Recent statistics show that, nationwide, about 13% of motorists are uninsured. What’s often less talked about, however, is that an even greater number of motorists are underinsured.
Unfortunately, drivers who are underinsured are often given a false sense of security. They usually do not realize that their insurance coverage is insufficient until they are in a collision.
This leads many car owners to wonder, “How much car insurance do I need, really?” Keep reading to learn more.
Breaking Down Coverage
Determining how much insurance you need is not a unilateral decision. Rather, there are different aspects of coverage to evaluate.
Deductible vs Premium
First, it’s important to understand the two main ways insurance cost is broken down: the deductible and the premium.
The premium is the amount you pay every month, whereas the deductible is the amount you pay towards repairs if your car is damaged. If you choose a higher deductible, your premium will be lower, and vice versa.
When you consider different aspects of insurance coverage, you will want to consider how they impact the cost of your premium. To afford better coverage, you may need to choose a higher deductible.
Liability coverage covers any medical or property costs that you could be held liable for.
Keep in mind that the minimum liability coverage required by law might not be enough. For example, in North Carolina, the minimum liability is $30,000 per person. After a serious accident, the costs of injuries could actually exceed $100,000 per person.
The same goes for minimums for property damage. Again, in North Carolina, the minimum liability for property damage is $25,000. If you are in a multi-vehicle collision, or damage a luxury vehicle, you will quickly exceed this minimum.
If you purchase too little liability coverage, you could be on the hook for these costs out of pocket. In some cases, your wages could even be garnished.
Additionally, you could be vulnerable to a lawsuit if you are unable to cover the expenses. This is why you want your liability coverage to be high enough to cover any assets that someone could come after in a lawsuit. The more you have in assets, the more liability coverage you will need to purchase to protect yourself.
Personal Injury Protection and Medical Payments Coverage
In addition to purchasing liability coverage to cover injuries caused to other people, you will want to purchase Personal Injury Protection (also known as PIP) to pay for any minor injuries to you or other passengers. It will also cover any lost wages if you are unable to work due to injuries.
Medical payments coverage will cover other medical expenses for you and any passengers. You will have to choose the coverage amount that you want for you and each passenger in the vehicle.
Whereas liability coverage covers damage to other people and property that you are liable for, collision coverage covers damage to your own vehicle.
Unlike with liability coverage, you have fewer decisions to make when it comes to collision coverage. This is because the cost of collision coverage is determined by the type of vehicle you are paying to insure.
With collision, however, you will have the choice of how large of a deductible you want to take. If you want to have a lower monthly payment, choose a higher deductible.
Pro-tip: if you choose the higher deductible, squirrel away some of the money your not spending on your monthly payment into savings. This will help you have the money you need to cover your deductible if a collision happens.
Comprehensive vs Collision-Only
Drivers who are underinsured often choose policies that only offer collision coverage rather than comprehensive coverage. What does that mean, exactly?
As stated above, collision coverage covers the cost of any damage that happens to your vehicle if you cause a collision. If another driver causes the collision, their collision insurance would cover the cost of the damage.
Comprehensive coverage covers any damage that is not caused by a collision with another vehicle. For instance, if you drive your car into a pole, you could use your comprehensive coverage to pay for the repairs.
Sometimes, drivers with older vehicles believe that they only need collision coverage, not comprehensive coverage. Their reasoning is that, given the low value of their vehicle, they would likely pay for any damages out of pocket, or junk the car, rather than make an insurance claim.
The problem with this logic is that, unless your car is worth less than $1000, or your deductible is extremely high, it’s almost always worth it to have comprehensive coverage. If a freak accident happens–like a tree falls on your car, or your car is damaged in a flood–you will be happy to have comprehensive coverage.
Uninsured Motorist Protection
Typically, if another driver causes an accident, their insurance will cover the damages. It is important to purchase uninsured motorist protection to cover yourself in the event that you are hit by a driver who does not have insurance.
You may also want to consider underinsured motorist protection, in the event that you are in a collision with a driver who does not carry enough coverage to pay for your damages and injuries.
How Much Car Insurance Do I Need? It Depends
Ultimately, the answer to “How much car insurance do I need?” is “It depends.”
The key is that you need to get enough insurance for your needs. If you need advice, get in touch with us for more information.