Auto insurance policies come with many different options, and this leads to a lot of different variations among policies. If you need a new auto insurance policy, here's a guide on how to set up one that's right for you.
1. Choose Deductibles Equal to Your Emergency Fund
An auto insurance policy's deductible is an amount that you must pay before the policy will offer any compensation for a covered claim. To see how this works, assume your policy had a $300 deductible and you file a $4,000 claim. After you pay $300, your policy would cover the remaining $3,700.
Most policies allow you to choose from several deductible options when you set up coverages, and you can save substantially on premiums if you choose higher deductibles. When you choose higher deductibles, though, you assume more risk because you'll have to pay more in the event of a claim.
As you review each coverage's deductible options, select the option that's closest to your emergency fund. If you don't have an emergency fund or have a very little one, choose a low deductible since you aren't in a position to cover a large and unexpected expense. If you have a lot saved up for an emergency, pick a higher deductible.
With this strategy for choosing deductibles, you'll take advantage of potential savings but not expose yourself to too much risk. You'll reduce premiums as much as you can reasonably manage to, and you'll avoid a situation where you need to quickly pay a deductible that you can't afford.
2. Select High Limits for Liability Coverages
Some auto insurance coverages come with predetermined limits. For example, comprehensive and collision coverages have limits equal to the fair-market value of your insured vehicle. Other coverages, namely liability coverages, come with several limit options. All of these limits determine the maximum amount that a specific coverage will pay for a claim.
As you go through the various liability coverages available, tend toward the higher end of the limit options range. There's not necessarily a specific limit that's right for everyone, but higher limits tend to be better in most cases.
The added cost for higher limits is usually relatively small, especially compared with how much changing a deductible alters your premiums. By choosing higher limits, you'll have extra protection against lawsuits that can be extremely expensive to defend yourself against and settle.
3. Get All of Your Required Coverages
When you turn your attention to specific coverages, first make sure you get all of the protections that you're required to carry. You have two main sources of requirements.
First, most states have specific minimum coverages that vehicle owners must maintain if they want to drive on public roads.
If you select high limits for liability coverages, you'll likely exceed each state-mandated coverage by a lot. You should still have an insurance agent confirm that your policy meets all legal requirements, though, so that you aren't ticketed for being uninsured or underinsured.
Second, you probably have to carry certain additional insurance coverages if you have a loan or lease on your car.
Most institutions that finance vehicle purchases require drivers who have loans or leases to maintain comprehensive, collision, and gap coverage. The first two protect an insured vehicle against various sources of damage or theft. Gap coverage fills in the gap between what's owed on a vehicle and what the vehicle is worth, in case the vehicle is totaled or stolen.
4. Consider Comprehensive and Collision Coverage
If you don't have a loan or lease that requires you to carry comprehensive and collision coverage, consider whether you need these two protections. Whether you should carry the two coverages largely depends on whether you could afford to replace your car in the event that it was totaled.
Many people can't afford to replace their car without incurring a substantial financial setback. If this describes you, then comprehensive and collision coverage make sense. They'll help make sure you can get another car if something happens to your current one.
A few people are so wealthy or drive a car that's worth so little that they can afford to replace their car if something happens to it. If you're in either of these situations, then you might forgo the two protections.
5. Consider Extra Protections
Some auto insurance policies offer additional protections, such as emergency roadside assistance and towing services, at an additional cost.
Whether you should pay for these additional protections depends on your situation. They're useful to some drivers, but other drivers already have similar protections through a club or other organization. If you already have these, you don't need to pay for duplicate protections. If you don't have the protections already, though, they might be helpful to add onto a policy.
If you need auto insurance, contact L.A. Insurance.