Wrong insurance coverage

While most people understand they need at least a baseline amount of auto or homeowners insurance, many individuals do not know exactly how much insurance they should have, or what precisely they need. Some experts might suggest motorists reduce their coverage, while others tell drivers to get as much coverage as possible. There are multiple ways to figure out what kind of insurance is best, and each way comes with its own array of factors to weigh. Since each person will have different considerations due to the variety of circumstances, there is no cookie-cutter solution.

Every motorist will ultimately need to make their choice based on personal factors including affordability, car loan requirements and personal preference. However, important aspects to keep in mind when determining how much insurance coverage to obtain are the actual on-the-road statistics. According to the National Highway Transportation Safety Administration, motorists sustained 5,687,000 police-reported traffic crashes in 2013. Of these crashes, an estimated 2,313,000 people suffered injuries while 32,719 died due to the accident. These sobering numbers should make every person think twice about the extent of their coverage and their financial responsibilities.

Types of auto insurance
The majority of states require motorists to, at the very least, purchase liability insurance. There's really no way to sidestep this requirement. Liability insurance typically only covers the costs or damage done to another person or their property during the course of driving. In addition, some states mandate drivers carry more than the minimum.

Collision insurance and comprehensive insurance build on liability coverage. The former policy covers any damage caused by having your car hit or hitting another vehicle while the latter covers events that hurt or destroy a vehicle not related to driving, such as extreme weather, theft and other external forces.

"Personal Injury Protection sometimes covers missed time off from work due to the accident. "

There is also Personal Injury Protection. This covers yours and any of your passengers' medical expenses following a crash. In some instances, it will also cover missed time off from work due to the accident. 

The SimpleDollar recommended basing your decision on whether to obtain collision and/or comprehensive insurance on the size of your emergency fund. If you have a large enough emergency fund stored away to cover the cost of having to pay for a replacement car, then liability might be all you need. However, most individuals do not have that much cash on hand and should consider including either collision or comprehensive coverage on their policies.

If you merely want to keep your premiums low, pick a collision plan with a high deductible, but be prepared to use your own money to pay routine repair costs.

On a similar vein, it might not be worth it financially to pay pricey premiums on a vehicle that is approaching the 200,000-mile mark. In a scenario like this, it might be best to purchase liability insurance and then buy a new car if an unexpected accident happens. However, if you have solid health and disability insurance, a policy that includes Personal Injury Protection might not be necessary, since the other insurance plans should cover any bodily harm you might sustain.

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