Auto Insurance Supplemental Coverage

Adding More Liability Coverage

One of the most basic decisions, and one that everyone makes, is whether to go with just the basic liability coverage or to add additional coverage of various amounts. The base amount these days is usually a million dollars, although in some areas this may be lower or higher, and we can just go with that amount or select a higher one.

Everyone’s needs are different and while we may want to economize here and just refuse to pay more for auto insurance coverage than we are required to by law, we should be thinking about this a bit more at least and really determining whether we would not be better off selecting additional coverage.

We do need to be aware that the rationale for insurance always is to protect against financial hardship, and it may very well be the case that claims against us over a certain amount, whether that be a million dollars or perhaps higher, will not really result in much more financial hardship for us.

If we are insured for a million, and get a judgement against us for two million, or three million, and have minimal financial assets, we are often in a similar situation with these larger amounts, as we may not be able to pay neither. Therefore, going from two to three million may not represent any additional financial hardship, if both exceed our capacity. It would not make sense then to pay more for something we will not get enough benefit out of or any additional benefit in this case.

If the size of judgements were so high that no one would ever be able to pay them, buying any liability insurance at all would not make sense, as people would be equally screwed financially in all cases, with the amounts well beyond their ability to handle.

This all needs to be kept well in mind when looking to add additional liability coverage, if it would really make much of a difference and enough of one to justify the higher premiums.

There are people though who would be materially affected with the two or three million dollar decision, for instance if they were worth a million and only bought the two million worth of liability coverage and had a judgement against them for three million dollars. This would wipe out their net worth and this is what they are seeking to protect with this liability coverage.

In this example, while we might think that one would be well advised to purchase enough coverage to protect against the largest settlement one could encounter, this isn’t necessarily the case as we still want to make sure that we’re getting fair value out of the extra premiums. As it turns out though, supplementary liability coverage is generally pretty modestly priced, and one cannot go too far wrong in this situation where we have much to lose and just purchase the largest amount that may be expected to be needed.

Insurance Deductibles

Reducing or eliminating deductibles is also a form of supplemental coverage, given that standard auto insurance policies do contain these deductibles where one pays the first amount of a claim themselves and the insurance company only pays amounts that exceed this.

We can usually pay more to have these deductible limits reduced or even eliminated, and there are some people who relish the idea of being able to make an insurance claim and have the insurance company bear the full cost of it.

While we do not want to ignore the potential psychological benefits that may be apparent here, and peace of mind is a big component of any insurance, we also want to make sure that these psychological benefits do not accrue as a result of our not thinking well enough about the actual value of purchasing this additional coverage amounts to.

This is not to say that reducing or eliminating the normal deductibles included in auto insurance policies is always a bad idea, but for this to make sense, one would have to be truly in a bad situation as a result of having to pay these deductible payments.

It’s not hard to imagine one being in such dire financial straits that this would really be the case, where this may lead to such things as taking food off one’s table, not being able to pay the rent, or defaulting on loan payments, this is usually not the case. If it isn’t, we need to be asking ourselves why we would want to pay several times the valuable of this extra coverage without a real need for it.

Gap Insurance

One of the more popular add-ons to policies, and one that should be carefully considered by anyone who has comprehensive and collision insurance as well as a secured loan against a newer vehicle, is called gap insurance.

If the full value of the vehicle is lost, for instance if it is stolen and not recovered or damaged severely in an accident such that it would cost more to fix it than its market value, insurance companies will only pay you what the market value is worth.

Due to the fact that newer vehicles depreciate pretty quickly, this can have you owing more on your loan than you get back from the insurance company. While this might only be a few thousand dollars, if you don’t pay off the entire amount of a loan, you still need to make regular payments on your existing loan.

This prospect does have people becoming more alarmed than they probably should be, thinking that they aren’t going to be able to manage two loans at the same time. This may be true, but there are usually other options involving refinancing that will reduce the impact of this upon one’s finances.

Still though, this does not result in a pleasant situation at all and will at a minimum require larger loan payments on the new vehicle or require us to purchase one of lesser value to compensate for this gap. Many people therefore choose to add gap insurance and it can be purchased for pretty modest amounts and eliminate this concern altogether.

Other Auto Insurance Add-Ons

There are a number of things that you can add on to your insurance policy, which starts by becoming very familiar with what is covered by a basic policy as well as what additions may be available at what cost.

The guiding principle here needs to be what situation the loss would put yourself in, and you can bet, without any calculation whatsoever, that any insurance coverage of any type is going to cost you more over time than it is worth.

Things like income coverage can certainly qualify here, and if you become injured as a result of an accident and don’t have any other coverage for this, being able to keep your income at a minimal level to maintain your basic financial obligations can be plenty important indeed, and this is a loss that we would want to protect against often times.

Other things, like loss of use coverage, where if our car is in the repair shop the policy will cover the cost of renting a car, is not something that tends to cause much of a financial burden, as it really doesn’t cost more than a few hundred dollars for this and this is well beneath the threshold of a significant financial hardship for most people.

If a person is broke all the time and spends every cent as soon as they earn it, and they won’t have a way to work if this happens, then this may make sense, but generally it would not.

We can often purchase special glass coverage that does not involve any deductible, and that might make sense for some people, but once again, this not result in a very significant financial loss if you have to pay the rather small deductible that standard comprehensive insurance tends to come with.

What throws people off here is their thinking that having a deductible that is higher than the typical cost of a claim leaves them uninsured basically against glass damage, but this is one example where being uninsured against something may be indeed the most sensible choice.

We should be looking carefully at all the options that are available with our auto insurance companies, and also comparing them across insurance companies, with the goal of selecting to coverage which makes the most sense to us at the best price we can find. This may involve our adding coverages to the basic ones but we should only do that when it is wise to do so after careful consideration.