|
Automotive -
Maintain
|
|
Written by Gary Foreman
|
|
Friday, 30 April 2010 03:34 |
|
We are trying to determine what level of auto insurance we need on our new car. My husband  and I are disagreeing on the value for bodily injury. There appears to be three levels of coverage, which are fairly standard at $100K/$300K, $50K/$100K and $25K/$50K. The first number is per person and the second is per incident. If I understand correctly, our assets should be considered when determining which level to buy. We don't own a home and my best guess is approximately $100K. Have any advice? - Amy S.
This is the kind of question that not only can save us some cash, but also it can tell us a lot about our feelings toward money. Let's look at the question from two different perspectives. First, we'll just consider the purely financial aspects. Then, we'll look at some other considerations that could affect her decision.
The financial aspects are pretty straightforward. You'll be quoted two numbers for each level of insurance. The first number is the maximum that the insurance company will pay to any one person. The second number represents the total amount that they will pay to anyone involved in one accident on your behalf. So, in the event of an accident, the $100K/$300K quote would pay up to $100,000 to one person or $300,000 to everyone hurt in an accident.
Amy's question doesn't specifically define "bodily injury" insurance. There are two types. The first is the damage that we cause others in an accident that's partially or totally our fault. The second is the medical bills that you or your passengers have because of an accident.
While states are generally similar in what is included in each type of insurance, you'll need to talk with your insurance agent. Regardless of where you live you need to protect against certain losses. You need to be able to cover bills for yourself, your passengers and other people that are hurt because you were driving your car. Claims can be due to medical expenses, loss of wages, property damage, pain and suffering, and other similar bills.
You don't really care about legal definitions if an accident occurs. You just want the bills to be paid. By making sure that you have coverage for all of the circumstances described, you'll protect yourself.
Assets are definitely something to consider when determining how much insurance to buy. Why? Suppose she picks the lowest level of insurance ($25K/$50K) and has an accident that causes the other driver to win a judgment of $75,000 against Amy. Her insurance company would write a check for $25,000 and Amy would need to write one for $50,000. Amy and her husband are unlikely to have that much money and might need years to pay off that large a debt.
That's where the assets come in. Some people will tell you to carry at least as much insurance as the value of your assets. If Amy had carried $100K/$300K on our example, the insurance company would have paid the entire settlement.
But what happens if Amy has an accident with a judgment of $150,000? The insurance company will pay the first $100,000. That leaves $50,000 for Amy to pay. In that situation, many people will consider declaring bankruptcy.
Here's where it gets a little tricky. Each state has its own bankruptcy laws. Most are fairly generous in allowing debtors to keep personal possessions. But do you want to depend on that?
Should the amount of money you could owe be the only concern? Suppose a toddler wandered out into the street and you hit and crippled the child. The bills would easily exceed $100,000. Is it fair to the child's family for you to declare bankruptcy and leave them with the bills? It is something to think about.
To protect yourself from very large claims, you can purchase a personal liability umbrella policy. It pays for claims that are above the limits of your auto policy and typically run to about $1.5 million. They're not prohibitively expensive. Call your agent to get the actual cost.
A number of you are probably thinking that many of these large settlements are fraudulent and shouldn't be paid. You're right. Just recently I saw some statistics from the National Insurance Crime Bureau that suggested that fraud adds up to $300 to our insurance bills each year. Like you, I want to see that stopped. But that doesn't mean that drivers shouldn't carry proper insurance coverage.
None of us likes to pay for car insurance, but your liability coverage probably isn't the place to look for savings. If something bad were to happen, the failure to have enough insurance could mean declaring bankruptcy. If you need to cut your insurance bill, consider raising your deductible. If you raise your deductible from $500 to $1,000 the very worst thing that can happen is that you have to pay a $1,000 auto repair bill. You might not like it, but you should be able to avoid financial collapse!
_____________________
Gary Foreman is the founder of The Dollar Stretcher frugal living website and newsletters.
Also find out what your auto mechanic doesn't want you to know.
Related Articles:
Want to Learn How to Live Better and Cheaper?
Get our Famous 5 Rules of Living Cheaply today! You'll get over 20 pages of great content for free with full access to our Cheap University.
Like this Article? Get our Daily email of cheap articles and tips:
or get updates by RSS.
Like this article? Share it on Facebook or more!
          |
