Auto insurance essentials

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Our vehicles are well into their second decade of life, and I was just looking at our insurance premiums. This is one area of finance that we haven't paid enough attention to and have little knowledge, so I've been trying to figure out what specific coverages can be dropped.

I'm sure each company is a bit different, but in general, is there any reason to keep comprehensive insurance on cars whose values are about $3,500 each?

I need to find out more, but it looks like the coverage of medical payments is redundant because we're all covered by health insurance.

What about collision insurance?

We don't want to be under-insured, and I want to keep the liability high enough to protect our assets (no bad puns needed), but we also need to make sure not to be over-insured.

[greenskeeper]

as far as collision, do you have $3500 to replace the car if it is totaled?

how much more is it? I have 13 and 14 yr old vehicles, however the value of them ($4k, $10k) compared to how little the collision insurance is (additional $150/yr) makes me keep full coverage.

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as far as collision, do you have $3500 to replace the car if it is totaled?

Yes. When the cars go, we'll just buy new ones with cash and keep them until they die or are too expensive to keep.

how much more is it? I have 13 and 14 yr old vehicles, however the value of them ($4k, $10k) compared to how little the collision insurance is (additional $150/yr) makes me keep full coverage.

Collision is $170 a year for one car (teenager on policy) and $60 on the other one.

[Robert742]

If you can afford to replace your cars as you say, you may want to drop collision coverage -- particularly on the car your teen is driving. If your teen is in a one-car accident while driving, damages your car, and you place a collision claim, you will probably pay back the insurance company more in higher rates for insuring a teen with an accident, than you would collect for the claim.

I like to keep comprehensive coverage, with a low deductible, even on older cars, because a comprehensive claim will not increase your rates and does not cost much, and covers damage to your car for things less in your control, like if it is stolen, vandalized, you hit a deer, damaged by a hurricane, etc.

You may want to drop comprehensive on one of your cars, if your teen makes the comprehensive cost more than you want to spend. Decide on which car you least need comprehensive coverage, and ask your insurance compnay to rate your teen on that car.

If your state does not have a mandatory Personal Injury Protection law, medical payments are optional. The good thing about med pay on an auto insurance policy, is it usually picks up from the first dollar, and does not have a deductible. If you have a major med plan, you have deductibles & 20% co-pay, which med pay on the auto insurance may cover. If you have a PPO/HMO, and little out of pocket expense for health care, you may want to drop the med pay.

With liability & uninsured/underinsured motorist coverage, take as much as you can afford. Don't buy coverage you know you can survive without having, but you only know if you are "over-insured" in retrospect. If you never have a claim, you were over-insured by having any insurance. But no one knows if you have a million dollar lawsuit against you in the future.

The good news is if you carry high Bodily Injury liability limits, like $250,000 per person/$500,000 per accident, you get lower rates with many companies when you shop your insurance.

By the way, if you have neglected looking at your auto insurance as you say, and have not shopped it recently, you should look around for better rates. Finding an insurance company with lower rates is a great way to save money on insurance.

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With liability & uninsured/underinsured motorist coverage, take as much as you can afford. Don't buy coverage you know you can survive without having, but you only know if you are "over-insured" in retrospect.

Is there any kind of a formula or general idea of how much liability one should have based on total assets? I'm much more concerned about liability than I am something happening to the cars.

Edit -- I found the answer myself How Much Car Insurance Do You Need? - Personal Finance - WSJ.com

[Robert742]

Is there any kind of a formula or general idea of how much liability one should have based on total assets? I'm much more concerned about liability than I am something happening to the cars.

Edit -- I found the answer myself How Much Car Insurance Do You Need? - Personal Finance - WSJ.com

That WSJ article is a good general discussion on coverage available on personal auto policies.

The advice given regarding liability is the same advice you hear from a lot of agents. If you have a million dollars worth of assets, you need a million dollar liability policy. I have never liked that advice.

If you are responsible for a million dollar liability settlement, but you have only $500,000 in assets, you would still lose all your assets if you had only 500k of liability coverage. If you are concerned with protecting your assets, including future income, buy enough liability insurance to make not having enough coverage in a liability lawsuit a remote possibility.

The alternative to not having enough insurance in this situation is bankruptcy, so how much coverage you choose to buy may depend on how much of your assets are sheltered by your state's bankruptcy law. Remember, future wages can be garnished, too.

If you make a good income and diligently save money, take the highest liability on your home and auto insurance to qualify for an umbrella liability policy, and buy an umbrella policy. The cost is negligible, because it is not likely you will ever need it, but your odds are greater, and your cost will be a little more, because of your teen driver.

Higher liability on your auto policy also allows you to take higher uninsured/under-insured motorist coverage. Uninsured motorists, often people with several duis or suspended license, are the most dangerous drivers on the road. You could be at the wrong place at the wrong time, but your uninsured motorists coverage can protect you from these dangerous & irresponsible drivers. It also covers you from bad drivers only able to afford the minimum liability coverage.

I carry 250/500 for Bodily Injury Liability & Uninsured Motorist coverage, and my assets are nowhere near that much.

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Thank you, Robert, for your information.

Uninsured motorists, often people with several duis or suspended license, are the most dangerous drivers on the road. You could be at the wrong place at the wrong time, but your uninsured motorists coverage can protect you from these dangerous & irresponsible drivers.

What is strange is that, at least in some states, although you technically are required to maintain car insurance, the state doesn't ask for proof when you renew registration. Therefore, the only way to find out if a driver/owner doesn't have insurance is when that person is involved in an accident.

[kork13]

What is strange is that, at least in some states, although you technically are required to maintain car insurance, the state doesn't ask for proof when you renew registration. Therefore, the only way to find out if a driver/owner doesn't have insurance is when that person is involved in an accident.

This has always confused me as well. Also, isn't it required in most states to not have some level of basic insurance coverage? So why is there even a need for "uninsured motorist" coverage? If the other guy's not insured, he's doing so illegally.

[Robert742]

This has always confused me as well. Also, isn't it required in most states to not have some level of basic insurance coverage? So why is there even a need for "uninsured motorist" coverage? If the other guy's not insured, he's doing so illegally.

You're welcome, Photo.

As you know, not everyone follows the law. There are the hardcore group of dangerous people with alcohol & drug addiction problems, still driving with a suspended license, who shouldn't be on the road, criminals stealing vehicles, people with bad driving records unable to afford insurance, etc.

Also, in tough economic times, there are more people driving uninsured, because they need to drive, but can't afford the insurance, so they take a chance they won't need it or get caught.

Then there are people who try to game the system & avoid having to keep paying for insurance. Driving without insurance is like speeding -- both are illegal, but you can often get away with it.

Some states require proof of insurance to register the car. So, some people buy insurance, register their car, and then let their auto insurance lapse. Some states are maintaining databases, and coordinating with insurance companies, to have the state notified when an auto insurance policy lapses. Hopefully, this will reduce the number of uninsured motorists, but you will alway be at risk from the first group of uninsured driver I described.

There is also a concern with under-insured drivers: for example, a teen with his own car and a reckless driving ticket. He may meet the legal requirement of having the minimum liability limits, but you will need to collect through your under-insured motorist coverage for damages above the minimum limits, if his inexperience and dangerous driving habits causes him to injure you.

Some consumers don't want to buy uninsured/under-insured motorist coverage, because they feel they are paying for the insurance for people breaking the law. You aren't buying coverage for the uninsured motorist, you are protecting yourself from their irresponsibility. Once an insurance company pays out for uninsured motorist coverage to the injured party, the insurance company uses their right to go after the responsible party and get their money back.

There are a lot of uninsured motorists, who thought they had no assets, and you "could not get blood from a stone," surprised they are forced to make monthly payments to an insurance company to pay for the uninsured injuries or damage they caused.

One of these people received a mailer from the insurance company where I was working, to contact us for an auto insurance quote. It turns out he was involved in an uninsured accident and was being forced to pay back my insurance company. He was very offended at getting the mailer, and went on about how my insurance company had "ruined his life." Some people never take responsibility for their actions.

[greenskeeper]

This has always confused me as well. Also, isn't it required in most states to not have some level of basic insurance coverage? So why is there even a need for "uninsured motorist" coverage? If the other guy's not insured, he's doing so illegally.

yup and you are s-c-r-e-w-e-d if you get into an accident with him and don't have the coverage.