Auto insurance is not a sexy topic; personal finance is. But how can you have a viable personal finance strategy if you ignore the auto insurance component? The short answer is, you can’t – especially if you’re uninsured and involved in an automobile accident. Nothing can destroy a good personal finance plan faster than being hit with a huge judgment for which you’re personally liable but have no way of paying.
That’s exactly what can happen if you’re found to be at fault in an accident and the injured other driver sues you and wins. Naturally, no one ever expects to be in an auto accident. Nevertheless, Fortune Magazine reported that 2016 was the deadliest year on American roads since 2007 based on data from the National Safety Council. Nearly 40,000 people died in motor vehicle crashes, up 6 percent from 2015. Financial costs for deaths, injuries, and property damage associated with crashes was estimated to be $432 billion, a 12 percent increase from 2015.
How Much Coverage is Required?
Each state has its own financial responsibility law setting forth the minimum amount of auto insurance you must have to legally be able to drive in that state. These minimum amounts usually are broken down into three categories:
Liability coverage – protects you and anyone named on your policy against claims made by others for bodily injury and/or property damage when your car caused an accident.
Personal injury protection (medical payment coverage) – covers the medical expenses of you and others regardless of who was at fault in an accident.
Collision coverage – covers your own property damage resulting from a collision.
For instance, North Carolina requires you to have a minimum of 30/60/25, meaning that you must have $30,000 for each person injured in an accident, up to a maximum of $60,000 for the entire accident, and $25,000 worth of coverage for property damage. For Charlotte auto insurance, contact a local insurance agent.
In addition, many states require you to have uninsured and/or underinsured motorist coverage. This protects you and others against losses sustained as the result of being involved in an accident where the other driver was uninsured, a hit-and-run, or his/her insurance coverage was insufficient to pay for the damages.
In terms of your personal financial strategy, be aware that the state minimum requirements usually are insufficient to cover the number of damages, both personal injury and property, resulting from a collision. In the North Carolina example above, your policy limit is only $60,000 for the entire accident. This means that if a given accident results in more than $60,000 worth of damage, you’re personally liable for the excess. Most insurance professionals recommend that your policy provide for at least $100,000 per person and $300,000 per accident.
Likewise, you’re not required to have comprehensive coverage. However, this is what protects you in the event that your car is stolen or damaged by fire, hail, flood, vandalism, or other such non-collision occurrences.
When buying auto insurance, be sure to ask about the various types of discounts the company offers. Most insurance companies offer a variety of discounts that will save you money on your insurance premiums.
Vehicle discounts include lower premiums for such things as having safety equipment, anti-lock brakes, passive restraints, an anti-theft device, etc. in your car. Driver-specific discounts include low mileage, a good driving record, and for younger drivers, being a good student or taking an accredited driver’s education course. You also can receive a discount if you have multiple vehicles and/or get your auto insurance and homeowners insurance from the same company. Don’t forget that paying your premium annually or semi-annually always costs less than paying on a quarterly or monthly basis.