Full Coverage Auto Insurance
What is it, what does it cover, and do you need it?
If you have ever purchased a new vehicle, you have likely heard the phrase “full coverage.” When buying a new car, a dealership will often ask for a copy of your insurance declaration page, or proof of coverage. Specifically, the dealer is ensuring your policy offers liability coverage as well as collision and comprehensive coverage – full coverage.
But what, exactly does full coverage mean?
First, let’s discuss what full coverage is not. Despite the name, which makes a person think that the policy offers complete and total insurance coverage, there are some limitations and exclusions to this coverage. It is important to understand what, exactly, your insurance coverages offer for you and your automobile in the event of an accident.
Full coverage does not guarantee the following coverage situations or types:
Depending on your state’s minimum requirements, not every policy will automatically provide coverage for you or your vehicle occupants in the event of an accident. Medical payments may be referred to as first party medical, personal injury protection, or in some states no-fault coverage.
This coverage is often a separate coverage, and full coverage does not, necessarily, mean medical coverage for you or your vehicle occupants in the event of an accident. Check your state minimum requirements for this coverage.
Consider a situation of a hit and run. If your automobile is struck and the at-fault vehicle leaves the scene without leaving any information, there is no other insurance company to provide coverage for damages to a rental vehicle. In these situations, having your own coverage offers peace of mind. This additional coverage is worth consideration.
Keep in mind, that if your vehicle is damaged in an accident, the tow is covered under collision coverage in most situations. Towing, as a separate coverage, may not be a necessary option for everyone, so consider your needs when looking for affordable towing coverage.
Not to be confused with uninsured motorists coverage, which is compulsory, or required, coverage; underinsured motorist coverage is used when an at-fault motorist has liability coverage, but the coverage is not sufficient to cover all the damages you or your household member sustains in an accident.
Now that we have addressed the common misconceptions, what does full coverage mean and how does it apply to you? Is there such thing as full coverage auto insurance?
Full coverage is personal auto insurance coverage that includes all state-specific compulsory coverages, plus collision and comprehensive coverage for your automobile.
In layman’s terms, it’s what your insurance company is required to provide, plus insurance coverage for damage to your vehicle in the event your vehicle is involved in an accident. The additional coverage of both collision and comprehensive are the coverage types most often associated with full coverage.
Collision coverage is the insurance coverage for damage to your vehicle in the event it is involved in a collision or accident. This coverage is accessible even if you are at fault for the accident.
It is also available in the event of the hit and run situation discussed earlier. This coverage often has a deductible clause, which requires you to pay the initial damages up to an agreed upon dollar amount.
The most common deductible is $500. This means you agree to pay the first $500, and the insurance company pays the remaining damages up to the value of the vehicle.
This coverage applies to minor repairs and also damages so significant that the vehicle is declared a total loss. A vehicle is a total loss when it costs more to repair the vehicle than it costs to sell the vehicle for salvage.
This coverage also comes in handy in situations where the at-fault driver’s insurance company investigates the accident due to liability or other insurance policy concerns. In these situations, you can use your own collision coverage even if you are not at fault. Your insurance company will seek reimbursement through a process called subrogation.
So, what is comprehensive coverage?
Sometimes your car is damaged, even when it has not been involved in a collision. Vandalism, acts of nature, and even thefts can be covered under this coverage type. Like collision coverage, comprehensive insurance also usually has a deductible. Just like collision, under this coverage you agree to pay the agreed upon deductible value.
If your damages are more than your deductible, your insurance will pay all the damages in excess of the deductible, up to the vehicle’s value. Comprehensive coverage also is the coverage type for glass damage coverage. The most common glass claims are windshield replacements.
An example of when comprehensive coverage is important is when your vehicle is damaged by falling debris or a collision with an animal. Much of North America is populated with deer and other mid to large sized animals. These animals often wander into roadways, especially at night, and colliding with one can cause significant damage to a vehicle.
This damage claim would fall under the comprehensive coverage type. If you hit a deer and your vehicle is damaged, your insurance company will not pay to repair your vehicle if you do not carry this coverage type.
Liability and Uninsured Motorist
Liability coverage is insurance protection for accidents wherein you might inadvertently cause damage to another vehicle, or accidentally injury another person. Liability and uninsured coverages are also referred to as compulsory coverages, which means that they are required.
Liability coverage encompasses both physical or property damage, and injuries caused by a motor vehicle accident. This means if you cause damage to another person’s vehicle or other property in an accident, your insurance company will provide payments to cover that damage up to the limits you choose.
It will also provide payments for pain and suffering claims made by a person who is injured by you in an accident. The limit of how much your insurance company will pay is up to you, but most states have a state mandated minimal limit. You do have the option to choose higher limits than the state minimum limits.
Basically, if you are at fault for an accident, your insurance company will pay for things like damaged cars or injury claims for anyone involved in the accident who was not at fault for the accident.
Minimum Insurance Examples by State
State minimum insurance requirements are listed in a series of three numbers that include bodily injury liability limits and property damage liability limits. The first number out of the three refers to the bodily injury liability per person (in thousands of dollars) and the second number is the bodily injury liability per accident (in thousands of dollars). The third number limits the total property damage coverage per accident.
Who Needs Full Coverage?
The need for full coverage depends on the car. Anyone leasing or financing a vehicle will be required by the bank or lienholder holder to carry full coverage.
While you make payments to the bank or lienholder, that institution has a vested interest in the safety and surety of the vehicle.
They technically still own the vehicle, or at least co-own the vehicle. Until your loan is paid off or the leased vehicle is returned, you are required to carry full coverage, consisting of collision, comprehensive, uninsured motorist, and liability coverage.
Consider the hit and run scenario previously discussed. Payments you may be making on your vehicle are for the initial purchase of the vehicle.
If your vehicle is struck by a car in a hit and run situation, and your vehicle is deemed a total loss, then the insurance company will issue you a check for your vehicle’s value under the collision coverage. From this settlement value, the insurance company will also help you resolve the lien by issuing part of the settlement to the bank providing finance for your vehicle.
If your vehicle is paid off, and it is not your sole source of transportation, then you can consider whether or not you need full coverage. Reducing coverages that are not necessary can reduce your insurance premium. A good way to tell whether or not full coverage is cost effective is to first determine your vehicle’s value.
Kelly Bluebook has an online calculation tool which can be very helpful in estimating your vehicle’s value. If your annual insurance premium for collision and comprehensive coverage exceeds the value of your vehicle, then it may not be cost effective for you to carry full coverage.
For instance, if the cost to include collision and comprehensive coverage on your policy is $600 per year, but your vehicle is only worth $500, then collision and comprehensive coverages may not be the most financially sound choice. You may be better suited to put that money into a savings account as a rainy-day fund in the event that vehicle is damaged and repairs or salvage are needed.
Full coverage insurance, on the other hand, will also cover damages to your own vehicle due to an accident through collision coverage and can cover several other risks, like fire, theft, or vandalism, through comprehensive coverage.
Full coverage is not required by state law, but many lenders make this this coverage mandatory if you still owe payments on a vehicle.
Some Car Insurance Stats
THE 7 MOST COMMON CAR INSURANCE CLAIMS FILED ARE:
If you have been involved in an accident related to one or many of the circumstances listed above, you likely relied on your car insurance policy to take care of the damage for you. In these cases, it literally pays to have full coverage insurance.
About 1 in 8 motorists in the United States is uninsured.
Even though almost every state requires auto insurance coverage (there are exceptions in New Hampshire and Virginia), some people do drive without coverage. This is of course risky as the average claim for an uninsured motorist is $20,000, which does not even include the damage to the vehicle itself.
How Much Auto Insurance Do You Really Need?
If you’re in the market for a full coverage car insurance policy, there are varying levels of protection available to you. Based on the foundations of full coverage, as well as the long list of “extras” that may or may not be included, you can tailor your car insurance policy to best meet your needs.
HERE IS A PROGRESSION OF HOW ONE CAN APPROACH FULL COVERAGE INSURANCE:
Basic Full Coverage
At the very minimum, you can sign up for cheap full coverage insurance with liability, uninsured motorist coverage, collision, and comprehensive coverage. This insurance will meet state requirements and protect your vehicle from damage, regardless of who is at fault or if the at fault driver has auto insurance coverage or not.
Intermediate Full Coverage
Taking it one step further, you can upgrade a basic full coverage car insurance policy with medical payment coverage. Medical payment coverage will reimburse for medical treatment up to a certain amount, no matter who is at fault in an accident.
Ultimate Full Coverage
If you’re looking for complete protection in a full coverage package, you can add on all of the extras listed above. This may include towing, car rental reimbursement, and GAP insurance. Upgrading your policy in this manner will provide peace of mind if any type of damage affects you or your car in an accident or related catastrophic event.
If you aren’t financially able enough to afford the cost of injury and damages in an accident, increase your coverage amount above basic liability insurance.
Additional Personal Injury Protection (PIP) coverage may be redundant if you or your family have a solid health insurance policy. Discuss your PIP or MedPay options with your agent. It’s important to structure this part of your policy properly to ensure coverage.
If annual comprehensive and collision rates exceed the value of your vehicle, this extra coverage may be unnecessary. When your car reaches around eight to ten years of age, calculate how your annual premium compares to the value of your car.
If you are financially ready to pay for the replacement of an older vehicle, paying a monthly full coverage premium may no longer make sense. As your car gets older and depreciates in value, you can start to drop some of the “extras” in your policy or raise your deductible, as finances allow, to lower your monthly premium even further.
How to Save Money on Full Coverage Car Insurance
As this chart indicates, the cost of car insurance in the U.S. is continuing to increase. One of the reasons for this hike in pricing is due to the increase in claims in recent years as well as the rising cost of car repairs and replacement parts. Since cars these days are equipped with more advanced safety features such as sensors and cameras, replacement parts are more costly and thus why costs are going up for consumers.
ANNUAL AUTO INSURANCE PREMIUMS IN THE U.S.
AUTO ACCIDENTS GROWING IN SIZE AND FREQUENCY
Percentage Change 2014-2016
This next graph shows that every year since 2007, the losses and expenses for auto insurance companies have surpassed premiums.
From 2014 to 2016, auto insurance coverages saw a striking increase in accident loss costs.
INCREASE IN AUTO INSURANCE LOSS COSTS
2014:Q1 – 2016:Q1
HERE ARE SOME TIPS TO GET THE CHEAPEST FULL COVERAGE CAR INSURANCE AVAILABLE:
Compare insurance companies
One of the best ways to save money on full coverage insurance is by simply comparing rates. Most providers today offer free car insurance quotes online; compare a minimum of three companies before making a final decision.
Combine your insurance policies
Your insurance provider may offer you a discounted rate if you lump policies together, including auto, homeowner’s, and/or life insurance.
Improve your driving record
Good drivers are rewarded with better insurance rates. One of the most effective ways to keep full coverage insurance affordable is by eliminating speeding tickets and traffic violations, including DUIs.
Raise your deductible
If you can afford to raise your deductible by several hundred dollars, you could drop your full coverage insurance rates.