Thursday December 15th, 2011 13:34 Evaluating How Much Auto Insurance You Need

One of the easiest ways to save money on auto insurance is to drop coverage.  The less coverage you carry on your policy, the cheaper the premiums will be.  Before you start making changes to your insurance, however, you should take the time to assess how much coverage you need.  Having too much insurance can be a waste of money spent on premiums, but having too little insurance can leave you in financial trouble if you get into an accident.

There are several types of coverage on your policy, and you should learn what each does before deciding whether you need it:

·         Liability coverage:  Bodily injury liability and property damage liability are both required by the state.  The minimums differ from place to place, so you should check what the legal minimum is before you try to adjust your coverage.  Liability coverage pays for damage or injuries that you cause to someone when you are in an accident with them.  If you don’t carry enough coverage, you could be sued or sent to collections for damage in excess of your limits.

·         First party coverage:  Collision and comprehensive are first-party damage coverage.  Collision covers damage to your vehicle caused by an impact with another vehicle or other property.  Comprehensive coverage pays for damage caused by weather, vandalism, theft, or other non-accident related damage.  You pay a deductible for this coverage, meaning you are responsible for a portion of your damage before your insurance will pay.  The higher your deductible, the lower your coverage.

·         Personal Injury Protection/Medpay: Some states have different requirements for medical coverage than others.  Medical coverage helps to pay for your medical expenses in the event of a claim, including doctor’s visits and lost wages.  Your health insurance will also cover a portion of these costs, but health insurers often refuse to pay for accident-related care if any other coverage exists on another policy.  Review your state requirements and discuss your options with your medical insurance provider before deciding to remove this coverage.

·         Uninsured/Under-insured Coverage: Some states provide coverage for damage to your vehicle caused by a person with no insurance, even if you don’t have collision coverage.  Underinsured motorist coverage pays for the difference between the at-fault person’s liability limit and the actual cost of your damage.  Uninsured motorist coverage is not available in all states.

If you are making payments on your vehicle, you will need to carry full coverage.  If you own it outright, however, you can drop your policy to liability-only.

One thing to keep in mind when selecting coverage for your vehicle is the worth of the vehicle.  If your car is old, its value has probably depreciated significantly.  In the event of an accident, an old vehicle may be deemed a total loss whether or not the vehicle is still repairable or even drivable.  Look at the Blue Book value of your vehicle or another valuation source.  If the car is worth only a few thousand dollars, you will pay more in premiums than the worth of the vehicle every year that you carry full coverage.

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