It is one of the great questions in life. It’s obviously important since state law requires all drivers to have coverage. But why are there so many options? How do you know if you have the right types of coverage and enough to fully protect you against potential losses? In this article, we will explore reasons you need the right coverage and the right limits.
Your Vehicle is Damaged, Stolen, or Destroyed
Accidents, hail damage, theft – you hope it never happens to you, but if it does, collision and comprehensive insurance will have you covered. Statistics show that the average driver will file a claim for a car accident about once every 17-18 years. Of course, that doesn’t account for the additional claims you might need to file for non-accident related damages. Collision and comprehensive insurance pay for repairs or replacement of your vehicle after it is damaged due to a covered event.
Collision insurance pays for damages caused by accidents. It could be that you swerved off the side of the road or perhaps collided with another vehicle. Comprehensive, on the other hand, pays for damages caused by events other than collision. Examples include hitting a deer or being the victim of vandalism. Since collision and comprehensive cover different types of events, you will need both types of coverage to insure your vehicle against loss or damage fully.
In many cases, collision and comprehensive insurance are both required to satisfy the requirements of a lender. Drivers who lease or finance their vehicles through a bank may require physical damages coverage to insure their financial interest in the vehicle until it is returned or outstanding loans are paid in full. Even if you own the title to your vehicle free and clear, you should still consider adding collision and comprehensive coverage to shield yourself against a major vehicle repair bill or total loss.
There are not many options when it comes to physical damages protection. You either have it or you don’t. Insurance companies typically cover your vehicle for its actual cash value unless you own a collector or antique vehicle, which may instead be covered for an agreed value. You will, however, need to choose a deductible. The deductible is the amount of money you pay out of your pocket toward the cost of your claim. Keep in mind that your premiums are directly affected by the amount of your deductible, with higher deductible typically resulting in lower premiums. However, you should never select a deductible that is more than you could reasonably afford to pay for a claim.
You Damage Property that isn’t Yours
It is bad enough when you damage your vehicle. It is a whole different story when you damage someone else’s car or personal property. For every accident, there is someone who is financially responsible for the damages. If that person happens to be you, you will hope you have enough property damage liability protection to cover the bill.
If you hit and total a brand new luxury SUV, the damages could easily total $80,000. If you have $100,000 in property damage liability, you can rest assured you are covered. However, if you only have the Arizona state minimum of $10,000 in property damage liability, you may find yourself facing a lawsuit in court.
Often, victims’ insurance companies will pay for damages upfront and then pursue the at-fault party to recover those losses. Once the limits on your insurance have been reached, you may be personally responsible for any damages that remain. Unless you want to dip into your savings or pay compensation out of your personal income, we recommend talking to an agent here at The Don Neeley Agency to ensure you are adequately covered.
Continue reading part two of “How much car insurance is enough?”