auto insurance

The thing about automobile insurance is, it’s required by law.  You have to have it.  And that’s a good thing because accidents happen.  Auto insurance comprises three components, and you should think hard about how much of each you need.

Liability
Liability covers damage to other people or property when you are at fault.  A typical coverage amount is 100/300/50.  This means the policy will cover you for personal injuries you cause, up to $100,000 per person, or $300,000 per accident.  The coverage for damage to property is $50,000.  Of course, you can select higher or lower coverage amounts, as you feel the need.  Higher coverage amounts will cost more than lower amounts.

Collision
While liability covers damage to other people’s property, collision coverage covers damage to your car.  Collision isn’t measured by maximum coverage amount, like liability, but by deductible amount.  A typical deductible is $500, which means you will be responsible for the first $500 of damage, and the insurance company will cover the rest.  A higher deductible will cost less than a lower deductible.

Comprehensive
Comprehensive coverage covers damage to your car that is not the result of a collision.  This includes fire, theft, hail, and vandalism.  Like collision, comprehensive is measured by deductible.  The higher the deductible the lower the cost.

How to save
You can lower the premium for the liability portion of your insurance by simply lowering the amount of coverage.  Be careful though – if you have $25,000 of coverage, and somebody suffers $30,000 of injury, you are personally responsible for the other $5,000.

You can lower the premium for the collision and comprehensive portion of your insurance by choosing higher deductibles.  Low deductibles are really nice if you need to file a claim, because you only have to pay a smaller amount.  Accidents are pretty rare, however, and you are usually better off with a high deductible that results in a lower premium.  Just make sure you have the cash on hand to pay the deductible when an accident occurs.

Also, remember that liability coverage is required by state law, but collision and comprehensive are not.  While you should have enough liability coverage to protect your networth in the event of an accident, collision and comprehensive can be dropped entirely when your car becomes more expensive to repair than replace.  The savings you realize with lower coverage can be put in your “Automobile” bucket and saved for repair costs or buying a new car.

This article originally appeared in the July 30, 2008, edition of the Greenhorn Valley View.

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