Why you need insurance!
Besides the purchase price of a car, one must also calculate the potential maintenance cost, and auto insurance cost. We often focus on the first two costs, but seldom do we realize the auto insurance cost differential until we?ve purchased the car!
I was so happy to negotiate $2,000 off the initial asking price of a $14,000, black on black, BBS wheels equipped 1997 M3 in 2003 that I didn?t realize my auto insurance would jump from just $500 a year to $2,000 a year!
Had I realized my auto insurance would jump so much, I probably would have negotiated even harder, or reconsidered buying a sports car altogether. Always get an auto insurance quote before you purchase a car please!
Having auto insurance is a law you don?t want to break. Accidents happen all the time whether they are your fault or not. If you end up wrecking someone else?s car and injuring a passenger, not having any car insurance could literally wipe you out financially and put you in poverty for the rest of your life!
AUTO INSURANCE BASICS
There are three things you want to protect with auto insurance in case of an accident: 1) You and your passengers, 2) Your assets, and 3) Your vehicle. Most people would choose protecting you and your passengers as the most important purpose of auto insurance. I would too. However, it all depends on how wealthy you are.
1) Insurance To Protect Your Financial Resources
Let?s say you are multi-millionaire who employs 10,000 people who depend on your existence to put food on the table. If you go down, so does the company. Protecting your financial assets might be more important than protecting you and your passengers sad to say! If you nod off and accidentally kill several pedestrians on the sidewalk, you can be sure you will be in a legal battle for multi-millions of dollars. You will be all over the news and you won?t be able to focus on running your company.
If you did the same thing and were poor, the victims or family of the deceased can?t squeeze blood from stone. As a result, you care less about protecting your own financial resources since you have little, and care more about protecting the passengers in your car. Of course, if you are the multi-millionaire, then you can afford to care for everything and get the most protection possible.
Bodily Injury Liability:?If you hurt someone in an auto accident, the insurance company will pay a certain amount.? In my case, I elected for $300,000/$500,000 per person/per accident.
Property Damage Liability:?If you damage someone else?s property in an auto accident, the insurance co will pay a certain amount. My insurance company pays $100,000 per accident to property.
2) Insurance To Protect You And Your Passengers
You can be the most careful driver in the world, but that is only half of the equation. If someone else is careless, they can easily crash into you and cause damage. Even though auto insurance is mandatory for all drivers, many drivers still do not have auto insurance! As a result, your insurance needs to protect you from others.
Uninsured Motorists Bodily Injury:?If an uninsured or underinsured driver injures you or your passengers. I elected $300,000/$500,000 per person/per accident.
Medical Payments:?Covers you or your passengers. If someone runs into you, or you run into someone else and have an injured passenger, you want to be able to provide financial coverage for any medical expenses they may incur. Hopefully, your passengers will not sue you if you don?t have such coverage, but it?s better to be safe than sorry. I have $100,000 per person.
Extended Benefits:?Wage earner disability benefits, essential services disability benefits, death benefits. If an auto accident causes so much physical or mental pain that you cannot return to work, your extended benefits beyond your company?s short term disability benefits will kick in if you do not have long term disability insurance. I pay $5.10 for minor distribution of all three. I have my life insurance and disability insurance from work to cover 100%.
3) Insurance To Protect Your Vehicle
One of the most wonderful things about driving a 12 year old vehicle is that it doesn?t cost much to replace. Moose, my SUV is probably worth no more than $3,500 anymore. If I was to get in a car accident, the cost to fix whatever part of Moose will probably cost at least $1,000. At this point, it?s better to just donate him to charity and consider buying another vehicle. As a result, I do not have comprehensive insurance.
Comprehensive: Covers damage caused by something other than another vehicle such as hail, theft, and collision with Bobo the bear. If you have a shiny new $50,000 BMW, you should get comprehensive insurance because you?ll want to fix it in an accident and you won?t want to pay thousands of dollars to do so. The more expensive your car and the more dependent on your car, the more you should consider getting comprehensive insurance.
Collision:?Covers damage to your vehicle caused by impact with an object other than an animal. Gray area here, given this is what comprehensive is for. I declined coverage.
Uninsured Motorists Property Damage:?If an uninsured driver damages your vehicle. If an uninsured motorist damages Moose, I will just ask him to pay for everything, otherwise, I will introduce him to my cousin Viktor, who will break his legs for non-payment.
Towing & Labor:?Provides emergency roadside assistance such as towing, flat tire, jump start, and delivery of gas. This service is a life saver! I?ve run out of gas, had an older car not start before for some reason, blew out my tire, left my lights on, and each time needed roadside assistance. Takes no more than 45 minutes to get everything fixed. I recommend everybody get towing & labor. I pay only $5.88 and I can?t believe it?s not at least $100 every 6 months.
AUTO INSURANCE RECOMMENDATIONS BY FINANCIAL SITUATION
Given everybody should have auto insurance, it is now up to you to taylor your auto insurance coverage to your needs. Here are four common scenarios and what type of insurance I recommend for each.
My BMW M3 that caused my insurance to rocket
* You drive a fancy car which you probably can?t afford. Let?s say you are 28 years old, no family, and drive a new 2013 BMW 335i that costs $57,000. The problem is you only make $60,000 a year and therefore can?t really afford the car if you follow my 1/10th rule of car buying (pay no more than 1/10th your gross annual income for a car). Since you can?t afford the car and only perhaps the payments, you probably can?t afford any major repairs. My recommendation is to bite the bullet and get comprehensive auto insurance, collision, towing & labor, and uninsured motorist and property damage insurance. Since your car is literally making you poorer every month, you don?t need to get as much property and bodily injury liability insurance ironically. Your car is already a massive financial liability. You don?t want to make it an even greater liability without comprehensive coverage.
Estimated cost: $200-$300 a month depending on driving record and liability amounts.
* You drive a nice car and are rich. Let?s say you drive a 2013 Honda Accord that costs $38,000. You also make about $400,000 a year, have $3 million in assets, a wife, two daughters in high school, and paid cash for your Accord. You care most about insuring your passengers and your financial assets in case you are deemed negligent. The last thing you want is someone to sue you for $3 million dollars and put your family at risk. College is expensive! Hence, I would consider as much bodily injury and property liability insurance as possible. You should probably get comprehensive insurance with a higher deductible of around $1,000 given you have the assets. With a higher deductible, your monthly premiums are less. It is worth it to also get roadside assistance, collision, property damage, and uninsured motorist insurance. You should also consider an umbrella policy to cover you beyond your auto insurance.
Estimated cost: $50-$150 a month depending on driving record and liability amounts.
* You drive a beater, but can afford more. This is my situation where I drive a $3,500 dollar 12 year old SUV, but can afford something newer. I don?t own a nicer vehicle because I don?t sell my children and I?m pretty frugal, especially now that I?m retired. I do not have comprehensive insurance because if I bash Moose by mistake, I?ll just buy another car. If someone else bashes Moose, I?ll be mad, but at least his/her insurance will pay to replace Moose. My main concern is about getting sued if I?m at fault given I?ve got a good accumulation of assets in CDs, savings, private investments, stocks, bonds, and real estate. Hence,?I elected for $300,000/$500,000 per person/per accident for bodily insurance liability. I?m assuming $300,000 per person is enough and hope it never comes to it. I have a multi-million dollar umbrella policy.
Estimated cost: I pay about $45 a month.
* You drive a beater and are poor. Let?s say you have a non working spouse, no children, and drive a 1993 Honda Civic worth $1,000 and make $28,000 a year and have a total of $500 in net worth. I recommend you just get liability insurance with the lowest monthly premiums, and lowest liability payouts possible. The most anybody will be able to get from you is $500, which is not worth the hassle for most people. Spending $10 more a month in auto insurance is painful, hence your goal is to keep costs low, be a safe driver, and don?t get into any accidents. Remember, if someone else is found liable in your car accident, it is up to them to pay you, not the other way around.
Estimated cost: $30-$50 a month depending on driving record and liability amounts.
The right amount of insurance is different for everybody. Make sure you understand the various different options you have and weight the cost of coverage with the cost of your monthly premiums.
For a?FREE no obligation competitive?auto insurance?quote?that searches the best insurance rates by StateFarm, Nationwide, eSurance, and AllState?click here?or the banner. It is very important that everyone gets at least basic liability car insurance. You can total your car and be fine. But if you total someone else?s car and inure them, they can go after you for ALL your assets and wipe you out! Protect yourself!
Regards,
Sam
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Source: http://www.financialsamurai.com/2012/09/21/auto-insurance-basics-and-recommendations-for-everyone/
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