Auto Insurance-Cutting Costs, Not Coverage 5/13/07
Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
Auto Insurance-Cutting Costs, Not Coverage
“Auto Insurance- Cutting Costs, Not Coverage”
As the State of Alabama homepage cites, in Alabama it is illegal to drive a car without auto insurance. Still, studies suggest that more than one-forth of the vehicles on our roads are uninsured. This means that you will want to pay particular attention that your own auto insurance fully protects you. Here are the key areas you should review:
Liability coverage. This section of your policy covers bodily injury and property damage. Bodily injury covers medical and other costs for people injured in an accident that was your fault. Property damage covers the costs of repairs to other vehicles and property damaged as a result of an accident that was your fault.
For bodily injury, you should seek maximum coverage based on ‘dove-tailing’ your auto coverage with a personal umbrella policy (to be discussed next week). This will typically mean coverage of $300,000 to $500,000.
Regarding property damage coverage, “Many people carry property damage coverage of $50,000 or less”, says Kelly Byrne of Bates & Byrne Insurance, Inc. “This can be a big mistake, as many cars on the road now cost well over $50,000. I recommend a minimum of $100,000 property damage coverage. It significantly increases your protection and costs as little as $5 to $10 more per year”, Mr. Byrne adds.
Medical payments. This covers you and your passengers for doctor and hospital-related bills that are the result of an accident which is your fault (Click here to see all the situations where this is so). Your own health insurance must be used first before your automobile medical payments coverage can be used. The typical auto policy has limits of $1,000, which may help cover health insurance out –of-pocket expenses such as the deductible. High deductible Health Saving Accounts are becoming more and more popular. For a few bucks more per year, you may want to consider raising your medical payments limits to $5,000.
Uninsured/Underinsured motorist coverage. If you are hit by someone who has minimal or no insurance, your uninsured motorist coverage pays all items that you would have been able to collect from the negligent party. This includes medical expenses, lost wages, and possibly “pain and suffering”. If you have medical and disability income insurance, you must use it first before you can collect under your uninsured motorist coverage. You cannot collect twice. If you do have good medical, life and disability income insurance, you may want to reduce or eliminate your uninsured motorist coverage. Be sure to discuss the pros and cons with your agent.
Physical damage. This section of your policy covers damage to your vehicle after road accidents and is divided into two parts: comprehensive and collision. Comprehensive covers damage to your vehicle due to fire, flood, wind, hale, glass breakage or vandalism. Collision covers repairs to your vehicle due to an accident that is your fault or another person’s fault if he or she doesn’t have adequate insurance.
Cutting costs. There are a number of ways you can reduce insurance costs without sabotaging your coverage. The single best way is to raise your deductible to $1,000 or more. This can save you 20% or more in premiums. More important, if you turn in small claims the insurance company is likely to increase your premiums or terminate coverage altogether. In all cases, you should request an annual or biannual review of your coverage with your agent.