Auto insurance can be one of the most overlooked types of insurance when it comes to the amount of coverage needed to protect your family. Unfortunately, insurers are very quick to show the rock bottom rate but don’t help individuals and families be informed about how much auto insurance coverage they actually need.
In this article we’ll dive into what auto insurance is, how much coverage you should have, how much it costs and how to get it.
What is Auto Insurance?
Auto insurance is financial protection for you and your car and is legally required to have while driving a vehicle. It can provide protections for damage to your vehicle, damages and injury to others from you causing an accident, emergency roadside or even a car rental when yours is in the shop. Let’s break down exactly what auto insurance covers!
Liability Coverage
One of the most important and yet overlooked coverages that auto insurance provides is called liability coverage. This covers any sort of medical expenses or property damage as a result of causing an accident. Liability coverage will pay up to your current liability limits. These limits are broken up into 3 parts:
Bodily Injury Coverage Per Person:
This covers any injury and physical damages to a person up to the limit on your policy. This is the first number next to your liability limits on your auto insurance policy. For example, Arizona requires $25,000 of bodily injury coverage per person.
Bodily Injury Coverage Per Accident:
This essentially is an overall limit to how much medical expenses and injury costs your insurance carrier will pay per accident. It is listed as the second number next to the liability section on your auto insurance policy and only provides coverage up to that limit. Arizona requires at least $50,000 of bodily injury coverage per accident.
Property Damage:
This is what pays for the damages to anyone else’s vehicle or property when you cause an accident. Property damage is the third number listed next to the liability section of your auto insurance policy. Arizona only requires $15,000 of property damage coverage.
So why is this the most overlooked coverage? In the examples above you can see that Arizona only requires liability limits of $25,000/$50,000/$15,000. So what do you think most insurance agents and carriers show you first? They show you the lowest possible coverage because it is also the least expensive.
What they don’t tell you is that the average simple back or neck injury from a car accident can have medical expenses totaling between $25,000 and $100,000. The worst part is, you are on the hook for anything that is not covered by the auto insurance company.
For Example:
Let’s say you have Arizona state minimum coverage and tomorrow you’re driving to work or the store. You see a cute little bunny in the road, so you veer into the right lane to avoid hitting the poor guy. When you veer into the right lane, you strike a vehicle that was driving in your blind spot. You couldn’t even see him! The other car spins, you almost have a heart attack, but fortunately you and the other driver seem to be okay. You exchange insurance information, the police come, and they tell you that you’re at fault for the accident.
Months pass by and you think that your insurance company has got you covered. However, you suddenly get a call from your insurance company letting you know that medical expenses topped out at $75,000 for the person you hit. They ended up getting whip lash when the car spun and have been getting treatment ever since; they may never be the same. You only have insurance coverage for $25,000 per person! That means you can be sued for the other $50,000! It get’s even worse. Until you pay that back, you can have your wages garnished by up to 50%.
It still get’s worse. You find out the other vehicle you hit was a brand new Lincoln and you totaled it out. That’s a $75,000 car and you only have $15,000 of property damage coverage. You are now on the hook for over $110,000 which can all be garnished from your wages. This is why it is so important to speak with an expert when evaluating how much liability coverage you need.
Collision Coverage
This one is not a required coverage, and it basically covers your vehicle if you were to get into an accident. You pay the deductible, and the insurance company will repair or send you a check for your vehicle.
Comprehensive Coverage
This coverage basically pays for anything that happens to your vehicle other than getting into an accident. Coverage can be for vandalism, a tree falling on top of it, or even the car bursting into flames. This coverage is also not legally required, but it can come in handy if anything does happen to your vehicle other than an accident. Fortunately, it is also not all that expensive for most people to add this coverage to their policy.
Uninsured/Underinsured Motorist Coverage
This is another coverage that many agents or insurance companies will try and cut in order to save you money immediately. However, this can really hurt you financially in the long run. Uninsured/Underinsured Motorist coverage protects YOU if someone were to cause an accident, physically injure you and not have enough or any insurance to cover the damages. This will cover up to the limits for medical expenses and hospital bills that you incur from another person’s actions. Often people think this coverage isn’t necessary, but wouldn’t you rather the insurance company cover your medical expenses if someone who was uninsured hit you? Why would you have more coverage to protect someone else than you would have for yourself?
Emergency Roadside
Emergency roadside usually only costs about $25 per year and can cover towing expenses, lockouts, or even bringing you gas. It is super inexpensive and can save you a ton in towing costs.
Auto Rental Reimbursement
This coverage is also pretty inexpensive. It usually only adds about $40 to your policy per year and will reimburse you for any rental expenses as a result of your car ending up in the shop.
Glass Coverage
This option provides coverage for your windshield if it cracks or shatters. In Arizona, auto insurance companies must offer glass coverage to each policyholder. The law also states that these companies can not raise your rates for making a glass claim. However, there is a loop hole. If you switch insurance companies, the new company can count these glass claims against you, and as a result, quote you at higher rates.
How Much Auto Insurance Coverage Should I Have?
The simple answer is, as much as possible. Auto insurance is not something to overlook just because lower coverage is cheaper, and you think you are an amazing driver. We’re sure you are, but anything can happen. You don’t want to be left on the hook for some astronomical sum of money. So how much coverage should you have?
Liability:
This one is going to depend on how much you can afford. Liability coverage is generally the most expensive coverage on a policy and for good reason. We generally recommend having no lower than $100,000 of bodily injury per person, $300,000 per accident and $100,000 of property damage coverage.
Collision:
This is going to come down to personal preference, or if you have a car loan. This is generally the second most expensive coverage, but it can really save you some money if you have a valuable vehicle. Usually our rule of thumb is, if the cost of maintaining this coverage for the next 2 years exceeds the value of the vehicle, you probably don’t need it. One thing to remember, if you do choose to have this coverage, the lower your deductible, the more you will pay each month!
Comprehensive:
We recommend that most everyone have this coverage. It is fairly inexpensive and can really help you out if something happens to your car. Again, the same rules as Collision coverage apply to comprehensive. If you will pay more for it in the next 2 years than your car’s value, you probably don’t need it. The lower your deductible, the more you will pay in premiums each month.
Uninsured/Underinsured Motorist:
You should have this coverage no lower than your liability limits. We recommend having at least $100,000 of bodily injury coverage per person and $300,000 per accident.
Emergency Roadside:
This is a completely personal preference, but it is so inexpensive that we recommend most people have it just in case.
Auto Rental Reimbursement:
Same as Emergency Roadside, this is completely up to you, but it can save you some money if your car ends up in the shop.
Glass Coverage:
This is the only time we will say people may have too much coverage. Glass coverage can cost up to $200 per year, per vehicle. Unless you are replacing your windshield at least once per year and you don’t plan on switching insurance companies anytime soon, you probably don’t need this coverage.
How Much Does Auto Insurance Cost?
There are two different things that someone purchasing auto insurance protection should consider, price vs cost.
Hold on, don’t those mean the same thing? Price and cost are synonymous, you may be thinking.
Bear with us! We will show you the difference.
Price is what you are immediately paying for auto insurance. This is what you are currently paying monthly as premiums.
Cost is what becomes a factor after you make an insurance claim.
Let’s look at the example given previously. You have state minimum liability coverage on your car. This will cover $25,000 of bodily injury coverage per person, $50,000 per accident and $15,000 of property damage. Your monthly price is only $40 per month. Let’s say you cause that accident with the cute bunny, injure the other driver and total their vehicle. You are on the hook for $60,000 in property damage and $50,000 in medical expenses which the insurance company did not cover. Therefore, your cost is going to be $110,000. Now, if you would have kept higher liability limits such as $100,000 of bodily injury coverage per person, $300,000 per accident and $100,000 of property damage, your price may have been higher at $80 per month but your cost would now be $0.
Do you understand the difference? It is important to find a balance between price and cost when purchasing an auto insurance policy. Here at Metcalf Financial, we are experts at this!
How Can I Get Auto Insurance?
In order to get a new auto insurance policy, there are a few steps you will need to take:
Gather Your Information:
In order to purchase a new policy, you will need to gather all of the information that pertains to your vehicle(s.) This is going to include the year, make, model and VIN# for each of your vehicles as well as the full name, birthday and driver’s license numbers for any drivers you are insuring.
Understand The Auto Insurance Requirements in Your State:
In Arizona, you need at minimum $25,000/$50,000/$15,000 for your liability limits. However, we recommend keeping higher liability limits.
Get An Auto Insurance Quote:
You can go online to places like The Zebra to see Auto Insurance quotes instantly. However, these online websites do not actually provide an accurate quote. In order to have an accurate price of auto insurance, an insurance company must run a credit check and pull your Motor Vehicle Report (this shows if you have any tickets or accidents). Online comparison websites don’t instantly run your reports, so it ends up looking like a bait and switch. They only show the lowest price you could pay, but not what you actually will pay. It is best to get a quote from a licensed broker who can compare and run these reports for you!
Choose The Right Coverage:
Looking at your current financial situation, assess how much coverage you can afford now, while also understanding the cost if you have to make a claim.
Choose The Right Policy:
Just because you found the lowest price, does not mean you have found the best policy. You may find one insurance company has the lowest price, but when it comes to paying out a claim, they disappear. You need to find a company that is A rated or better with A.M. Best and has a long track record of paying claims.
Cancel Your Old Policy:
Once you have found that perfect balance of price vs cost and picked a great policy from a reputable company, the next step is to cancel your old policy. Usually this can be done with a quick email or phone call to your insurance company. Just make sure that your new policy is effective before you cancel your old one.
Finding The Right Auto Insurance Policy
The best way to find the right coverage and policy is to speak with a professional. They will be able to examine your current financial situation and recommend the best coverage options for you or your family. Auto insurance is like life insurance: what you pay is based upon statistics, and every company charges differently. This can get very confusing!
At Metcalf Financial, we can help you find the best company, with the most coverage, at the best possible price. We will guide you from A to Z through the auto insurance process.
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