The National Highway Traffic Safety Administration (NHTSA) report “Traffic Safety Facts 2013” showed that there were over 5.6M motor vehicle accidents and more than 37,000 motor vehicle related fatalities. It is evident from these statistics that operating a motor vehicle comes with inherent risk. This is why all motorists are required to carry liability coverage and why I think they should always carry the maximum liability coverage that they can afford.
As a general rule, I recommend that any homeowner carry a minimum liability coverage of $100,000 bodily injury per person, $300,000 bodily injury per accident, and $100,000 in property damage coverage. In the industry, we it “100-300-100” coverage and it works for most people.
Some states have what we call “state minimum liability coverage”. This is the lowest amount of liability coverage required to be on the road. I almost never recommend state minimum coverage but it can work for people who are in or near poverty.
Higher net worth individuals, and families with young drivers on their policy, should carry higher liability limits and even consider purchasing an umbrella liability policy. These policies typically offer coverage starting at $1M, which is then “added onto” or “extends” your underlying auto liability coverage. These policies often cost as little as $200-$300 per year and the added protection is well worth the additional expense.
Many insured mistakenly refer to state minimum liability coverage as “full coverage.” It is not. “Full coverage” means that you carry comprehensive and collision coverage in addition to the required liability limits.
Comprehensive and Collision Coverage are voluntary. They are for covering the costs of repairing or replacing your car as the result of an accident when you are at fault or there is no fault assigned to someone else. We recommend that individuals operating late model cars (manufactured within the last 8-10 years) carry these coverages and typically we recommend deductibles of $250-$500 for both. If a vehicle is more than 10 years old the individual may want to forego these coverages. It is purely an individual preference and should be based upon the value and condition of the vehicle being insured, and the budget of the insured.
If cost is an issue, insureds can choose to waive voluntary or elective coverage such as Roadside Assistance, Rental Reimbursement, and others, but a driver should avoid state minimum liability coverage whenever possible.
So, to summarize:
Liability is the only required coverage
Start at “100-300-100” liability
Avoid state minimum liability
Increase liability and consider an umbrella if your net worth at or over $1m
Get Comprehensive and Collision coverage if you car is less than 10 years old
Try to keep your Comprehensive and Collision coverage deductibles under $500 each
I would like to introduce you to my friend Jerry. When Jerry’s windshield cracked he called his insurance company to get it fixed. Jerry’s insurance company told him he had a $500 deductible. The new windshield costs $300. Jerry had to pay for it out of pocket. Don’t be like my friend Jerry.
Similar to my friend, many individuals do not know what their deductibles cover and what increment to choose. I would like to take the time to go over deductibles so that you have a better understanding and choose the right dollar amount for you.
The two coverages that come with deductibles are comprehensive and collision. Comprehensive covers you against theft, vandalism, acts of nature, etc. Keep in mind that a lot of insurers will also cover glass (windshields) under this coverage. As a rule of thumb, always make sure to ask your agent if glass is covered under comprehensive or covered separately (again I can’t stress enough don’t be like Jerry!). This is a key factor in determining what deductible to carry. The second coverage is collision. Collision coverage allows you to repair your vehicle if you are at fault accident, hit a tree, or run off into a ditch.
Now that we have that boring insurance stuff out of the way let’s talk about what deductibles to choose. The higher your deductible the lower your premium and vice versa. The most common deductibles are $500 for both comprehensive and collision. If your auto premium is already low, then I say go for it and lower those deductibles. I would recommend $100 for comprehensive and $250 for collision. Comprehensive claims are usually not as expensive as collision claims so carrying lower comprehensive makes more sense. If money is not an issue for you, then I would recommend $1,000 deductibles for both the comprehensive and collision. This way you won’t file a claim for minor things, if you had to you would be able to pay this out of pocket, and the best part is that makes your premium lower. I highly recommend avoid deductibles of $1,000 or more for either coverage. Do not choose a deductible, that if the time came and you needed to file a claim, you would not be able to come up with the money.
I hope this overview will help clarify your auto insurance options, and help you select the right deductibles. Remember that deductibles are personal to you. Feel free to share with your friends and we might just have one less Jerry on the streets.
We’re happy to announce that Ashley Hathaway has joined COMPARITY as our newest insurance Navigator. Ashley is a graduate of Old Dominion University (’12) and comes to COMPARITY after 2 1/2 years as an award-winning Customer Service Representative at GEICO. We are so excited to have Ashley because she embodies all of the qualities we want in our Navigators; professionalism, friendliness, attention to detail, and a genuine motivation to help people understand their insurance coverage options. Ashley is licensed to quote insurance in Virginia, Maryland, North Carolina, Florida, Texas, and California.
We recently came across some data that we want to share with you. It’s the average yearly premium by state for home and auto insurance. Keep in mind that these rates vary widely by geography and demographics. Here in Virginia we pay $1329 on average each year for combined home and auto insurance. In Virginia Beach the rates are higher. These rates also don’t include costs for policies like flood and earthquake insurance that may be common or necessary where you live.
Here at COMPARITY we are committed to educating you about your insurance. You’d be surprised how much people don’t know before they talk to us.
You can find out exactly what you should be paying by starting an application on line at comparityins.com or giving us a call at 1-844-COMPARE (266-7273).