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.
Continue reading part two of “How much car insurance is enough?”