How Much Auto Liability Coverage Do I Need?

Liability Insurance coverage is required by most states. It protects you in an accident in which you are at fault. It is broken down into protection for personal injury to others and property damage.

Coverage is usually listed by three numbers, such as 250/500/250. This is called split limits coverage, and refers to the amount paid out for each single accident. It is broken down as follows:

• Up to $250,000 to cover bodily injury to another individual
• Up to $500,000 to cover bodily injury for all people in the accident
• Up to $250,000 to cover property damage. This includes autos and other property.

25 years ago 100/300/100 was considered the standard coverage that most people obtained. It is amazing to me that many people today are still only getting this amount of liability coverage! The cost of medical expenses and lawsuits has increased dramatically in the past 25 years. Even a young adult with few assets can have wages garnished and their life ruined. Don’t skimp on this coverage just to save a few dollars.

Also consider for a moment the property liability to which you will expose yourself, if you cause a multi-car accident. The property damage alone for two or three cars might easily amount to more than $100,000. If a semi-truck and trailer is involved in the accident, the property damage total will be enormous. You will find that increasing the amount of property liability protection is very inexpensive. Going from $100,000 to $250,000 will cost very little, maybe only $10-$20 per year, but it is well worth it!

In my opinion, a good insurance agent will not recommend any less than 100/300/200. I recommend at least 250/500/250. An agent should have your best interests at heart and not only be interested in selling another policy. Don’t be afraid to ask questions if you are not clear about her recommendations.

What Is Covered Under Collision Insurance?

Collision insurance covers damage to your vehicle in an automobile accident when you are at fault. Collision insurance is an "optional" coverage not required by state law, but without it you will be responsible for paying ther entire cost of repairs to your vehicle in an "at fault" accident. If you are driving a financed car, you may be required by the lender to carry collision insurance.

The standard collision insurance coverage pays for any repairs only up to the fair market value of your car, not up to the amount of your car loan. If your loan amount is greater than the fair market value of your car, consider purchasing "gap" insurance. Gap insurance pays the difference and protects your investment.

Do I need Comprehensive Coverage?

Comprehensive Auto Insurance will cover your own vehicle and your personal property inside your car. It will pay for repairs to your car as a result of hitting a deer, fire, glass damage,hail, flood, vandalism and other natural disasters. If the personal property inside your car was damaged from one of the above or was stolen, your comprehensive coverage would pay for your loss.

All comprehensive coverage is subject to a deductible which you must pay before the policy will pay you. Some people save on the cost of their insurance by omitting the comprehensive or collision coverage on their vehicle. This makes sense on older cars with little value. For glass damage, you may want to repair the window on your own, without submitting a claim to your insurance company.

If your car is financed, your lender will usually require comprehensive coverage until the loan is paid in full. The lender may also require a maximum deductible of $1000 on the vehicle. They can place this requirement in your loan contract to ensure that their investment is protected.

What deductible amount should I choose?

Beware those people who suggest a one-size-fits-all approach to insurance deductibles. Since each one of us has differences in the number of vehicles we drive, the number and age of our drivers and the size of our paycheck, we need to choose a deductible that fits our particular needs. Here are some guidelines that will help you determine how to decide:

• Choose the largest deductible that you can afford to pay in case of an at-fault accident.
• Do not submit small claims to your insurance company.
• Have an emergency fund or savings account from which to draw funds to pay for an unexpected accident.

If you do not have sufficient emergency funds available to pay for a large deductible, you may be wiser to carry a low deductible. DINKs (double income no kids) or established couples with more than one car may be in the best position to carry a high deductible. Singles with good-paying jobs may also fit into this category. If you do not have savings, only have a single car and have no budget flexibility, don't feel compelled to carry a high deductible. If you have an accident you need to be able to get your car repaired as soon as possible so that you do not miss work and jeopardize your ability to earn income.

Every claim you make to your insurance company may cost you money in the long run. Claims will increase your insurance rates over time and may even jeopardize your ability to carry low-cost insurance. Some carriers may drop customers with a high claim history. You can avoid this problem by only submitting a claim if you absolutely must. If you have car repairs for $1,100 due to a covered accident and have a deductible for $1000, consider paying the whole bill yourself without submitting it to your insurance carrier. Always remember, however, to follow your state and local laws about reporting accidents to authorities!

Should I Buy An Umbrella Policy?

An umbrella policy will allow automobile owners and homeowners to purchase additional liability protection. With an Umbrella policy--also known as a Personal Liability Policy--you may increase your coverage to protect your assets for both your home and auto with a single policy.

Usually a minimum of coverage is required on both your home and auto policies. For example, you may be required to purchase $250,000 in liability protection on your auto policy and $300,000 on your home policy in order to purchase an umbrella policy. An additional $1 million would bring your liability protection totals to $1,250,000 and $1,300,000 respectively.

If you have assets greater than your base auto and home liability limits, you should consider the Umbrella policy. Remember to consider the value of your home and your retirement funds. They may be at risk if you are sued for an auto accident or an accident at your home. Dog and pool owners are good candidates for lawsuits.

Should I Carry Medical Insurance Coverage on My Auto Policy?

The number one consideration in answering this question is: Do you have major medical coverage through work or through your own individual policy?

If you do not have your own major medical policy, you should consider getting as much medical coverage on your auto policy as you can afford. Although it will only cover medical expenses from an automobile accident, it is relatively inexpensive.

If you have a high dedictible on your major medical coverage, make sure that you get enough medical coverage on your car policy to cover the gap. Often individual medical policies have deductibles of $5000 or more. Having over $5000 in medical coverage on your auto policy makes good sense in this situation.

Medical coverage on your auto policy will be paid out in addition to any other coverage that you have. You can use this to cover loss of income due to an auto accident and related expenses that you incur from your accident.

If you have good major medical coverage for your family you may be able to same some money by opting out of his coverage or by only getting $1000 or $2000 in medical coverage. Remember, medical coverage on your auto policy covers not only your family, but also any passengers in your family cars. Teens and college students often have friends riding with them. Your medical coverage will cover them in case of a minor accident.

What benefits do I get from rental car coverage?

Rental car coverage will pay $x.xx/day for you to rent a vehicle while your car is in the body shop because of a covered accident. This coverage will not pay your rental car costs when your vehicle is just in the shop for repairs. You need to specify the daily dollar amount of this coverage when you take out the policy.

Most auto policies have a cap in the dollar amount or covered time period. If your family has an extra teen vehicle, consider omitting this coverage and asking your teen driver to make some sacrifices during the family crisis.