Auto Insurance - What Do I Really Need?
When purchasing any insurance there can be a lot of terms thrown at you in a very short amount of time. Terms such as Loss of Use, Waiver of Depreciation or Uninsured Auto are not terms that we come across very often in our everyday life, unless you work in the insurance industry like myself. It can be very overwhelming trying to digest this information, and make the right choices for yourself and/or your family. Trust me, I've been there, listening to someone on the other end asking if I wanted this coverage, how high I want my deductible to be etc etc etc. When I was younger I always tried to go for the lowest cost, not really understanding what it all meant - all I knew is I only had so much in my bank account and it somehow needed to cover food, rent, phone, internet, gas, nights out and somehow insurance. When comparing going out and having fun or paying more for insurance the choice seemed pretty obvious and only one question needed to be answered - where are we going tonight? Which admittedly was pretty short sighted, but hindsight is always 20/20.
As we get past our early years the choices only seem to become more complicated, including what to do about insurance. You start to think about buying a newer car, and maybe a bigger one for your growing family. Although you make more money than you used to, it seems to disappear before in the blink of an eye. Many of your old bills are still there but now you have a mortgage payment and some hungry mouths to feed. Again you are faced with the choice without fully understanding it...what am I supposed to do about insurance? Insurance is one of those things you hope to never use, but begrudgingly have because deep down you know you need it to protect yourself and your family. Insurance protects you against events outside of your control, and yes it also protects you against your own bad decisions. Maybe you should have checked your blind spot before switching lanes, but that doesn't mean it should be paying for that mistake for years to come.
Having said all that, what coverage should you have on your car? That really depends on your circumstances, but lets take a look at some of the basic auto insurance coverage that you have a choice with:
Liability: This part of your policy pays for damage that you do to others that you are at fault for. It could be property (such as a fence post or building), vehicles or injuries you cause to others while driving. If someone decides to sue you, this is the part of the policy that protects you. However, the protection is not unlimited - it has a dollar value that you choose. Years ago a basic liability limit of $1,000,000 was common, but inflation effects everything, including insurance. What you need to understand is many people sue not because they want to, but because they have no other choice. If they are seriously injured, who is going to pay for a nurse to come look after them everyday? This is why they sue for the highest amount they can - because they have a lot of bills to pay and those bills can last for years. If you are in a car accident involving many people, each person could potentially sue you, if you were at fault for the accident. This is why you should consider limits higher than $1,000,000 - as there is a chance you may be sued for more than $1,000,000. Could you afford to pay $1,000,000 if you were successfully sued for $2,000,000? I know that would be devastating to me.
Collision: This is fairly straightforward - if you are at fault it an accident, it will pay for damage to your vehicle. However, it also will pay for your vehicle if you are involved in a hit and run accident. Say you are enjoying a lovely meal and come out to find your car has been damaged while it has been parked - there is only coverage if you can find out who hit you OR if you have collision on your vehicle. This is to make sure you weren't the one who caused the damage. The other part of Collision is your deductible - which is how much money you are responsible for if you are at fault in an accident. A typical deductible is $500, but you can make it higher if you are comfortable paying more for an at fault claim.
Comprehensive - This pays for fire,theft, vandalism, water, hail, and much more. It also pays for your vehicle if you hit an animal with your car or for your windshield. However, like Collision coverage, you still have to pay your deductible. The average deductible today is $500, which can be higher if you want. The savings tend to be less for having a higher deductible when comparing this to collision coverage.
Accident Benefits - In Ontario there is coverage for you if you are hurt as the result of a car accident. What this means is there are things that OHIP won't cover - like a nurse to look after you night and day, or perhaps to renovate your home, or for lost income etc. Accident Benefits are extremely important but to be honest the basic benefits do not go very far if you are seriously injured. Looking into increased Accident Benefits will help protect you against the unexpected.
Those are just the basic coverage's that everyone should consider. If your car is older and and has a low replacement cost it is completely understandable if you do not have collision or comprehensive coverage on it. In many ways insurance is about understanding what you can afford in the "worst case scenario". Typically you can pay to replace that old car you have but can't afford that million-dollar lawsuit. Next week we will look at more more specific options you should consider.
Please drop by or call our office 905-623-4406 if you would like to discuss any of your insurance needs.