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Auto insurance: Buy more than the minimum

Automobile insurance is one of those necessary evils, but having the right amount of coverage will give you peace of mind if you're in an accident.

By Ginger Applegarth

What's the key to buying auto insurance? You need enough to protect yourself and your family in the case of an accident, regardless of whether it's your fault or the other driver's.

States only require a minimal amount of insurance

The problem is that the amount of insurance most states require is very low, too low, and people are lulled into thinking those minimums must be all they need. After all, that's what the states proclaim you need to drive, right? If you get into an accident and you don't have enough insurance, your assets are in jeopardy if you're sued. If the other driver doesn't have enough (or any) insurance, you may not get the payments you deserve and need.

The point is, when there is an accident and one of the automobiles is uninsured or underinsured, both drivers lose.

who's covered under your policy?

There is general confusion about who is and who is not covered under your insurance policy. Anyone who is listed as a driver on your policy is insured for any cars he or she drives (theirs or a friend's), as long as the trip is not for business purposes. Your policy also covers anyone you have allowed to use your car by "expressed or implied permission," as long it's not for business purposes. This means if you told a friend that he or she could borrow your car any time, and then there's an accident, you're liable even if you didn't give express permission to borrow your car on that specific occasion.

basic components of a policy

An automobile insurance policy is a puzzle made up of four pieces, because there are four different kinds of costs you face if you are in an accident. There are three kinds of loss for people and one kind of loss for property.

The first is bodily injury liability, which protects you against legal claims by others for accidents you caused (or were partially responsible for). States often require as little as $20,000 per person or $40,000 maximum, but in today's litigious society that's a drop in the bucket for many legal settlements. You should have a minimum of $100,000 per person or $300,000 per accident (100/300, called "split limits" because there are two) or $300,000 as a "single limit."

The second type of bodily injury insurance is medical payments to others. This coverage pays medical expenses for you, your family members and any other occupants of any car you're driving. You can't count on medical insurance policies to pay for all the costs you and your occupants might face because there will likely be deductibles, co-payments, items that are not covered, etc. A recommended minimum of $10,000 per person is advised for medical payments to others coverage.

The third type of bodily injury coverage is uninsured motorist liability. This means that if you get into an accident with someone who has no insurance, your policy will step in and pay what the other driver can't, up to certain limits. For example, if you win a legal judgment of $100,000 from an uninsured motorist, your own policy pays what the other driver's insurance can't. Your uninsured (and underinsured) coverage should be the same amounts as your bodily injury liability -- at least 100,000/300,000.

The last coverage in your automobile insurance policy deals with property damage, not personal damage. This not only covers your car but also damages to your neighbor's landscaping, fence, garage or whatever else you hit in an accident. You are probably familiar with collision and comprehensive coverage, which are included under property damage. Collision coverage pays for damage to your car when it is in motion and collides with something. Comprehensive coverage pays for damages when your car is at rest, such as a crack in your windshield from a falling tree branch. The recommended minimum for property damage coverage is $50,000.

All of these amounts -- $100,000, $300,000, $50,000 -- sound expensive, but raising your policy limits from the minimums your state requires to the ones recommended here is probably less expensive than you think.

There are also some great ways to save premiums so that you can increase your coverage and still keep your automobile insurance premiums within your budget.

increase your deductible

First, consider increasing your deductible to $500 or even $1,000 for all components of the policy (bodily injury, comprehensive and collision, etc.). Often comprehensive and collision insurance is purchased with no deductible, and you can save substantially by taking on a little more of the risk yourself by creating or increasing your deductible.

For an older car, cut coverage

You can also save on premiums by dropping your comprehensive and collision insurance altogether after about five years unless your car is quite expensive and has maintained its resale value. Otherwise, those extra premiums may be more than the risk of damage to your car because it has depreciated so much in value. (Here is where a good insurance agent can be of particular help.)

Driver's ed and burglar alarms

Consider installing an anti-theft device and buying cars with passive restraints such as airbags. Take a driver's education course. Driver's education is especially important for teenagers or adults just learning to drive because taking (and passing) the course will keep the premiums down. Many states now require teenagers to take driver's education before they can get a license.

Buy a low-theft car

Check out what your insurance premiums would be for different models of cars you're considering before you make a decision on what to buy. If you buy a car that's considered a high theft risk, your premiums will be much higher than if you settle on models less likely to be stolen. Your insurance agent or company or your state insurance department can give you a list of vehicles on the "high theft list."




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