If you’ve ever wondered how much car insurance is the right amount, you are not alone. It can be overwhelming deciding the coverage types and limits for your policy.
So what’s the difference between these two types of coverage, and why should you have both?
Collision – Collision insurance covers the damages to your vehicle after a car accident. Whether you hit a tree, another car, or run into someone’s home, your insurance will help cover the cost of repairing or replacing your vehicle.
Comprehensive – Comprehensive insurance covers the damages to your vehicle that occur due to non-collision events. If you hit a deer in the road or a thief takes off with your car, a tree falls on it, a stone cracks the windshield, a flood or hail damages it, comprehensive insurance reimburses you for your loss.
Do You Need Collision and Comprehensive Coverage?
It is worth noting that many drivers are required to maintain collision and comprehensive coverage according to the terms of their loans or lease agreements. When your car still belongs to a dealer or otherwise serves as collateral for a loan, you may be required to protect the lender’s financial interest in the vehicle.
Limits and Deductibles
When it comes to collision and comprehensive coverage, you either have it, or you don’t – there are no limits to choose from. Car insurance companies insure most vehicles for their actual cash value at the time of the collision or another covered event. The actual cash value is the amount of money the insurance company is willing to pay to repair your vehicle for a covered claim. If the cost of damages exceeds the actual cash value, the insurer will reimburse you for your loss based on the actual cash value of your vehicle. However, if you are filing a claim for an antique vehicle or collector car, you may be insured for an agreed value listed in your policy instead.
While you may not have to select limits for your coverage, you will have to choose a deductible. This is the amount of money you agree to contribute toward the cost of collision and comprehensive claims for your personal vehicle. Deductibles may be as little as $100 or as much as $1,000. The amount you decide on should be a matter of preference and affordability. The higher the deductible, the lower the premiums.
You Damage Someone Else’s Property
If you cause an accident, you might have much more to worry about than repairing your car. If you are at-fault, you could also be responsible for the damages to other people’s property. Here in Wisconsin, drivers are required to carry a minimum amount of property damage liability insurance to help cover the cost of at-fault damages. However, it may not be enough to protect your income and assets against a lawsuit for excess liability.
Consider, for example, a driver who loses control of his vehicle, runs over someone’s fence, and totals a brand new luxury vehicle parked in a driveway. The damages total up to $85,000, of which the driver only has the state minimum $10,000 in property damage liability coverage. He is sued for the remaining $75,000, which he has to use personal savings and payments from future income to cover. Had the at-fault driver purchased higher liability limits, the damages could have been covered in full.
Compensation for Harm You Cause Others
Liability goes beyond just property damage. If there are other people involved in an accident you cause, you could have much more to pay for than a few car repairs. It does not matter if circumstances were beyond your control such as a patch of black ice or mechanical failure. What matters is that the accident happened and you may be the majority at fault in it. Injuries can cost many tens of thousands of dollars in medical bills and lost wages, not to mention emotional distress and loss of companionship. Add in the possibility of any punitive damages you face as an at-fault driver, and your financial responsibility for an accident can quickly soar.
Bodily injury liability insurance is designed to protect you against expensive lawsuits by paying for victim injuries up to the limits of your policy. You should choose your bodily injury liability limits carefully, though, since you will be responsible for paying out-of-pocket for any damages more than your limits. The State of Wisconsin has mandatory minimum liability limits, but we here at Thiel Insurance Group recommend that our clients purchase much higher limits to protect your income and assets against a major loss. When one considers the current cap for loss of companionship of $350,000 for an adult and $500,000 for a minor, carrying at least $500,000 of auto liability would seem prudent.
Split Limits vs. Combined Single Limit (CSL)
Your liability insurance could be in the form of a combined single limit (CSL) or split limit, depending on your insurer and your policy. A combined single limit is listed on your policy as a single coverage amount, such as 300 CSL; this means your policy will cover as much as $300,000 in total bodily injury damages per accident, whether that is for a single or multiple victims. A split limit is different, in that it limits the amount of coverage available to each, as well as per accident. Split limits is listed as two separate numbers, such as 250/500; this means the insurance company pays up to $500,000 for total bodily injury per accident, but only up to $250,000 per person who is injured.
Money to Protect You and Your Passengers against Uninsured or Underinsured Drivers
A lot of drivers here in Wisconsin get behind the wheel without insurance, despite laws requiring all motorists to have liability coverage. If you are injured by an uninsured driver or a motorist with too little insurance to cover your losses, how will you afford the medical care you may need, and your loss of income? Uninsured motorist (UI) and underinsured motorist (UIM) insurance each protects you and your passengers against at-fault drivers with insufficient coverage. Uninsured motorist insurance takes care of your injuries if a driver hits you with no insurance, and underinsured motorist takes care of any excess damages that remain after you exhaust the limits on an at-fault driver’s liability coverage.
Money to Help with the Smaller Things
Injuries and property damages are the big expenses in an accident, but there are several smaller expenses that can add up to big financial burdens, too. For example, medical co-pays and deductibles can cost hundreds or even thousands of dollars out-of-pocket in the days that follow an accident. Likewise, towing charges and rental car fees can tack on hundreds of dollars more, quickly depleting funds in your savings account. Most every car insurance policy includes the option of several ‘smaller’ coverage types to help minimize your financial burden after an accident or another covered event. From medical payments coverage to towing and rental car charge reimbursement, these small additions can add up to big savings. Be sure to review your specific situation and needs.
Beyond Car Insurance
Even if your car insurance includes the most coverage available to you, it still may not be enough. In extreme cases, such as accidents that result in a fatality or permanent disability, even a $500,000 liability limit might only cover a fraction of the total damages awarded to a victim. Instead of getting stuck with hundreds of thousands or even millions of dollars in excess damages, protect your income and assets with an umbrella policy. This coverage works by supplementing the primary liability coverage on your policy. Once you reach the maximum limits on your car insurance, umbrella insurance picks up where primary coverage left off, extending your liability protection by an additional $1 million or more. Considering the low cost of umbrella insurance and the extensive asset protection it offers, we recommend all drivers consider adding this coverage to their insurance portfolios.
Contact our team for a free risk analysis and to find out how much coverage may be right for you.