How to Determine if You Need More Than the Minimum Required Car Insurance Coverage
What Is Liability Insurance?
Because most states require that drivers have a minimum amount of liability auto insurance, you need to understand what this coverage entails. As a driver, you are financially responsible for any damage you cause to others while operating your car. This includes vehicle damage, property damage, medical bills and more. Liability coverage pays for any expenses that others incur as a result of an accident that is your fault. However, it will not cover any expenses related to your own losses. More than that, your car insurance policy will only pay out up to the maximum limit specified in your policy. For example, if you cause $30,000 in damage and your policy only has coverage up to $20,000, you will be responsible for paying the $10,000 remainder out of your own pocket.
What Can Happen to Your Car?
Vehicles can be damaged in car accidents, but other types of damage and loss events can occur. For example, you can have a car fire, or your vehicle may be stolen, damaged in a bad rainstorm and more. Such events can cause thousands of dollars in damage, or they may be total loss events. More than that, you may have personal injuries that yield expensive medical bills, and contents in your car may be damaged or lost as a result. Collision and comprehensive car insurance are available to pay for these types of events. Without them, you may need to pay off your existing car loan and pay for a new car out of your own pocket. You also may have to pay to replace lost personal property and pay for your medical expenses at the same time.
How Does the Value of Your Car Factor Into Your Decision?
While you can see that it makes sense to purchase a comprehensive or collision car insurance policy, it is important to note that the value of your car should be taken into account. For example, if you have an old vehicle with a lot of miles on it, your car insurance policy may pay very little or even nothing if you file a claim. This is because the policies will only pay out up a limit determined by the replacement cost of your vehicle. Therefore, if your vehicle has a low or negligible replacement cost, a liability auto insurance policy may be a more cost-effective option to consider after all.
Most drivers will benefit from purchasing more than the minimum amount of car insurance. However, because each situation is unique, drivers should understand how coverage works before making an educated decision that is right for them.