Key Insurance Considerations for Car Buyers

A discussion of three commonly overlooked auto insurance decisions for car buyers.

Most families have automobile insurance since they've been on the road, but many may not fully know the ins and outs of coverage until they have to file a claim.

But by then, it might be too late to learn that you're uncovered -- or undercovered -- for certain liabilities.

Insurance industry experts and consumer advocates say motorists can protect themselves by making sure they have the right coverage before that happens. They said there are several provisions of automobile insurance policies that most consumers don't know about.


Here's a closer look at three key coverage areas you should be sure to examine before you hit the road.

Personal Injury Protection


Policyholders could be on the hook for damage costs from car accidents if they don't have enough coverage.  Many drivers opt for the minimum coverage required by their state: typically around $10,000 for personal injury protection and $10,000 for property damage liability. But that may not be enough to cover the damage caused by serious accidents.

Chances are that drivers need more liability insurance than the minimum because accidents cost more than the minimum amounts. If someone is found legally responsible for bills that are higher than what their insurance covers, they will have to pay the difference out of their own pocket.


Experts suggest consumers consider collision and comprehensive coverage; uninsured motorists coverage to pay for hit-and-runs and for damage caused by someone without insurance; and bodily injury liability coverage, which pays for death or serious and permanent injury to others when you're responsible for an accident. It covers all people on the policy, even when they're driving someone else's car.

Insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident since accidents often cost far more than the minimum limits mandated by most states. The higher your income and net worth, the more liability insurance you should consider purchasing because you can be sued.  The cost of the car you hit also matters because if you're involved in a crash that damages a high-end or new car, the $10,000 minimum required limit may not cover repairs. The average personal injury jury award in 2006 for vehicular liability was $301,000, she said, citing data from Current Award Trends in Personal Injury. Meanwhile, the average payment per claim in recent years was $4,113.

Child Drivers 

Parents can be sued for their kids' accidents. Many parents get high coverage limits for themselves but not their kids, thinking they can't be sued. That's a mistake. If the kids have the auto in their own name and have their own policy, then the limits on the kid's policy should not be less than Mom or Dad's. If all the cars are on one policy, there are no coverage gaps out there.


Consider Vehicle Value


Consumers can lower their limits for coverage as their cars depreciate in value.  In the event of a total loss, the carrier does not pay the policy limit listed for property damage. They pay the depreciated value. Therefore, you pay for coverage you can never collect on.

Furthermore, consumers with loans on their cars can buy "gap" insurance to cover the difference between the amount of coverage they have and the amount of the loan. Since the vehicle depreciates immediately after it's taken off the lot -- by several thousand dollars – the owner has to have coverage to pay off your loan.

But for older cars, collision and comprehensive coverage may not make sense. It may not be cost-effective to continue insuring cars worth less than 10 times the amount you would pay for coverage, according to InsWeb, a company that partners with major insurers to provide online automobile insurance rate quotes.  For instance, if your car is valued at $3,000 and the collision and comprehensive part of your policy costs $300 or more, it may not be worth keeping the coverage.

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