, you also need coverage on your insurance policy that compensates victims for any injuries you may cause in a car accident. Known as bodily injury liability insurance, this coverage protects you against expensive lawsuits for victim medical bills, lost wages, emotional distress, and more. It will not matter if you were totally or partially at-fault, or if you caused the accident due to circumstances beyond your control, such as a blown tire. What matters is that the accident happened, and you are responsible. However, if you exhibit negligence in an accident, such as texting behind the wheel or drinking before driving, you may also be subject to punitive damages in addition to compensatory damages.
All drivers in Green Bay and throughout Wisconsin must purchase bodily injury liability insurance, although the minimum limits required by the state are far too low to provide adequate coverage in a major collision. A single victim’s medical bills could easily total tens or even hundreds of thousands of dollars. That is why we here at Pagel & Associates Insurance Agency recommend purchasing high-limit bodily injury liability protection to better shield your income and assets against a major liability.
Split Limits vs. Combined Single Limit (CSL)
Bodily injury liability insurance is covered by either a combined single limit (CSL) or a split limit. A CSL provides one flat coverage amount with no individual limits. A 300 CSL, for example, provides up to $300,000 in total bodily injury liability coverage per accident. Split limits differ slightly from combined single limits. They still offer a total maximum bodily injury limit per accident, but they also impose a cap on the amount of coverage available per individual. A 250/500 split limit, for example, would cover up to $250,000 per injured victim with a maximum of $500,000 in total bodily injury liability available for all victims combined in an accident.
Money to Protect You and Your Passengers against Uninsured or Underinsured Drivers
Despite laws requiring drivers to have liability insurance, some refuse to comply. If an uninsured driver hits you, you could face difficulty recovering compensation for your injuries. Uninsured motorist insurance (UI) covers injuries to you and your passengers if an uninsured driver hits you. We also recommend adding underinsured motorist protection (UIM), which helps fill in coverage gaps when a driver injures you with liability limits that are too low to cover your losses.
Money to Help with the Little Things
Small expenses can add up to big financial burdens after a collision – even if you have coverage for damages to your personal vehicle and liability. There are towing charges, rental car fees, co-pays, and health insurance deductibles to pay, all of which may come out of your pocket if you are not adequately insured. Here at Pagel & Associates Insurance, we can help to enhance your coverage with medical payments, towing coverage, rental car reimbursement, and more.
Beyond Car Insurance
Lastly, we recommend reviewing your liability coverage needs to determine if a supplemental policy could better protect your income and financial future. In extreme cases, major collisions can result in traumatic injuries that result in million-dollar lawsuits. Even a maximum of $500,000 in liability may not be enough to cover the damages, leaving you with a major debt that could cause total financial ruin. In these cases, an umbrella policy could provide the extended liability protection you need to protect your income and assets against expensive litigation.
Umbrella policies are secondary to your primary coverage, providing payment only once you exhaust the limits on your car insurance liability. An umbrella policy will typically extend your liability protection by at least $1 million, although much higher limits are available to protect your financial interests. Contact our office for more information about umbrella insurance and how this affordable coverage could play an important role in your insurance portfolio.