Adequate car insurance coverage is not an official insurance term. The definition adequate refers to one having the requisite qualities or resources to fulfill a task. Therefore, a person who is interested in having his or her car insured would seek to have low-cost coverage that still legally and materially protects him or her in the event of a collision or damage.
This article will discuss the importance of liability, collision, comprehensive, medical payments and uninsured driver coverage to create adequate car insurance coverage.
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Defining Adequate Car Insurance Coverage
Adequate coverage is that which will help you meet your financial needs and obligations. In all states there is a basic requirement of liability insurance proof of financial responsibility to pay for damages you cause. Liability insurance protects individuals other than you who are involved in collisions or in other situations that involve damages resulting from your driving. Liability insurance covers bodily injury and liability coverage.
Bodily injury coverage protects your own personal assets up to a certain limit.
Therefore, if you injure someone and they have high medical bills, are covered up to a certain amount; say $20,000 per person, as an example. Bodily injury liability coverage also covers medical bills (past and future), lost wages due to medical stay, scarring or disfigurement, loss of earning capacity, disability, and even pain and suffering.
You will notice that most states have a minimum liability coverage requirement, sometimes as low as $15,000, which is hardly anything when it comes to paying medical expenses. Besides this price limit, there is also a limit per accident. If you have a $40,000 per accident coverage limit, that means the insurance won’t cover any damages beyond $40,000 total—for everyone injured in the collision. However, if you cause the accident you could still be held personally accountable for those medical payments.
Are those minimum liability limits enough?
According to the Wall Street Journal’s “How Much Case Insurance Do You Need?“, minimum liability amounts are rarely sufficient in today’s marketplace, especially in states where those limits are exceptionally low. The Journal cites the state of New Jersey, where minimum bodily injury coverage is $15,000. But considering the cost of health care in 2011, the injuries suffered in a moderately serious accident could well exceed $15,000 just in emergency room care alone.
There’s no way to say for sure exactly how much liability coverage you need. Perhaps the best way to assess your own situation is to speak with an insurance agent and a financial adviser. They’re the best types of individuals to advise you as to what is prudent and what is excessive. Regardless, if you have valuable assets you want protected you should certainly consider increasing your minimum limits.
Liability and Beyond
It’s your choice whether you want to purchase liability insurance with split limits or combined single limits, as well as the choice of the insurance company. Some motorists who fear losing personal assets are not satisfied with any insurance coverage unless they are covered for upwards of half a million dollars.
Honestly, if you really injure another motorist, $20,000 is unlikely to cover the medical expenses, let alone the damage to the car. In fact, if you own your own home, it’s highly recommended that you purchase a higher limit insurance policy. A home may very well be worth $200,000 and rest assured, if it’s there, lawyers will go after it.
Industry recommendations are for 100/300/100 limits on liability.
Beyond the basic of required liability, collision and comprehensive represent that next step up. These type of coverage are what will pay to damage to your own property. If your vehicle is leased they are required. Only as cars get much older it becomes safe to remove these options.
Medical payments protection is also intended for the financing of your medical costs or for others riding in your vehicle. This becomes very important if you cause the accident, or if the other driver has inadequate coverage.
Another type insurance option usually included in an “adequate” insurance policy is that of uninsured/underinsured motorist protection. Whereas liability damage protects your money, this coverage will actually protect your car and some of your own medical bills in the event that the person responsible for hitting you has no insurance. This is also what will protect you in a hit and run incident.
Some believe that uninsured motorist (UM) protection is one of the most important coverages, even more so than collision or comprehensive coverage. There is a growing number of individuals who are driving without insurance. Furthermore, there are even more people driving around who can only afford the bare minimum of coverage. This won’t be of much help to you when you have $50,000 or more in medical bills and lost wages to pay for.
Like liability insurance, UM insurance has price limits set on coverage. Do not reduce this amount! Sadly, uninsured (or underinsured) motorists often do the most damage. The financially irresponsible tend to be irresponsible on the road too; go figure! Some states do have requirements as to the price limit of UM insurance; namely, that it must not be below the liability level.
Do I need personal injury protection?
Personal injury protection (PIP) coverage is required in a small handful of states, such as New Jersey, but it is elective everywhere else. As long as you have a standard health insurance policy you probably don’t need to purchase this protection unless it’s required by law.
Some states require drivers to choose between PIP or coverage for uninsured/underinsured motorists (UM).
The latter is a better choice because it generally provides more coverage, including extended hospital care and rehabilitation services.
If you don’t have health insurance, personal injury protection coverage is certainly less expensive than covering the full cost of an accident on your own. You’ll need to check with your individual car insurance carrier to find out exactly what their PIP coverage entails and whether or not it’s worth your money. Keep in mind that the more PIP coverage you purchase, the more you will add to your annual premiums.
How much collision and comprehensive coverage should I carry?
Collision insurance pays for damage done to your car as a result of a traffic accident; comprehensive coverage takes care of damage sustained in other ways. In both cases your coverage should be in an amount that will completely replace your vehicle in case it’s ever totaled. To be on the safe side you should have enough coverage to equal the value of your car when it was brand new.
You might also consider purchasing gap coverage if you’re taking a loan out on your vehicle. Gap coverage makes up the difference between the value of your car and your outstanding balance if they are significantly different.
Should I purchase an umbrella policy?
An umbrella policy is one of those coverages most of us will never need, but which is very important for those who do need it. Simply put, umbrella coverage protects you for just about anything not already covered by your other insurance policies. For individuals who own high value assets, such as real estate and securities, umbrella insurance is probably a good idea. You need to protect your valuable assets in the event you are ever sued after crash.
If you decide umbrella insurance is something you need, it’s wise to speak with a financial adviser before determining the limits of that coverage. You’ll need to add up all of your assets and project some increasing value into the future, and then buy an amount of coverage to meet that value. In doing so you will limit the amount of losses you could suffer through civil litigation.
What Coverage Can You Afford?
It is highly recommended that motorists concerned with avoiding lawsuits and other legal entanglements invest more in liability coverage. It does cost more money in the short-term, but if you are ever involved in an accident, then it will save you a huge amount of money.
Although some consider collision insurance (damages that you cause to your own vehicle) and comprehensive insurance (theft, vandalism, weather damage) to be mandatory for their own lifestyle, these are not required coverages anywhere in the U.S. Full coverage, by definition, is optional. The only circumstances in which these policies might be required is if you are financing a vehicle and the dealership or the bank prefer you to have full coverage insurance so they can protect their vehicle and guarantee full payment even in the event of a wreck.
Only you can determine what counts as adequate insurance and what coverage is excessive and ordered merely because of fear. Accidents do happen out there. Are you prepared financially to deal with a totaled vehicle? Are you prepared to pay all of your out-of-pocket expenses if a drunk driver without insurance wrecks your car? If you can’t afford this scenario, then maybe it’s best to think about ordering some insurance coverages that are above the “bare minimum.”
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