How much car insurance do you need? At what point can you be confident in the ability of your policy to protect you against financial loss? Knowing you have the right coverage can give you peace of mind that your vehicle and your assets are safeguarded against the unexpected. In this article, we will dive into the importance of having adequate limits and learn reasons why having the right coverage is so important.
Your Vehicle is Damaged, Destroyed, or Stolen
Cars are expensive, whether you lease or buy. Imagine losing all of the money you have invested in your vehicle when it is totaled in an accident. Even if your vehicle can be repaired, the damages could set you back thousands of dollars – money you would not have to pay out-of-pocket if you had collision and comprehensive insurance.
What is Collision and Comprehensive?
Collision and comprehensive are the two types of physical damages protection on your personal car insurance policy. Together, they provide complete coverage for your vehicle for damages caused by a collision or due to some other event.
Collision – pays to repair your vehicle or reimburse its lost value in the event of an accident. This includes collisions in which your car hits another vehicle, multiple vehicles, or runs into a stationary object, such as a tree.
Comprehensive – pays to repair your vehicle or reimburse its lost value when it is damaged by unpredictable circumstances other than collision. Examples include theft, vandalism, fire, wind damage, or hitting a deer.
In the case of both collision and comprehensive claims, the policyholder is typically responsible for paying a deductible. This is a pre-determined amount contributed toward the cost of the claim. If you choose a low deductible, such as $100 or $250, your financial responsibility will be much lower, and you will garner greater financial benefit from a claim. On the other hand, choosing a higher deductible, such as $500 or $1,000, can significantly lower your insurance costs upfront by saving you money on premiums. We recommend choosing an amount that fits your budget and preferences.
When it comes to collision and comprehensive coverage, you do not choose limits or coverage amounts. In most cases, insurance companies will automatically cover a vehicle up to its actual cash value, or ACV. If repair costs exceed the ACV, the insurer will subtract the policyholder’s deductible from the car’s actual cash value and reimburse the difference. If you happen to drive an antique or collector car, the circumstances may be different in the way the insurance company covers your vehicle. Often, specialty cars receive coverage based upon an agreed value instead of an ACV.
Do You Need Collision and Comprehensive Coverage?
We recommend collision and comprehensive for nearly all drivers who wish to protect the value of their personal vehicles. Without it, you risk having to replace it, spend thousands to repair it, or find alternative methods of transportation. While there are no laws mandating physical damages protection for a personal vehicle, there are circumstances in which drivers are required to purchase collision and comprehensive insurance. Most commonly, these rules apply to drivers who lease or finance their vehicles. Lenders require the coverage to protect their financial interest in the vehicle until it is returned or a loan has been paid in full.
You Damage Someone Else’s Property
How much does it cost to repair someone else’s car? If you’re lucky and the damages are minimal, it might only cost a few thousand dollars. For far too many Wisconsin drivers, however, the damage may cost much more. The $10,000 property damage liability minimums required by state law cannot come close to replacing a totaled 2017 vehicle. Furthermore, you can be sued for any excess liability beyond the limits of your policy.
Take, for example, a driver who runs into the living room of a house. It will cost an estimated $50,000 to restore the exterior and interior of the home. The homeowner’s insurance pays for the initial repairs and then sues the driver for compensation. The driver’s property damage liability insurance only pays the first $10,000, leaving $40,000 in remaining damages that the driver must pay out of pocket.
Continue reading part two of “How much car insurance is enough?”