When deciding how
much Private
Car Insurance coverage to purchase, most people simply look in their own
driveways. However, car insurance shoppers should consider the totality of
their assets as well as take a stroll down the block to check out what kinds of
wheels their neighbors drive.
Why? Well, if
your normal driving area is littered with luxury cars and you happen to cause
an accident with one, your property damage liability coverage likely won’t
cover the full cost of the repairs. As a result, if the other party does not
have enough underinsured motorist coverage, either they or their insurance
company could very well sue you for the remaining balance. And that, of course,
would put assets such as your home at risk. Even if the other driver has
sufficient coverage, his or her insurer – faced with a payout through a UIM
policy – may seek to claw that money back through a process known as
subrogation.
That is why
Robert Hoyt, the Dudley L. Moore Jr. chair of Insurance at the University of
Georgia, recommends that drivers consider buying higher liability limits than
state minimum requirements. “Bare bones insurance can put their assets at risk
when they cause an accident,” he says. "[Consider] being on the hook
financially for thousands of dollars in medical and car repair bills with not enough
insurance to help pay for them.”
Now, you might
not consider this to be unfair – having to pay extra just because one of your
neighbors decides to get an especially fancy automobile. If you were to
rear-end someone’s diamond-encrusted car, would you really have to pay to
support their lavish and clearly risky decision to take such a vehicle to the
road?
“This is a really
interesting social problem that's been with us ever since the introduction of
the private passenger auto,” says John Cross, a professor of insurance at
California State University–Fullerton. "Conceptually, why should people be
allowed to drive when they don't have the ability to pay for the damage they
cause? Yet pragmatically, a car is practically a necessity and people will find
a way to drive, whatever the law does or does not require in regard do
insurance. So society can say and do whatever it wants, motorists will still
drive – and many times will be uninsured or inadequately insured.“
As a result,
drivers should take steps to recognize and account for the risks associated
with our current environment. That means taking a fresh look at your insurance
policy, especially if you haven’t paid attention to your coverage in a long
time.
If you only have
the minimum coverage required by law, your insurance policy might not cover the
costs of a minor accident, leaving you to cover the rest out of pocket. For the
majority of Americans who drive small cars, being adequately covered means
purchasing the maximum amount of property liability damage coverage that they
can afford. People with substantial
savings or a lot of home equity may even wish to take out an umbrella liability
policy in order to get an extra $1 million in coverage for roughly $150 to $300
per year.
On the flip side,
people with luxury vehicles need to make sure they have the proper amount of
uninsured or underinsured motorist coverage. That is especially important in
states with high rates of uninsured motorists – such as Florida, Michigan, New
Mexico, Mississippi and Oklahoma – where over 20 percent of drivers aren’t
covered, according to Wallet Hub’s 2015 report on the Riskiest States for
Drivers’ Wallets. Protecting yourself
from uninsured motorists isn’t as big of a deal in states like Massachusetts,
where as much as 96 percent of the driving population has insurance.
Ultimately,
though this may be a tough pill to swallow, properly insuring your assets
against plausible harm is an essential component of wallet wellness – much like
building an emergency fund. Not doing so
is akin to playing with fire.
[Source
: http://money.usnews.com/money/blogs/my-money/2015/06/08/should-your-car-insurance-depend-on-what-your-neighbor-drives]
