The idea of insurance can be hard to swallow. Unlike your mortgage, your mobile phone or your car, you’re paying for something that you can’t hold in your hand or experience. There’s even a possibility that you may never use it. So it’s understandable why you might think that if you’re forced to pay for it because it’s the law, such as with auto insurance, you should only get the least amount required. But depending on your situation, only getting the minimum auto insurance coverage mandated by state law could be a gamble not worth taking.
“I’ve never had an accident.” or “It’s been years since I’ve had an accident.” Knock on wood all you want, there’s still no predicting the future. There’s nothing wrong with being optimistic, but the purpose of insurance is to protect you from the unexpected, so let your pessimistic side guide you on this one.
“I don’t trust insurance companies.” Car insurance companies are regulated by state law, so if you suspect you’re not being treated fairly, you have choices. Your state’s insurance commissioner and/or attorney general’s office may have counselors who can help you understand your rights, work with your insurance company and make sense of your policy.
“It’s too expensive.” Whenever you think about the cost of your insurance premiums, compare it to the cost of auto repairs, medical expenses, lawsuits and replacing your car. It’s no contest.
“I’m a good driver.” Then you’re probably well aware that plenty of other people whom you share the road with are not. Even worse, many of them are uninsured or underinsured, so if they cause an accident, you may not be protected.
Convinced that having the minimum amount of car insurance isn’t enough? Dig out your policy and take a look at it. Every state’s laws regarding auto insurance are different, but here are some things to consider:
- If you have enough money in your emergency fund to pay for the following expenses out of pocket, you can lower your premiums by increasing your deductible, dropping rental car reimbursement coverage, and maybe even dropping collision/comprehensive coverage if you have an older car (because you have enough emergency savings to buy another car in cash if your car is unsalvageable).
- Compare the benefits and costs of adding towing coverage to your policy versus being an auto club member.
- Check if you can add uninsured/underinsured motorist coverage, which could also provide protection from hit and runs.
- Understanding how much liability coverage you need is the most important part of your policy, but unfortunately it’s also the most complex. Keep in mind that it’s likely to be directly related to the probability that you’ll be sued if you’re at fault in an accident. If you’re sued for more than the amount of coverage your insurance offers, you could be on the hook for the rest. The more you have to protect from losing, in other words, the more money you make and the more assets you have, the more coverage you need. Remember that even future wages could be garnished, so even if you’re not making much income now, if you have the potential to have a higher income in the future (such as medical students), you may need more coverage. Make sure you understand your coverage in the case of multiple cars being involved in an accident. For example, only having $25,000 in property damage liability coverage may not even be enough to cover one car. You may want to consider adding an umbrella liability policy to extend your coverage from the maximum amounts offered under your auto insurance.
- Hopefully you already have health insurance, but if for some reason you don’t, add the maximum amount of medical payment coverage available to at least defray some of the costs if you’re injured in a car accident.
- Check your coverage every year to see if it matches your situation. A teenage child getting his/her license, a major purchase that increases your assets such as buying a home, or landing a high-paying job could all mean you may benefit from changing your policy.
Auto insurance involves protecting yourself, your family and your finances, so isn’t it worth doing more than just following the law?