Most people would be hard pressed to tell you what coverage limits and deductibles they have on their auto insurance. The very term insurance gives the impression that you are “covered.” The question is do you have enough coverage, and have you optimized your premium verses coverage choices? Your answers to these questions could be very costly indeed after you have had an accident.
Looking at your auto insurance policy declarations page can be very confusing. Following is an outline summarizing each line of coverage, and explaining the purpose of each along with how to optimize your coverage verses premium and purpose.
Liability coverage pays if you are at fault or partially at fault in an auto accident. It will pay for medical bills, pain and suffering, attorney’s fees, lost wages and more. Your coverage limit(s) need to be big enough to protect your net worth, so that the injured party does not sue you for your belongings and/or wages!
There are two types of liability limits: split limits and combined single limits. Split limits are most common and they divide your coverage into bodily injury for one person, bodily injury for two or more people, and property damage. A combined single limit is one limit that covers bodily injury for one or more people as well as the damaged property in the one limit.
| BI 1 Person | BI 2 or More | Property Damage | |
|---|---|---|---|
| Split Limit Example: | $100,000 | $300,000 | $50,000 |
| Combined Limit Example: | $300,000 CSL | ||
What is important to note about the insurance premiums, and their relationship to your coverage limit is that the first $15,000/$30,000/$10,000 (California State Minimums) make up the biggest % of premium. Increasing your limits from the minimums will cost less % of premium the higher you raise them. As an example you might pay say $236 per year for the minimum, but increasing to $250,000/$500,000/$100,000 may cost $320 per year. If you divide the cost per $1,000 in coverage here is a theoretical breakdown:
$236 per year divided by $55,000 in coverage = $4.29 per thousand
$320 per year divided by $850,000 in coverage = $0.38 per thousand
Higher limits give you more value!
Uninsured motorist is coverage that will pay you for your medical bills, pain and suffering and lost wages as well as damaged property should you be hit by a driver that does not carry insurance. In short it is liability insurance for you incase the offending party doesn’t have any insurance.
Underinsured coverage pays the difference between your underinsured limit verses a small limit of liability carried by the other party. One example would be incurred medical bills of $50,000, but the other party only carried state minimum of $15,000. You would end up owing $35,000. If your underinsured limit is $100,000 then you could claim up to $85,000 under your policy after subtracting the $15,000 limit.
It is possible to carry lower limits on your uninsured/underinsured limit verses the bodily injury liability limit you carry, but this would not be wise. First, this coverage is for you not someone else, so why short change yourself? In fact the state of California requires your signature to lower this coverage because they want you to understand the choice you are making. Second, look at your policy declarations, and you will notice that the premium for this coverage is a small fraction of the liability premium. This means reducing this coverage saves you very little money.
This coverage pays for medical bills to people who are passengers in your car. This is an optional coverage, so you may or may not have this coverage. These limits range anywhere from $0 to $100,000 it is wise to carry at least $1,000.
This coverage covers the cost of repairs to fix or replace your car should you hit an animal, have a fire or a rock breaks your windshield. It also replaces your car should it be stolen and not recovered.
The premium verses deductible for this coverage is important. Many companies will want you to have a $500 or even $1,000 deductible on you comprehensive coverage. This is because they want to avoid the expense of paying a small nuisance claim such as a windshield. However, if you look at the % of premium this coverage costs compared to the rest of your coverages even collision it is very small indeed. This means the difference between a $100 deductible, and a $500 deductible results in very little saving.
This coverage pays to repair your car minus your deductible in the event of an accident. If you look at this premium verses deductible cost it is higher than your comprehensive coverage because accident occur more often. This means that you will save more significant money by increasing this deductible.
For both comprehensive and collision the way you want to look at it is: what’s the difference in the deductible divided by the savings in premium? This figure will give you the number of years to the break even point.
The collision premium for a $500 deductible is $160 per year, and the premium for a $1,000 is $100 per year. If you divide the $500 difference in deductible with the savings of $60 you get 8.33. This represents the breakeven point. If you were to have to pay the deductible before the 8.33 years you would be better off with the $500 deductible. If you go past the 8.33 year mark and every year past that mark you would be saving money with the $1,000 deductible.
UMPD: Uninsured Motorist Property Damage limit of $3,500
UMPD: Deductible waiver.
Towing and Roadside Assistance
Ask your insurance representative to help you with selecting the right coverage for you!