Yesterday the auto insurance bill came in the mail. It is one of only a handful of bills that is not auto paid in our house. The reasoning is pretty simple. First off, it is not a monthly bill but a semi annual bill. Secondly, it is wise to reevaluate the type and amount of coverage from time to time.
Our 2006 Pontiac G6 is getting close to the 10 year old mark so we were looking to drop certain coverages.
One of the easiest changes we made (in my opinion) was dropping comprehensive coverage with a thousand dollar deductible. Comprehensive covers damages to your car from wind, hail, flood, fire, theft, vandalism, or hitting an animal. By keeping our car stored in a locked garage and driving predominantly in town, most of these events are unlikely to happen.
In Illinois, motorists are required by law to have insurance and they are required to carry at least 25/50 liability. What does that mean though? 25/50 coverage means that in the event of an accident, a single occupant of the other vehicle is covered for 25 thousand worth of expenses. The second number, 50, means that if more than one person is injured in the second vehicle then the insurance will pay out up to 50 thousand. Liability insurance protects you from having to pay the other party for damages they received because of an accident involving your car. While the minimums sound high, they really aren’t. If you consider the cost of medical treatment and legal battles a small fender bender could easily blow past the minimums in no time.
The general rule of thumb is to carry enough liability coverage to cover your net assets. The last thing you want is to have a lien placed on your house or your wages garnished to pay the helivac bill of someone else.
We increased our liability from 100/300 to 250/500.
Medical payments cover your own hospital expenses. One of the nice things about auto medical versus your personal health insurance is that auto medical will pay out for accident related injuries up to three years after the incident. We increased our medical coverage from 5000 to 25000.
Our existing policy had a $1000 deductible collision coverage and even though it made up 1/3 of our total bill we decided to keep it. The math did not work out to increase the deductible to 2000 or to drop it entirely. Assuming our car has a fair market value of five thousand dollars, it would take 100 years of no accidents at the higher deductible/lower premium to pay the 1000 dollar difference. Dropping coverage completely would save us $450 assuming we had no accidents for the next five years. A single fender bender would likely cost over $1k in repairs. Perhaps in a couple more years when the car has depreciated more we will drop collision.
Our semi annual premiums will increase by $1.23. We have less coverage to cover damage to our car, but quite a bit more to cover personal medical bills and to protect our nest eggs from lawsuits. There is a saying that I read somewhere on the internet, “young people are underinsured, old people are overinsured”. Insurance of all kinds is a gamble and it is helpful to reevaluate what kinds you need and how much as your life circumstances change.