Full coverageÂ car insuranceÂ covers you for most eventualities, but it is also expensive. You get what you pay for, and in this case, what you pay for isÂ liability coverage,Â collision coverage, andÂ comprehensive coverage.
The question is, how essential are all of these coverage options and at what point do they become surplus to requirements?
YourÂ insurance coverageÂ is never set in stone. You can increase your coverage as needed and drop coverage when it is no longer needed. Staying on top of everything is just a case of making the right choices at the right time.
What isÂ Full CoverageÂ Auto Insurance?
There are several different types ofÂ auto insurance, each covering you for something different. The most important cover is something known asÂ liability insurance, which spansÂ bodily injuryÂ andÂ property damageÂ and covers you when you injure another driver or their property.
Liability insuranceÂ is required in nearly all states and there are minimum coverage limits in all of them. To make sure you are legal, you need to meet these limits. If you want additional liability cover to protect your personal assets, you can pay more and aim higher.
Collision coverageÂ andÂ comprehensive coverageÂ are also required if you wantÂ full coverageÂ car insurance. WithÂ collision insurance, you are protected against damage caused to your own property, whether that damage is the result of a road traffic accident or a collision with a wall or guardrail. As forÂ comprehensive insurance, it protects you againstÂ vandalism, theft, weather damage, and most of the things not covered byÂ collision insurance.
AÂ full coverageÂ policy should also include some personal injury protection (PIP) cover, whether in the form of medical payments coverage or personal injury protection coverage. Both are designed to help you with medical bills and other expenses resulting from personal injury, while PIP goes one step further and covers you for transportation costs, childcare expenses, and loss of work.
All of these options are part of aÂ full coverageÂ insuranceÂ policy. There are also many additional coverage options and add-ons, but these aren’t necessarily part of aÂ full coverageÂ policy and, in most cases, need to be added for an extra cost. These options include:
- Uninsured/Underinsured Motorist Coverage:Â Minimum coverÂ car insuranceÂ won’t protect you if you are hit by an uninsured driver. It has been estimated that as many as 13% of all drivers on US roads are not insured and, in some states, this climbs as high as 25%. With uninsured motorist coverage, you will be protected for such eventualities.
- Gap Insurance:Â When you purchase a brandÂ new carÂ on finance, the lender will often insist on gap insurance. A car depreciates rapidly and if that depreciation drops the value below the balance of the loan, the lender stands to lose out. Gap insurance protects them against such an outcome and covers the difference to make sure they get their money back if the car is written off.
- New CarÂ Replacement:Â AÂ new carÂ replacement policy will do exactly what the name suggests, providing you with a new vehicle in the event your current one is written off. Depending on the insurer, there will be limits concerning the age of the vehicle and the number of miles on the clock.
- Roadside Assistance:Â With roadside assistance, you will be covered for essential services if you break down by the side of the road. It typically includes tire changes, fuel delivery, towing, lost key replacement, and more.
- Pet Injury:Â What happens when your pet gets injured during a road traffic accident? If you have pet insurance, they will be covered through that. If not, many providers will give you a pet injury insurance add-on.
- Rental Car Reimbursement:Â If your car is stolen or getting repaired, rental car reimbursement coverage will help you to cover the costs of a short term rental. This insurance option is often fixed at a daily sum of between $50 and $100 and lasts for no more than 30 days.
- Accidental Death:Â A type ofÂ life insuranceÂ that focuses on accidents, paying a death benefit to a beneficiary when a loved one dies in an accident.
When to Drop FullÂ CarÂ InsuranceÂ Coverage
TheÂ value of the carÂ you drive, along with yourÂ insurance ratesÂ and your driving record, will impact whether or not you should dropÂ full coverageÂ auto insurance. Take a look at the following examples to discover when this might be the right option for you:
1. YourÂ Insurance PremiumsÂ are too High
If yourÂ carÂ insuranceÂ ratesÂ are higher than the size of aÂ payoutÂ following an accident, it might be time to trim the fat. Insurance is a gamble, a form of protection. You pay a small sum of money in the knowledge that you’ll be covered for a large sum if something untoward happens. But if you reach a point when your premiums begin to exceed the potentialÂ payout, it’s no longer useful.
2. You Have an Old Car
The lower yourÂ car’s value, the less you needÂ full coverageÂ car insurance. If you’re driving around in a car that costs less than $1,000 and you’re paying $2,000 for the pleasure, you may as well be throwing your money down a wishing well.
In the event of an accident, you’ll have a deductible to pay and that deductible could be near theÂ value of the car. In such cases, it will nearly always make more sense to stick with minimum insurance and to just scrap your car if anything serious happens.
3. You Have a LargeÂ Emergency Fund
AnÂ emergency fundÂ is a sum of money you keep to one side to cover you for emergencies, including job issues, medical bills, broken appliances, and car troubles. If you have such a fund available, you have a few more options at your disposal and can consider droppingÂ full coverage.
It will save you money in the long term and if anything happens in the short term, you still have options and won’t be completely financially destitute.
Bottom Line: When It’s Needed
While there are times whenÂ full coverageÂ is unnecessary and excessive, there are also times when it is essential. If you have aÂ new car, for instance, you should get all of the cover you can afford, otherwise, you could be seriously out of pocket following an accident or theft.
When Should you Drop Full Coverage on your Car? is a post from Pocket Your Dollars.