I’m not sure if this is a General Question or not–it may or may not lend itself to a factual answer. So I apologize in advance if this is in the wrong forum.
The good news: We’ve just recently paid off the balance of the loan for our car. Woo hoo!!
We have a 1999 Toyota RAV4 with about 45,000 miles on it. Auto insurance where we live is pretty high–at least what I consider high based on past experiences elsewhere. My wife and I (the only drivers of our only car) were paying about $1800/year for the coverage required when we still owed money on on the vehicle. Now that we’ve got it paid off we’re thinking–why not take the cheap insurance package–liability only, which would drop us down to about $700/year.
I guess this is less a financial question as it is a prudence question. Any advice on a good level of coverage if we’re both good drivers (no accidents or moving violations for either of us, ever), and for a three year old vehicle that’s paid off?
What kinds of insurable problems should I be concerned with and so on?
I am an insurance professional. The problem you are facing is how much risk can you bear? Will you be able to cover the cost of repairing your car if you get into an accident? If it gets totalled, will you be able to replace it without insurance coverage?
Also, you are also without uninsured/underinsured motorist coverage if you have only liability coverage. This means that if some uninsured person injures you severely in an accident, there will be no coverage for your lost wages, medical bills, etc. Probably not prudent if you are a wage earner or if you do not have health insurance.
Also, the amount of insurance that you have depends largely on where you live/drive. For instance, we live next to a fairly wealthy suburb where there are lots of Mercedes, etc. If I bump into a car, the chances are about 1-in-3 that it’s a very expensive car… you can’t fix damage to a Mercedes on the cheap. Thus, I want to be sure I’m well-insured.
Consequently, I carry:
Liablity/Bodily Insury: $100k/$2300/k
Property Damage: $25k
$100 deductible comprehensive
$500 deductible collision
Uninsured $100k/$300k
The thing with insurance is that you know it works against you, but that’s OK. It’s Murphy’s Law, pure and simple. If you have plenty of insurance, then you won’t ever use it. If are under-insured, or if there’s a five minute period between policies when you’re not covered, THAT’s when the big cost accident happens.
I’m an actuary, and I agree with Mr Zambezi. It’s a question of risk management. If you can afford the cost of repairs, medical bills, etc in case of an accident, then buy the cheap insurance.
By the way, one way to lower insurance costs is to raise your deductible. The deductible is the amount that you pay before the insurance starts to pay for stuff. Raising the deductible by a few hundred dollars can be an easy money-saver on premium… and a limited potential risk (cost) for you.
And if you just get liability, make sure you have enough so that nobody can touch your other assets should you be sued. Do you own a house? An unincorporated business? Art, jewelry, land, farm equipment, etc.? If you get the minimum liability and someone sues you and you don’t have enough insurance to cover it, they will almost certainly go after your other assets. It sure would suck to lose your house all because you didn’t want to pay a little more to have enough coverage. (Usually, coverage beyond the base required by law is very reasonably priced.)
That’s what auto insurance is for: to protect your other assets if you have a claim made against you. If you were a single unemployed person with no assets whatsoever, the state minimum might be fine: while someone might sue you and get awarded $250,000, you might be considered judgment-proof because you have no income or assets for the court to attach. But if you have the minimum AND own your house, and have a judgment against you for $250,000, you better believe the other party’s lawyer is going to try and get that house.
One other thing to check regarding the the comprhensive and collision is the book value of the car, since that’s. the most the ibsurance will pay. Since your car is fairly new, it’s probably still worth it,but there comes a point where it isn’t.
I work in insurance too, as a claims adjuster. Get the collision coverage. Your vehicle is most likely worth at least $10,000. (Unless it’s in really bad condition.) I know the law of large numbers says it is unlikely you will be involved in an accident. In my experience the risk is not worth it. If you’re in the financial situation where the extra $1100 a year will make that of a big difference, buying a new car would be quite a burden.
Take the suggestions offered above. Increase your comprehensive and collision deductibles to $1000. This will dramatically reduce your premiums. Remember with collision coverage comes rental car coverage for repairs from an accident along with towing coverage. Two nice things to have.
Buy as much auto coverage as you can afford. Or talk with your agent about a multi policy discount with one company. Buy low auto liability limits but get an umbrella policy. They’re cheep and if the unthinkable happens you’ll have plenty of coverage.
Thanks to everyone who responded, I really do appreciate all the information/advice/suggestions. Oddly, I’m in my mid 30’s and until now, I had no choice on what kind of auto coverage to carry. I feel like such a greenhorn here, but I guess I had to learn about these things at some point.
I find myself in the contrary position to C K Dexter Haven, where I live, a lot of people are quite poor and the suspicion is that many of them drive without any auto insurance (one reason the rates are so high here). But still, in the case of an accident, the financial burden rests on my shoulders, since there’s a good chance the person who hits me won’t have coverage.
I will follow a number of your suggestions and stick with more than just the state required minimum and up my deductibles to lower the overall premium cost.
And for those of you living in no-fault states, if you want your car fixed, you MUST have full-coverage if you want your vehicle fixed. You can’t sure (well, up to $400 here in Michigan), even if it’s 100% the other guy’s fault.
My own experience: 2 collisions with uninsured motorists. Their fault. Both drivers were also unemployed and drove junkers. A recent 3rd wreck: hit & run (caused by him/her). So I’m glad I have collision & uninsured motorist coverage. In the 2 prior incidents, my vehicle was repaired. The current one: still analyzing whether it can be saved.
