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.
Compensation for Harm You Cause Others
Property damage may be expensive, but it pales in comparison to the price you might have to pay if someone is injured or killed in an accident for which you are at-fault. Wisconsin requires all drivers, including those here in the Mayville and West Bend areas, to carry a minimum amount of bodily injury liability protection, but we almost always recommend purchasing more than is required. Injury-related expenses can total hundreds of thousands of dollars or more for medical bills, lost wages, rehabilitation, and emotional distress. You could also be charged punitive damages for your negligence, especially if you were texting or intoxicated while driving. If your car insurance comes up short of your liability, you could be personally responsible for any excess damages.
How Much Do You Have to Lose?
Maybe you do not get behind the wheel after drinking. Perhaps you would never dream of texting and driving at the same time. Even still, all it takes is one unexpected tire blowout or some bad weather to put you in a situation where you are fully or partially at-fault for an accident. If you are sued for liability that exceeds the limits on your bodily injury liability coverage, how would you pay the debt? Would you have to dip into savings, sell your boat, or perhaps make years of future payments from your income? Do you have an inheritance that could be at risk? Knowing how much you stand to lose can make it easy to choose high limits for your liability coverage.
Split vs. Combined Single Limit Coverage
When you choose your coverage amount, your insurer may offer you split limits or a combined single limit (CSL). A split limit may be listed as two different numbers, such as 25/50 or 250/500. The first number represents the amount in thousands that the insurance policy will pay for an individual victim’s injuries. The second number is the total amount in thousands available for all combined bodily injury liability payments after an accident. A combined single limit is different in that it does not impose individual victim coverage limitations. In other words, a 300 CSL would provide up to $300,000 total for all bodily injury liability after an accident.
Money to Protect You and Your Passengers against Uninsured or Underinsured Drivers
Just as you depend on your liability insurance to protect you against financial liability, you also depend on other drivers to carry enough liability to cover your losses in the event an at-fault driver injures you. Unfortunately, many drivers are either uninsured or otherwise do not carry enough coverage to take care of your needs after an accident. One of the most important things you can do is have uninsured motorist (UI) and underinsured motorist (UIM) protections on your car insurance policy. These two coverage types assure that you and your passengers are covered against the negligence of others.
Money to Help with the Smaller Things
If you have ever paid to rent a car or have your vehicle towed after an accident, you know how quickly these expenses can add up. Fortunately, you can personalize your insurance policy to include coverage for towing and rental car reimbursement. You can even include medical payments protection, which helps cover the cost of medical deductibles, co-pays, and out-of-pocket medical expenses after a car accident, regardless of who is at-fault.
Beyond Car Insurance
Few things are scarier than being sued for millions of dollars. Even if you do not have cash-on-hand, you could still face wage garnishment and asset liquidation if you lose your defense. In these types of extreme scenarios, having an umbrella policy to supplement your primary car insurance liability can shield you against financial ruin. Umbrella policies pay for excess liability that exceeds the limits of your primary coverage. They are affordable and usually come with coverage limits of $1 million, with additional coverage available to those with high-risk vulnerability. Contact our team here at Mayville Insurance for help determining if an umbrella policy may be right for you.