Dear Kirk: I’m buying my first car! I’ve only had one vehicle since I turned 16—in my dad’s name, so he generously paid the insurance, too. But now I’ll be responsible for the insurance. What are my coverage options? And just so I know, what’s the bare minimum?
Kirk Says: You will have many coverage options to choose from, and only you can decide which option best fits your situation. This is where a good agent comes in—to ask questions related to your current and future situations and explain why you may want to consider more than the “bare minimum.”
Let’s address the question of a bare minimum first. When referring to a bare minimum of coverage, most often we are discussing the lowest legal required limits as set by the state where the car is tagged and titled. Here in Tennessee, the state minimum requirements are 25/50/15 for liability coverage. There is no legal requirement for comprehensive or collision coverage, but if there is a lienholder on the vehicle, they may require this coverage with a $500 deductible as part of the conditions of the loan.
With this said, let’s take a look at the coverages available and what they may mean to you.
Coverage A Liability
This covers you for any damage you may be liable for in a car accident, including damages to another person’s property or for medical bills associated with an accident. We’ve already established that, in Tennessee, the minimum is 25/50/15—which means that the insurance company would cover up to $25,000 per person for medical injuries, up to $50,000 per accident for multiple people with medical injuries and up to $15,000 for property damage.
Now imagine yourself hitting another car valued at $50,000, and you only have $15,000 coverage in property damages. Where is the other $35,000 going to come from? If you are at fault for the accident, it will come out of your pocket. You may even have your wages garnished to settle this debt. Not the way to start your new career. If your agent told you that for $7 more per month you could increase that coverage to 100/300/100, would that get your attention?
Coverage D Comprehensive
This covers you for claims that are “acts of God”—like hailstorms, animal collisions and major flooding—and will put you back whole just like before the event occurred, minus the deductible amount you have chosen.
Coverage G Collision
This covers your vehicle when involved in the crash. Let’s say that you accidentally run into the back of a car at a red light, and both of your cars are damaged. Necessary repairs to your vehicle total $2,500, and the other car’s repairs total $4,000. Your repairs are paid for thanks to your collision coverage, and the other car gets paid for through your liability coverage. With collision coverage, you also can choose the amount of the deductible that you would like, usually anywhere from $250-$2,000.
There are other coverages available like road side assistance in case your car breaks down, rental car coverage to provide you a rental car in the case of an accident, medical payments coverage for you and your passengers, and accidental death and dismemberment coverage.
Depending on your circumstances, your insurance agent can help you select coverage options that best suit your needs—but as always, be sure to shop around among multiple agencies for the best quote.
Kirk Gwaltney is a Chartered Financial Consultant and a Chartered Life Underwriter in Brentwood, Tenn. Learn more about him at kirkgwaltney.com.