One of the key decisions in deciding what car to buy is assessing how much all the other costs are that come with ownership. The purchase price and/or the car payments are just the most obvious of costs.
There are two main ownership costs to consider: maintenance and insurance. For new cars, maintenance costs are quite minimal, unless you have a lemon and have to waste all your time going to and from the dealer. For used cars, maintenance costs are a much bigger issue that can quickly eat into any savings you’ve made from not buying new. We can talk about maintenance costs in more detail in another post. For now, let’s talk about insurance costs.
I received my semi-annual car insurance premium bill the other day, and I was pleasantly surprised to discover it only costs $285 every 6 months to cover Moose. However, by not telling you the full details of what $285 gets, it’s hard to understand whether $285 really is good value. Let’s breakdown the line-items to better understand what car insurance options I get for my money.
UNDERSTANDING CAR INSURANCE OPTIONS
First of all, you must have car insurance if you drive a car. It’s illegal not to, and if you so happen to cause an accident, you could very well be sued for all you have and go bankrupt. Don’t be a donkey and not have car insurance! There are a lot of different options to choose from, and for the sake of clarity, let’s go through each one.
Along with the expenses associated with your own damaged vehicle, you can get sued by other motorists or by the passengers in your car. You must decide on appropriate coverage from all angles.
PROTECT YOUR FINANCIAL RESOURCES
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 for a cost of $115.
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 at a cost of $84.
PROTECT YOU AND YOUR PASSENGERS
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 for $43.
Medical Payments: Covers you or your passengers. I have $100,000 per person at a cost of $24.06
Extended Benefits: Wage earner disability benefits, essential services disability benefits, death benefits. I pay $5.10 for minor distribution of all three. I have my life insurance and disability insurance from work to cover 100%.
PROTECT YOUR VEHICLE
Comprehensive: Covers damage caused by something other than another vehicle such as hail, theft, collision with Bobo the bear. I chose not to get comprehensive coverage because Moose is worth no more than $4,000.
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.
CHEAP TO ME MIGHT NOT BE CHEAP FOR YOU
People often forget that having a nice car doesn’t stop once you pay for it in full. New cars will always come with at least a 3-year, 36,000 mile bumper-to-bumper warranty so maintenance is not really an issue in the beginning. It’s the insurance costs for expensive cars that really start getting to you.
Moose is almost 12 years old and isn’t worth much more than $4,000. As a result, I don’t have comprehensive or collision since I will just write-off the $4,000 in case of an accident and buy a new car. If I had a $165,000 Bentley Continental GT, you bet your buns I would have comprehensive and collision! It’s really just a judgement call though, as a Bentley’s insurance will probably run in the $3-4,000 range a year for me.
A $285 car insurance premium every 6 months equates to only $47.5 a month. That’s cheap for me since I’ve paid up to $200 a month for one expensive car that I bought new some 8 years ago. Everything is relative.
There are some grown adults who still free-ride off their parent’s policy to save money. Good for them if they can get mom and dad to pay for it or somehow latch on as a dependent with discounted rates. Meanwhile, there are those who have no assets, and therefore go without auto insurance to save money, even though that’s illegal.
You have to protect yourself from these motorists by getting your own insurance. You just never know. Finally, if you have a wealth of assets which your car insurance policy doesn’t provide enough for, you must get an Umbrella Policy that goes above and beyond your car and home property insurance.
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