I felt like the world was coming to an end when I saw my wrecked car for the first time. A full quarter panel was gone, the light knocked out, and it looked like my car was currently winning a demolition derby. As a 17-year old at the time, I thought the world was coming to an end.
The lady I hit – yes, it was absolutely my fault – had only minor damage to her bumper and aesthetic damage to the bottom of her trunk. Her car had aluminum or steel where mine had plastic.
Worse than it appears!
Everything went smoothly as we both drove away from the accident with our cars dinged up from the 20-25 mile per hour rear-end collision. For the most part it was a pretty forgettable experience. I hadn’t even thought about it until I switched insurance companies not too long ago.
After shopping around for new car insurance, I finally spoke to a customer service representative as the company’s website wasn’t very friendly about the fact I knew very little about my accident. I think I even entered in the wrong month.
After explaining that I truthfully couldn’t remember the exact details, the agent informed me that the company does a search anyway, so that it wasn’t a big deal. She did want to confirm a few pieces of information about the accident.
She flies through my driving history.
“A speeding ticket years ago – 90 in a 50?”
“Rear-end collision for $32,000 in total damages”
I was stunned. I thought back to everything that happened. Her car wasn’t worth 32,000 Pesos, let alone 32,000 US Dollars. The woman on the other end of the line told me that the property damage was minimal, but it was the disability and health care that cost so much.
Now, I don’t remember the woman I hit being particularly fragile. There’s no way I hit her hard enough to do that much damage. $30,000 in health care is the equivalent to a few days in the intensive care part of a hospital. It’s an insane amount of money for a minor accident.
But it is what it is. There is a reason why any city has hundreds of personal injury lawyers – car insurance is big money. Car insurance companies have very, very little reason to fight small cases ($32,000 is apparently a small amount of money.) Writing a check is better than getting costly lawyers involved. Besides, 49 states require car insurance, so there is no shortage of customers willing to pay their premiums every month.
What I Learned about Car Insurance
Have a lot of it. There’s no such thing as too much. (See why Bodily Injury Insurance is a Driver’s Best Friend).
Most accidents are minor events – a normal day in the life of a car insurance company. Most cost only a few thousand dollars at the worst. Any car insurance company is just going to write a check and be done with it. I’m just guessing here, but I would suspect that for amounts less than $50,000, car insurance companies just let things slide.
So having car insurance with high bodily injury and property damage limits is a must. The more the merrier because any damage in excess of your limit is your bill to pay.
If I had state minimum coverage, the balance of the damages in excess of $25,000 would have come out of my pocket. And because the way the laws work in my state, if I couldn’t pay as a minor, my parents would have been liable.
So the name of the game with car insurance is to buy enough that you’re a significant risk to the insurance company. If you have $300,000 limits, you won’t run the risk of being on the short-end of the stick if someone makes a claim. You’d have to try really hard, or someone else would have to commit obvious fraud to come up with $300,000 in damages. Insurance companies may write $32,000 checks without a fight, but few will part $300,000 in cash without a second glance.
You can add $100,000 in bodily injury to your insurance for pennies on the dollar. I can add that much for less than $10 a month – and my history is anything but perfect. People with fewer infractions and few accidents could probably add $100,000 in protection for $3-5 per month.
So, while it may be easy to look at insurance as an expense with limitless savings potential, I would go the other way. Raise your deductibles to the moon, but set the upper boundary on your coverage limits as high as you need. You can find affordable automobile insurance that can protect you against even the worst accidents. I can’t imagine ever cutting my limits to save a few dollars on insurance per month. The long-tail risk simply isn’t worth it – you have to scare your insurance company into protecting your finances.