The Pandemic Soul

I found this question Yahoo! Answers a few months ago, and wrote a response that turned out a little longer than I thought it would be. I figured it might be useful to some folks, so I’m posting it here. My knowledge comes from my experience as an employee of a major insurer.

Here’s the original question:

What is the bare minimum for full coverage auto insurance?

I live in Idaho. I have not yet payed off the auto loan so I’m required to have full coverage insurance. According to some people I am paying too much (about 700 for 6 months), as they are paying far less. I have geico, but from time to time I look around and get quotes, and it is always slightly higher than what I have now. However, that might be because I am opting for coverage I might not need.

So the question boils down to, what is the bare minimum requirements for “full coverage” auto insurance in Idaho?

Here’s my answer:

You should ask your finance company what exactly they mean by “full coverage.” “Full coverage” is not any kind of set standard for the insurance industry. It just means liability and comp/collision. But, the sticking point here is that you need to know exactly what your finance company wants to make it “full.” The factors here you need to know are:

A. What does my deductible on comp and collision need to be?

• Deductible is how much you pay in the event of an claim before your insurance company begins to pay. Your finance company usually wants your deductible to be LOW, but that means that your premiums are more expensive — because the lower your deductible is, the more the insurance company is going to pay in the event of a claim. Usually, people who are trying to save money will raise their deductible to something like $1000, which is basically a gamble. You’re gambling that you won’t get into an accident and won’t ever have to pay it. If you have some wiggle room, go higher on collision and lower on comprehensive. i.e.- $1000 on collision, and $250 or $500 on comp. Comp covers things like window breakage, theft of vehicle, hitting a deer, etc, and as such will TEND — not always, as in the case of theft — to be smaller claims. Thus, you’d want your deductible to be lower so that insurance kicks in and actually pays something.

B. What do my liability limits need to be?

• Liability is what the insurance company pays to someone else in the event of an accident. So if you hit someone and injure the driver and total the vehicle, your insurance company pays out of the liability coverage to the other person. You want these numbers to be HIGHER because it will cover more liability, but of course this means your premium will go up. Liability comes in three numbers — usually, depending on your state it may only be two or one. But if there are three, then the first number represents what your insurance company will pay to EACH PERSON in an accident that you have liability towards. The second number represents the “cap” of what your insurance company would pay in total to other people you have liability towards. And the third number represents damage to property. Thus, a common liability set would be: 50/100/50, meaning your insurance company would pay up to $50k per person, but no more than $100k to any group of people, and $50k for property damage. Alternatively, it’s possible you may have a simple “single liability” number like $300k, which just means that your company will pay out whatever liability is owed up to $300k. KEEP IN MIND that these numbers represent LIMITS. So, if you have an accident where you cause more damage than the liability provided, YOU will end up being sued by the other parties for the remaining amount of liability. Consider this situation: you fall asleep at the wheel and cross a median, totaling a $75k Mercedes and badly injuring its driver. Her total medical costs are $150k. If you have 50/100/50, you will end up owing her — assuming a civil suit against you grants her just the costs and no more — $100k in medical costs and $25k for her vehicle. This is because insurance only covered $50k in medical liability to a single person and $50k on her property.

Being that your finance company is the one who is saying you’re required to have full coverage insurance, it’s important you ask them what it is they want so that there’s no breach of contract if your vehicle is totaled. Generally, finance/purchase contracts require lower liability limits and higher deductibles, while something like a lease is going to require high liability limits and low deductibles.

If you’re concerned about getting lower cost insurance, one tip I have is to consolidate all your insurance into one company and get a multi-line discount. For example: call a major insurer and offer the salesperson to get auto insurance and renters/homeowners insurance, life insurance, etc. all with them and ask what the discount will be. (You should have all these products anyway, so if you can get a better deal than you’re already getting on all of these products with one company, then why not do so?)

Also: remember that your credit and driving record affects your premiums. Get your credit score UP UP UP and stop speeding. Watch your premiums drop :)