Do You Need Everything in Your Car Insurance Policy?

| June 23, 2013
Car Insurance

Car Insurance

Auto insurance is something you need, but you probably overpay for coverage. How? Well, agents are fond of adding riders and coverage that they think you might need. If you just agreed to any coverage that your agents suggested, you might be paying more than you need to. Often times, supplemental coverage is added that expands the base coverage – but insurance agents sometimes live in a vacuum.

When you sell car insurance, it’s natural to believe that every problem can be solved with a car insurance policy. For example, agents have been known to add life insurance, unnecessary medical coverage, and even vehicle rental provisions that add cost – but not necessarily benefit – to the policy.

Comp and Collision

Comprehensive and collision insurance are pretty standard on most insurance policies. However, collision isn’t always the greatest addition. Let’s say your premium is $150 per month for your vehicle. Your car is pretty old, and has a book value of only $5,000. Unfortunately, the total cost of the insurance is $1,800 a year.

In just under three years, you could have purchased a new vehicle. Since you’re required to carry a minimum amount of liability insurance, you can’t totally eliminate the cost of being insured, but you can drop collision and save the difference.

If you drop collision, and your insurance premium drops to, say, $50 per month, then you’re saving $100. In just over 4 years, you’ve saved up the total salvage value of the car.

That’s important, because insurers, by law, cannot repair a vehicle where the damage exceeds 80 percent of its value. In other words, you may pay for collision coverage, yet never see a dime of it returned to you.

Comprehensive coverage is for damage done to your vehicle that doesn’t result from an accident. For example, say a ladder falls on your car, or it’s hit by a deer, or you happen to be the victim of a street hockey or paint ball game. Comprehensive would cover you. It’s cheap to add, but it isn’t always necessary.

AD&D

Accidental death and dismemberment (AD&D) is almost always unnecessary. This coverage pays a claim when, and only when, you die as a result of accidental death or when you live but a body part is dismembered (i.e. you lose a finger, leg, or some other body part). Sure, you could die in a car accident, but you may not be deemed to have died due to an accidental death. Perhaps you had a heart attack or stroke. That may be deemed the cause of death.

Perhaps you survived the crash, and died later from internal bleeding. You wouldn’t die due to an accident and the claim would never be paid. Life insurance is great, and will cover you regardless of how you die. An AD&D policy? Not so much.

PIP

Personal injury protection (PIP) provides health coverage for you and any passengers. If you’re in a car accident, it seems intuitive that you’d want this type of coverage. However, it often overlaps major medical insurance. If you have health insurance, check your policy. Your health insurer likely provides coverage if you’re in an automobile accident – meaning you don’t need PIP. In some states, it may be required, like Texas. If so, there’s not much you can do about it. However, if you have the option to drop it, it might save you some money.

Rental and Towing

There’s nothing wrong with carrying rental and towing, except when it overlaps other (better) coverage – like a dedicated AAA membership. Often, the insurer’s version of rental and towing coverage is a lightweight version of more robust plans offered by auto clubs.

Towing can be especially helpful when your car breaks down, but some insurers only provide 5 or 10 miles of towing coverage. Check with your insurance provider. Then take note of how much the insurer charges for the coverage. It might not be worth the money.

Rental coverage is a similar deal. You may not need rental vehicles unless your vehicle is in an accident. Even then, borrowing a car from a friend, a family member, or paying out of pocket may be cheaper over the long-term. After all, how many car accidents do you expect to be in? If you’re a good driver, accidents are not the norm, and car rentals come cheap.

James McDonnel has extensive experience on auto insurance and personal finances. His articles mainly appear in money saving blogs. Visit the Monkey website for more ideas.

Do You Need Everything in Your Car Insurance Policy?

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