When it comes to finding the best car insurance coverage, it often becomes a balancing act between determining what you need and what you can afford. It’s a very subjective thing because everyone will identify what’s best by their own criteria.
However, regardless of your definition of what makes an insurance policy the best, there are a few general things you should consider when insurance shopping:
- Your financial situation
- The coverage you must have
- The coverage you need
Your Financial Situation
The amount of insurance coverage you buy should directly relate to your financial situation. The whole point of getting insurance is to protect your finances if you were to get into an auto accident.
Consider obtaining third-party coverage for extra protection, as most cities and states mandate it. For example, Compulsory Third Party or CTP insurance covers personal injury or fatality for third parties following a vehicle accident, such as passengers, other drivers, and road users.
You need to think about a couple of things when assessing your finances:
- Protecting your assets
- Assessing what you can afford
Additionally, comprehensive coverage is worth considering for those with newer or more expensive cars. It not only covers liability but also protects your vehicle. Consider higher coverage limits if you frequently drive long distances or in high accident rate areas. Assess your risk tolerance to determine the appropriate coverage level for financial protection.
Protecting Your Assets
In at-fault states where the person who causes the accident is responsible for paying for the damages resulting from the crash, you could face serious financial ruin if you don’t have insurance or enough insurance. The other party can sue you and go after your personal assets to collect.
In no-fault states, you have a little more protection because each party pays for his or her own expenses from an accident, regardless of fault. However, if costs are extreme, you could still face a lawsuit and loss of your assets.
Regardless of where you live, be sure that you understand what you could afford in the event of an accident. In general, you’ll have to pay for any expenses that exceed your insurance coverage limits.
Edmunds suggests that you get enough coverage to equal the value of your assets. Your assets include:
- Vehicles
- Home
- Real property
- Valuable jewelry and other items
- Investments
- Bank accounts
Anything with a monetary value is an asset you want to protect.
Assessing What You Can Afford
The other aspect of your finances that you need to think about is what you could afford to pay if you had an accident. The cost of an accident can range from a few hundred dollars to millions of dollars.
It really depends on the severity of the accident. Property damage is costly, but it’s not what will usually be the problem.
Medical expenses are where you’ll end up paying the most. You probably know medical costs are high and only getting higher. Even a simple injury can cost a lot of money in medical care.
If you end up paying for someone with a severe injury or if someone dies in the accident, it could deplete your finances.
Be honest with yourself about what you can afford. If you were in an accident tomorrow, could you afford to pay a $1,000 deductible to your insurer? Do you have health insurance to pay for medical costs? If you’d have to pay for the injuries and property damages of someone else, would you have the money to do so?
You have to look at your financial situation, and determine how much money you could come up with at a moment’s notice to pay for accident expenses. This will give you a very good idea of the extent and type of auto insurance coverage you need.
The Coverage You Must Have
Almost every state requires drivers to carry a minimum amount of auto insurance liability coverage. Liability coverage pays for the expenses of other vehicles in an accident. States don’t require you to carry coverage that pays for your own damages.
The minimum coverage requirement will tell you how much insurance you need for bodily injury per person and accident. It also states how much property damage coverage you need per accident. Some states also require personal injury protection coverage.
Personal injury protection insurance pays for medical expenses, lost wages, funeral expenses, rehabilitation, and essential services resulting from a vehicle accident, regardless of fault. PIP is primarily associated with “no-fault” insurance states. In such states, each driver’s insurance company covers their medical costs and other financial losses, regardless of who caused the accident.
PIP can also provide survivor benefits in the unfortunate event of a fatal accident. The coverage and limits offered by PIP may vary by policy and state regulations. While not all states require PIP coverage, it offers prompt financial assistance to accident victims, reducing the need for prolonged legal disputes over liability.
The Coverage You Need
State minimum coverage is usually not enough to cover the expenses of an accident. It also only covers other vehicles.
If, during your financial assessment, you determined that you couldn’t afford a lawsuit or to pay outright for accident expenses, then you’ll need to get more than the state minimum coverage.
Remember that the state only requires liability coverage, which is bodily injury and property damage. Sometimes, it’s personal injury protection.
Liability limits from the state are often very low. They are usually not high enough to fully cover the costs you’d incur in a crash. You may want to get additional liability coverage.
The Wall Street Journal states the other type of coverage you should consider is that which covers your vehicle. Collision coverage will provide you with insurance payment for damages to your car in an accident. Comprehensive coverage covers costs for damage to your vehicle from situations other than a crash, such as vandalism.
These types of coverage are different from liability coverage. Your insurer will determine the amount of coverage for you based on the value of your vehicle.
Your insurer will pay up to the value of your vehicle for repairs. If repairs exceed that limit, the insurer will consider your vehicle a total loss and pay you the value.
Another type of coverage to consider is uninsured and underinsured motorist coverage. Some states may require this. It pays for your damages and medical costs in the event you’re in an accident with someone who doesn’t have enough insurance, or has no insurance coverage.
Reassessing Your Situation
Once you have all this information about your finances and insurance options, you need to reassess the situation. Consider the potential expenses and how they will impact you. Then, look at potential insurance costs.
You should use resources, such as https://www.moneyexpert.com/car-insurance/, to try out the different coverage options and see how much it will cost you. Your goal is to find the maximum amount of insurance you can afford. This represents the best value and overall insurance option.
Making Your Purchase
Once you determine which policy offers you the best overall value, you can make your purchase. You’ll feel confident that you have the insurance coverage you need and can afford when you follow these guidelines to buy your policy.