MoneyGeek recently featured Advisor Michael Peek to provide his thoughts on what steps to consider when researching a car insurance provider. Below are excerpts from the article, which you can see in its entirety HERE.
How does car insurance differ from other types of coverage and why is it so important for drivers?
Like homeowners insurance or even medical insurance, car (or auto) insurance is almost always necessary and can help protect you financially if something unexpected occurs. Auto coverage is limited to events or claims involving motor vehicles. The coverage can protect you from liability for damage that occurs to others while operating a vehicle, both damage to another’s vehicle as well as some or all potential medical costs associated with the accident.
Auto coverage often protects against damage or theft to your own vehicle as well. There are an estimated 6 to 7 million auto accidents each year. Most of us will be involved in an automobile accident at some point in our lives. Can you come up with thousands — potentially hundreds of thousands — of dollars in the event an accident occurred at your fault and you were uninsured?
How should drivers balance risk management and affordability when it comes to car insurance?
Each state has its own requirement for minimum auto insurance coverage, with the exception of a few states that allow self-insurance with sufficient proof. Missouri, for example, requires a minimum auto insurance of 25/50/25. This means $25,000 of coverage for bodily injury per person, $50,000 of coverage for bodily injury per accident and $25,000 of property damage coverage. Most folks have seen the recent rapid increase in vehicle costs and even repairs. It would not be very difficult to accidentally cause over $25,000 in damages in today’s world.
Unfortunately, it is estimated that there were 42,795 fatalities resulting from auto accidents in 2022. Heaven forbid you were at fault for one of these accidents or another that caused serious harm and required extensive medical care for the other driver. The minimum coverage amount, in this case, could leave you vastly exposed financially. For many folks, I am a fan of obtaining the minimum coverage needed to add an umbrella policy to your property and casualty coverage. An umbrella policy can help cover you financially if you are found liable for damages beyond your stated auto or homeowners liability coverage. These umbrella policies are relatively inexpensive for large coverage amounts, typically starting at $1 million at a cost of less than $20 per month.
You may be working with a tight budget and thinking that you cannot afford to pay the extra amount for above-minimum coverage, but it is worth considering that a small amount of additional premium can go a long way toward reaching proper coverage. Being held liable for a serious accident requiring you to pay for damages beyond your coverage amounts, especially on a tight budget, could be a hard hole to dig out of.
What can consumers do to better educate themselves on car insurance policies, coverage and pricing?
When shopping for auto insurance, do yourself a favor and spend some time online reading about the different types of auto coverage and what may be necessary for you. I think having a decent knowledge base as you seek out coverage is important. You do not need to know every detail, but it helps to know what questions to ask agents and what types of coverage are available. That leads to another resource: the actual insurance agents. I have found some agents to be extremely helpful in educating me and helping me find the right policy. Others, well, not so much.
This is why I recommend having some knowledge when shopping for a policy. An agent should provide you with a quote showing all the different coverages. Do not be scared to question agents on the meanings of different line items shown on the quotes and how changes would affect coverage amounts and pricing. Be sure to ask about the less obvious things like windshield repair, towing and rental car coverage.
To help keep costs low, shop around! An agent who is a licensed broker, meaning they can sell insurance for various companies, may be able to help you find the lowest price available among different companies for the coverage you are seeking. Some companies, like State Farm, do not allow their products to be sold by brokers, so you may reach out to some of these companies alongside the broker for additional options. Ask the agents about potential discounts and see if you qualify, further lowering costs. Bundling your auto insurance with other property and casualty insurance, such as homeowners, renters or umbrella coverage, will likely help reduce your cost as well. If you are comfortable financially, you can usually raise your deductible amount to lower your monthly premiums.
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