When you need to file a claim against your car insurance policy, the last thing you want to find out is that you are underinsured. Here at Frydach Insurance, we know the importance of having the right types of coverage and adequate limits. If you are wondering how much car insurance is ‘enough,’ there is no cut-and-dry answer. Instead, your policy should be customized to minimize your individual risk exposure and fit your needs. In this article, we will explore the various types of car insurance coverage and why having the right limits is essential.
Physical Damage Coverage for Your Car
Vehicles are one of the biggest purchases most people make in their lives. Chances are you have a lot of money tied up in your car, whether you lease it, finance it, or own it outright. If something were to happen to it, could you afford to pay thousands of dollars for repairs? Worse, could you afford to absorb the loss of the vehicle and purchase an entirely new method of transportation if your vehicle were stolen or totaled?
Collision and comprehensive insurance help cover physical damages to your vehicle. Both will pay for repairs or otherwise compensate you for the loss of your vehicle if it is damaged beyond repair. If your vehicle is a total loss, you are likely to be compensated based on its actual cash value unless you own an antique or collector’s vehicle, which may be reimbursed based on an agreed value.
While collision and comprehensive provide similar benefits, they are two very different types of coverage. So what is the difference between them? Per the name, collision insurance covers damages to your vehicle when collisions cause them. It could be a single-car accident involving only your vehicle, or it could be damages stemming from a multi-vehicle accident. Comprehensive insurance covers damages to your vehicle that are caused by events other than collision. Examples include theft, vandalism, hitting a deer, or suffering hail damage.
You Need Both
Drivers benefit from having both collision and comprehensive coverage – not one or the other. Though the State of Wisconsin does not require physical damages coverage by law, lenders often mandate it as part of a lease agreement or within the terms of a loan. Even if you are under no obligation to purchase collision and comprehensive insurance, you should still consider adding this important coverage as a means of protecting the investment you have in your vehicle.
Insurance companies typically require drivers to pay a deductible when a claim is filed for collision or comprehensive damages. The deductible is an amount you select when you purchase your policy and could range from as little as $100 to as much as $1,000. If you need help selecting a deductible, one of our helpful team members will be happy to assist you. A higher deductible will result in a lower car insurance premium. However, we do not recommend a deductible that exceeds what you could easily afford to pay out of pocket in the event of an unexpected claim.
Coverage for Property Damage Liability
If you damage someone else’s vehicle or property while driving your car, you could be held financially responsible for the damages. When it comes to liability protection, having the right coverage is not only important, but it could even protect you against a lawsuit.
The property damage liability coverage on your insurance policy will take care of damages you cause up to the limits selected on your policy. Wisconsin requires that all drivers carry a minimum amount of property damage liability protection. Unfortunately, those limits are typically too low to fully protect the average driver against the financial fallout from an accident.
For example, if a driver crosses the median of a highway and hits a brand new luxury SUV head-on, the damages could total tens of thousands of dollars. With only the state minimum of $10,000 in property damage protection, the responsible driver could be forced to liquidate savings or make payments from future income to satisfy the liability.
Compensation for Harm You Cause Others
Car accidents often cause injuries, which may require hospital stays, rehabilitation, and time off work. In Wisconsin, at-fault drivers are legally and financially responsible for the damages they cause in an accident – including injury-related expenses. In addition to medical expenses and lost wages, a victim can also pursue an at-fault driver for emotional distress compensation and other costs. A jury could also impose punitive damages if it determines the driver was texting behind the wheel, intoxicated, or in some other way negligent in causing the accident. Ultimately, it does not matter how the accident happened; all that matters is that it did and the at-fault driver is accountable. If that driver happens to be you some day, make sure you are prepared for the financial fallout.
Bodily injury liability insurance provides compensation to victims for injury-related expenses when you are liable for an accident. Though the coverage is mandatory in Wisconsin, the minimum coverage limits are too low to protect your income and assets against a large claim fully. If you are sued for $500,000, but only have $50,000 of bodily injury liability coverage, how will you pay for the remaining damages? Would you have to liquidate your savings and investments? Perhaps you would face wage garnishment in the years to come. How would those events derail your finances and plans for the future?
At Frydach Insurance, we recommend increasing your bodily injury liability limits far above the minimum required by law. For many Germantown area drivers, it could be the single step that prevents financial ruin after a major collision.
Split Limits vs. Combined Single Limit (CSL)
When you select your bodily injury liability limits, you will be offered coverage as either a combined single limit (CSL) or a split limit. Both can feature broad liability protection after an accident, but they differ in the way they provide coverage. A combined single limit has only one limit – the maximum total bodily injury liability coverage for all victims of an accident combined. A 300 CSL, for example, could allocate up to $300,000 to a single victim or divide it among multiple injured parties.
A split limit has two limits – the maximum total bodily injury liability coverage per accident, as well as per individual. Split limits appear on your insurance policy as two numbers, such as 250/500. The first number in this example would represent a maximum individual bodily injury liability coverage amount of $250,000. The second indicates the insurer will pay up to $500,000 for bodily injury liability damages for all victims combined.
Money to Protect You and Your Passengers against Uninsured or Underinsured Drivers
Driving without insurance is illegal and dangerous, yet more than 1 in 10 Wisconsin drivers are currently guilty of doing so. If you are injured by one of these drivers, uninsured motorist insurance (UI) can provide coverage for injuries you and your passengers sustained in the accident. We also recommend adding underinsured motorist insurance (UIM), which can help cover your losses if an at-fault driver’s liability coverage is insufficient to meet your needs.
Money to Help with the Little Things
In addition to the physical damages, liability, and injury-related expenses after an accident, there are also secondary costs that can quickly add up without the right coverage. For example, renting a car while your vehicle is being repaired could cost hundreds of dollars. Likewise, you could face out-of-pocket health insurance deductibles, co-pays, and towing charges. Avoid financial burdens after a collision by adding coverage to your policy that helps pay for the ‘little things.’
Beyond Car Insurance
Beyond your car insurance policy, you may still need additional liability protection to pay for major claims. Even the highest car insurance limits cannot cover a million-dollar lawsuit in its entirety. Rather than have hundreds of thousands of dollars to pay out-of-pocket even after you exhaust the limits on your policy, consider purchasing an umbrella policy that will extend your liability protection by an additional $1 million or more.
Umbrella insurance is supplementary liability protection that pays after you exceed the limits on your primary coverage. This high-limit coverage can safeguard your income and assets against financial ruin in the event you cause a major liability, such as a disability or a fatality. This affordable coverage could be the very thing that protects your family against financial devastation.
For more information about umbrella insurance or any of the other coverage types mentioned in this post, contact our office today.