What Car Insurance Coverage Do I Need?

Decide how much liability coverage is enough for similar type of drivers.

How to avoid over insuring your car

In the United States, people are just starting to recover from the effects of the financial crisis and therefore it is only common sense that most of them will be looking to pay an insurance premium as small as possible for getting their car covered. And the biggest problem that keeps us away from paying the right sum for this is overinsuring our cars.

What is over insurance?

Although it may sound like a complicated term, it is simply paying more than it is worth it for getting coverage for your car.

Over insurance is a specific situation where your insured has acquired more coverage that exceeds the exact value of your insurance or your replacement cost.

Example 1

Do you need an example? Let's say you have a 20-year-old car that isn't worth more than a couple thousand dollars now and you get full comprehensive insurance for it, paying every year half of the car's value.

But what about collision coverage? Well, it is definitely recommended if you have a new car, but again in the case of a 20 year old one, you are simply throwing your money away. If it gets totaled, you won't get more than 60 or 70 percent of its value at the moment of the accident, so you can imagine that in some cases, the insurance premium is simply more expensive than this.

So the easiest way of avoiding over insurance is to stick to liability coverage for older cars. However, if you own a new car, this is not recommended anymore and you will have to discuss with your insurance agent in order to pay the right premium for the right coverage.


Example 2

As a second example, your insurance may come with the assurance of paying $3000 for an accident but the assessor concludes that your replacement cost should be $2500.

$2500 is paid out here but still, you have to pay the premiums to cover the total amount of $3000. So, you are paying the additional $500 unnecessarily. Over insurance is one of the biggest risks to the insurance industry and that is a key reason for insurance fraud. The over insured person can be tempted for making the false claim to get profit from their loss. Laws are different for different states to overcome the issue.

Difference between under and over insurance

  1. With the under insurance you will get the coverage less than the exact market value and with over-insuring, you are insuring more than the market value.
  2. The risk with the under insurance manifests only when you are going to claim.
  3. With the over insurance you have the risk to pay more premiums than required.

How do we prevent over insurance?

Insurance for your car is very much important if you want to avoid the risks associated with the car. But there also another problem or risk that comes with your car insurance and that is over-insuring.

  • By eliminating the different redundancies in the car insurance policy, you can prevent the car from unnecessarily being over-insured. You can avoid the clause of personal injury coverage that reimburses for funeral bills or medical expenses regardless that who is the fault. But you or your passenger have the health insurance or life insurance policies and that will cover your expense you can avoid adding the clause.
  • If you have the clause of comprehension coverage with your old car, you can drop it when you are insuring your new car.
  • Be very much proactive with your insurance and another financial task.
  • Learn properly the terms and the conditions of your insurance policy and a deep understating of the terms can save your car from being over-insured.
  • Some of the company offers the different insurance as a package. You can go for that to avoid the risk of getting over insured. As an example, with your home insurance, you may have the car insurance.

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