When buying your first time car insurance it’s important to consider some factors that can really make a huge impact on your financial situation currently, in the near future and in the long run. This article will not assume that you’re a college student wanting to get an insurance of your own or an individual who suddenly needs his own means of transportation. Let’s rather discuss the pitfalls you need to avoid when getting your first auto insurance and the ways to save on your premiums, along with other sneaky tips.
When getting your first time car insurance its important to realize that most people want to save on their insurance in one way or another by cutting down on the insurance limits. For example, an average person buys a $100,000 liability insurance, which in most cases isn’t enough to cover the damage to the car and the person. (Most people settle down for the minimum of $15,000 per person/ $30,000 per accident plan when choosing their bodily injury coverage, which is used to pay for the hospital bills, missed work, death, etc. of the person they hit and cause damage to.) Higher limits of liability coverage are not purchased because it’s often thought that by doubling or tripling the amount of coverage, the annual premium will double or triple as well.
This is simply not true. For example to go from $15,000 per person/ $30,000 per accident to $50,000 per person/ $100,000 per accident on your bodily injury coverage would only raise your annual premium by $80. That’s less than 7 dollars a month you have to pay to avoid the potential loss of your assets and even future assets in case an accident happens.
While most people settle for only $100,000 in liability coverage it’s important to remember that during a serious accident just the cost of the health care to the person you have injured could quickly run up to $500,000. Also be aware that there are single limit liability coverage as well as split limit liability coverage. Here’s the difference:
Single limit liability coverage:
You basically get one large pool of money to draw your funds from, instead of having a per person/ per accident limit.
Split limit automobile liability coverage:
Here you basically select three limits for your policy. One limit – the maximum your policy pays – for injuries you cause to a single person. Another limit is for all injuries you cause to two or more people involved in an accident. The third limit is simply for all the damage you cause to the property. (Like the car or the home or a tree).
With split limit auto insurance liability coverage sold just as often as single limit liability coverage its very important you realize how this can catch you off guard after an accident when you don’t have enough money set aside for each person/accident when having a split limit liability coverage because the limit you’re most likely to exhaust is the per person limit, not the per accident limit.
For example, your liability split limits are $50,000 per person and $150,000 per accident. You hit a car with one person in it from behind. The person suffers damage to her neck and back. Jury awards $80,000. You thought you were covered with your $150,00 per accident, right? Well, you’re not. Out of those $80,000 the insurance company will only pay down $50,000 and the other $30,000 you’ll have to pay out of your own pocket or use your umbrella insurance to help fill this gap.
Here are three ways to deal with this split limit liability cover issue:
- Purchase a high enough “per person” liability limit (from $250,000 to $500,000 per person which only costs $100 annually for two cars)
- Buy a single limit liability insurance policy. This way having $300,000 to $500,000 of liability coverage is the least to have if you want to avoid all sorts of long-term financial problems by paying a few more bucks a month.
- Or buy another layer of umbrella insurance of 1 million dollars of more.
As you can see in the two examples I gave you, selecting high limits on your car liability insurance coverage is a very sharp move because you’re getting a peace of mind for a dozen or so dollars a month.
As far as dealing with damage to your vehicle when you purchase your first time car insurance it’s smart to compare the cost of your vehicle to the monthly premium payments. So if you’re driving a 1995 Honda Accord that’s worth only $2000 it’s better to skip collision and comprehensive auto insurance all together because you will save more money by not paying monthly premiums than filing a claim for $2000 in case your car is totaled.
In most cases the banks require you to have the collision and comprehensive auto insurance coverage if you’re still making payments on the car. You can offset the high monthly costs by setting a high deductible of $500 or even $1000 per claim. Even if you’re on a tight budget it still makes sense to have a high liability coverage because simply going from $250 to $500 on your deductible can buy you additional $200,000 of liability coverage which could in turn save your financial situation by protecting your current and future assets.
Here are some things that can lower your monthly premiums for collision and comprehensive coverage:
- Carrying an extinguisher on board
- Taking a defensing driving class
- Not getting tickets for the past three years
- Installing an anti-theft system in your car
- Parking your car in the garage at night
The bottom line:
When getting your first time car insurance get a high liability coverage to take care of any potential financial risk that might arise from automobile accidents. Also, when selecting a comprehensive/ collision cover for your car consider not getting it at all if you’re driving a considerably older model. If you have to get it make sure you pay as little as possible by following tips outlined.