Understand Your Auto Insurance
Alright so here we go. Let’s dive right in with the first, well second, post from the Bravo Team blog and talk about the big thing you think about when it comes to insurance. That’s your car insurance. You see and hear the ads all the time on the TV and radio about saving money and helping you with this and that. You see the advertisements online and you’ve probably shopped for car insurance online too. It’s something you probably look at every few years and shopped around and it’s probably something you’ve had to use at least once (hopefully not for anything major). It’s always a pain point when you get the bill in the mail especially if you’ve had no accidents or tickets. The price has also probably gone up for you over the years too.
So, how much do you REALLY know about your car insurance? It’s one of those things that you know “a ton” about but probably at the same time know nothing about. It’s an easy concept yet an enigma that most people don’t know the in’s and out’s of. Do you know how much liability coverage you have? Do you know what medical coverage is? How did you select your limits? What does full coverage actually mean? All great stuff to know but you probably don’t know in detail.
What do you know about your car insurance? Two things probably: how much you’re paying and the deductibles. That’s pretty common and since a majority of people only use their car insurance for minor things, it’s understandable. I’m going to dive into the basics of it and chat about a little car insurance 101. We’ll get into more specifics of it with future blog posts but for now, let’s start with the basics.
Your car insurance comes in three simple parts. #1: protection for others. #2: protection for you and your family. #3: coverage for your car itself. Parts 1 and 2 make up your “liability coverage.”
Part 1 is protection for other people. That’s your bodily injury and property damage coverage. In CA, the limits required by law and stupidly low. It should be a crime to have coverage this low and most people just don’t know what they have when they get the state minimum. It’s only $15,000 per person and $30,000 per accident. If you cause an accident, let’s say you rear end someone, this coverage covers you for their medical bills. Let’s say you have the state minimum at $15,000 per person and $30,000 per accident. You’re responding to a text on your cell phone and don’t realize the light turned red. You slam on your brakes and hit the car in front of you. Sally and Joe are in the car and both of them get out holding their necks. “Uh oh” you immediately think, this doesn’t look good. They both go to the doctors and both of them have some neck injuries. They have to miss some time from work. They have x-rays, MRI’s, doctors bills add up. What happens if all of those expenses, that you’re responsible for by the way, exceed $15,000 per person? What if it exceeds a total of $30,000? What if they had a child in the car or another passenger? You’d come out of pocket for ALL OF IT that exceeds those limits. Hopefully you have that money in savings or Sally and Joe’s attorney is going to start taking a look at your house, investments, savings and even your future paychecks from your job. That’s right, you can have future wages taken from you for up to 10 years! That’s a long time to be working and giving your paycheck to someone else. Talk about alimony on steroids. You want to make sure you have AT LEAST $250,000 per person and $500,000 per accident. That’ll at least make sure you can sleep at night if something bad happens. The other piece of this is property damage coverage. The state minimum in CA is $5000. $5000, are you serious?! Take a look around next time you hit the road and count how many vehicles exceed $5000 on the road. What happens if you hit a Porsche, BMW, Mercedes, Ferrari?! Any damage beyond $5000, you guessed it, is coming out of your pocket. We recommend at least $100,000 and you probably need more.
You’re probably reading what I’m recommending and saying to yourself, Ryan… I get it, we need to be covered but I can’t afford those limits! That has to be crazy expensive and I’m already concerned with how much I’m paying! In reality, it isn’t that much more expensive. Most insurance companies use the “Costco pricing method.” You know when you go to Costco and buy in bulk basically anything it seems to get cheaper? That’s how liability limits work. The more you buy per $1000 in coverage, the cheaper it gets per $1000 in liability coverage. Increasing those limits from 15/30/5 to 250/500/100 can sometimes be only an additional $10 to $20 per month. Worth it right?!
Part 2 of your auto insurance covers you and your family. This is called “uninsured motorist” and “medical coverage.” Did you know 1 in 5 drivers in CA doesn’t have insurance at all? Even though it’s required by law. Insane right?? They should be thrown in jail in my opinion. This is going to make sure if you’re hit by someone without insurance, or if they have those stupid state minimum limits at 15/30, and it’s not enough to take care of your medical bills, that your policy steps in and covers it. We recommend 250/500 for that as well. “Medical coverage” covers your medical expenses after an accident. We usually recommend setting the limit to whatever your health insurance deductible is, usually $5000 or $10,000. That way it’ll fill in the out of pocket gaps from your health insurance. These two parts of auto insurance are the MOST important and make up the liability portion of your auto insurance policy.
Part 3 is for your car itself. This is where your deductibles come into play. You have two deductibles, comprehensive and collision.
Comprehensive covers you for damage to your car other than from an accident of some sort. It includes fire, theft, hail, vandalism, and when weird stuff happens. Let’s say your neighbor’s Dennis the Menace son fires a baseball into your window or the neighborhood hoodlums key your car. You pay the deductible and insurance covers the rest up to the value of your car. This would also include if you have a fire and your car is in the garage and destroyed. You may think your home policy would cover the car, nope. The car insurance covers it under comprehensive. Comprehensive coverage has no effect on your rates either. Stuff happens, file as many of those claims as you want.
Collision covers you for damage to your car after an accident of some sort. Let’s say you hit someone else’s car, or drive your car into a light pole. Whatever the case may be, you pay the collision deductible and the insurance kicks in after up to the value of your car. The higher your deductibles, the less you pay and vice versa. $1000 deductibles is usually a good middle ground. I’m personally a fan of higher deductibles because there’s never the guarantee you’ll use it. I’d rather pay out of pocket for the things that ruin your day and have the best limits available for the things that could potentially ruin your life. Minor fender benders aren’t what auto insurance was designed for. It’s designed to take care of the major accidents that could be life altering. Part 3 also includes the bell and whistle optional coverages usually like towing, rental car reimbursement, and auto loan gap coverage. More on those things later or check with your insurance professional about details for those.
So that’s your car insurance in a nutshell. Hopefully now you’re a little bit smarter than you were a few paragraphs ago. One thing I want you to think about, is what was the last major/crazy accident that you saw on the road? I’m sure it was something nasty and it’s burned into your mind. You see them on the news every day. Think about this… if that happens to you, do you want the focus to be on your insurance company, or on those things you’ve worked SO hard for throughout your life like your house, investments, savings, and future paychecks. Insurance is not meant for the things that could ruin your day, but the things that could ruin your life. Why pay for something that isn’t going to do anything for you when something catastrophic happens? Educate yourself and pay for something that is going to protect you in the event that major accident happens to you.
Thanks so much for reading. Drive safely and remember we’re always here to help!