Making the right decision about what auto insurance to buy can be difficult, especially if your agent doesn’t really explain the coverage options very well. An easy way to think about it is that some of the auto insurance options are essential (or “vital”), while other options are purely discretionary because they only exist for your “convenience” after an accident. Before I dive into exactly what options are merely discretionary/convenience options, let me help you understand the vital ways in which your auto insurance policy should protect you.
Simply put, your insurance policy should be structured to shield you from severe, long-term financial losses that you couldn’t cover on your own. Many folks incorrectly assume that the most they could lose in an auto accident is their deductible. Thinking that way could be a costly mistake. In 1995, Jury Verdict Research examined 4,000 lawsuits filed due to car accidents. In about 8% of those 4,000 cases, a jury awarded damages exceeding $1 million.
If you think you can’t be sued for more than your liability limits, think again. When a judgment against you exceeds your coverage limits, you pay the difference, not the insurance company. Your deductible could be small potatoes compared to the damages a lawsuit may bring. Think of everything you have ever worked for riding with you in the back seat each time you get behind the wheel and recognize that without proper liability coverage, it can be gone in an instant. Conversely, the deductibles you choose, whether they are very low or very high, will never have a long-term impact on your financial security. Having high enough coverage limits is what really matters.
Other vital coverage options include uninsured/underinsured motorist coverage and payment of medical expenses. Why? Because your exposure in these areas can be unlimited.
My advice is to work closely with your insurance advisor to make sure your policy is built correctly. You’ll want to have enough insurance for your particular circumstances. Plus, you want to avoid “gaps” in your coverage (meaning that some insurance companies fail to cover every contingency) as well as “overlaps” (meaning that some companies find ways to charge you twice for the same coverage).
Now, as I said, there is some coverage that’s vital and some that’s purely for your convenience. Examples of convenience options are funds for towing and reimbursement for a rental car while your car is repaired. You should acquire these options only if they make sense to you.
Auto accidents happen all the time. Your auto advisor should help you cover all the vital bases, so you’ll have peace of mind knowing that a freak tragedy wouldn’t cost you dearly. The minimum coverage required by law is almost never enough for a driver on California’s roads.
Jeremy Schaedler is an insurance advisor specializing in individual asset protection and serving the greater Sacramento area. He can be reached at jschaedler@farmersagent.com.
