Most people know the story "Goldilocks and the Three Bears", and you no doubt remember the three bowls of porridge found by the heroine -- one too large, another too small, and the third just right in size. As an adult, you may have had to make similar choices in homes, cars, clothes and various other things. Auto insurance poses the same challenge. Here are some factors to consider when selecting just the right amount of car insurance coverage.
Too Small: Buying the Minimum Coverage
Skipping auto insurance altogether, a practice sometimes referred to as "going naked," can cost you far more than you'd ever save by not paying premiums. While minimum requirements can vary from state to state, you should carry liability insurance at the very least. Getting pulled over or getting into an accident while you're not covered can result in fines, license suspensions, drastically increased rates when you do finally seek coverage and (in some cases) even jail time.
Purchasing the minimum coverage levels enforced by your state may keep you out of jail or keep you from losing your license, but that stripped-down policy won't help you much the moment significant personal injury or property damage occurs. Destroying another driver's $35,000 car when your policy only pays up to $10,000 for such an event will have you rethinking your definition of the word "bargain."
Too Large: Over-insuring Your Vehicle
Considering the steep financial and legal risks involved in driving without car insurance or even carrying only the state-mandated minimum coverage, it's understandable that some nervous drivers might overcompensate by purchasing as much auto insurance as they can possibly pay. But while this strategy will most definitely create a welcome sense of security if you're driving a Porsche on a wet or icy road, it can also push your coverage past the realm of common sense. The simple fact is that in some cases, a relatively modest level of insurance coverage can be an intelligent choice.
Take comprehensive and collision insurance, for example. Comprehensive insurance covers your car against vandalism or theft, while collision is meant to pay for repairs in the event your car is damaged in an accident. These are both highly desirable and worthwhile protections if you're the proud owner of a pricey new car -- but what if you're covering an old rust bucket with 200,000 miles on it? In that case, you might be better simply purchasing liability coverage and foregoing comprehensive and collision insurance.That's because the premiums on these forms of auto insurance could eat up a large chunk of the funds you might just as easily direct toward buying a replacement vehicle. If you're spending more than 10 percent of your car's value on 12 months of comprehensive insurance or 25 percent of its value on six months of collision insurance, consider downsizing your coverage.
Just Right: Covering a Wide Range of Scenarios
Just as Goldilocks favored the options on the bears' home that were just right, the savvy car owner should look for an intelligent compromise between too little auto insurance and too much. This requires you to do some thinking about what upward or downward adjustments make good sense for your location, car and circumstances. For example:
- If you're a safe driver who keeps some savings tucked away for emergencies, you might raise your collision deductible to lower your premium.
- You can increase the property damage portion of your coverage to accommodate the retail price of a typical car driven in your neighborhood without adjusting your other coverage levels.
- The less driving you do and/or the fewer cars populate your local roads, the more sense it makes to go with lower limits.
- Pushing your liability levels above the state minimum might buy you substantially better coverage for, on average, about $5 extra per month.
If you want the most secure and flexible type of coverage you can get just in case you hit a Lamborghini or Rolls-Royce, go for an umbrella insurance policy. This type of policy can provide you with up to $1 million in coverage (above and beyond your auto insurance limits) for as little as $150 per year. Better yet, it can be applied to any high-dollar liability, not just automotive incidents.
Goldilocks had choices, and so do you. Have your car insurance agent review your current policy so you can find the sweet spot between too little coverage, too much coverage, and just the right amount of coverage! For more information, contact a company like Northeast Insurance Agency.