Automotive Insurance

Limits and Deductibles are the two components that greatly affect your auto insurance policy premiums. Therefore you can benefit most by understanding what these are. You can also strike a balance between your insurance benefits and your policy premiums by adjusting your Limits and Deductibles.

Definition of Limits and Deductible

A Limit is the maximum amount that an auto insurance company will pay for in the event of an accident.

A Deductible is the amount of money which you (the insured) must pay before the insurance company’s payout begins. For example, a typical auto insurance policy may carry about $500 deductible. If a car owner gets into an accident, he has to foot the first $500 of the damage while the rest of the cost is borne by his insurer.

Insurance companies include a deductible in their auto insurance policy to avoid paying out on relatively small claims. This is only practical as the administrative time and cost of a small claim far outweighs the benefits of payout.

Deductibles also vary by company and type of coverage. Different auto insurance companies offer different deductible options, and the amount you save by selecting a higher deductible will also vary by company.

How Do Limits and Deductible Affect Auto Insurance Premiums?

With higher Limits, your auto insurance company bears a higher risk. This is because the insurance payout is higher — therefore your insurance premiums will increase. Similarly if the Deductibles are lower, the insurance company (instead of the driver) has to pay more when you make claims. Obviously they’ll have to increase the insurance premiums too.

If you feel you need a high level of coverage but want to reduce your premiums, you can save money by opting for higher deductible. However you need to understand that you’ll be paying more out of your pocket in the event of a claim. For this reason, you’re also advised to set aside a similar amount of money so that you can pay for the deductible amount in order for your auto insurance company to compensate you.

Deductible is only characteristic to some types of auto insurance. You’ll only need to decide your deductible options for Personal Injury Protection (PIP), Comprehensive coverage and Collision coverage. Deductibles are not applicable to Liability Insurance, Uninsured Motorist Coverage and Underinsured Motorist Coverage. Therefore there’s no need to evaluate your deductible options for these types of auto insurance policies.

By understanding your auto insurance needs, you’ll be able to derive a plan for policy limits and deductible options. From this, you can easily find a balance between your insurance benefits and what you pay for.

Finally, it may also be helpful to know that you have the right to adjust your auto insurance coverage and policy limits at any time, even if you’re not near your renewal date. If you adjust to a lower policy limit, opt for a different deductible option or cancel non-mandatory coverage, you can (and should) request your insurance company to refund for the unused premiums.

The level of auto insurance that someone might need depends on the financial circumstances of the individual concerned and the cost of the car involved. Take for example someone who has a brand new $50,000 motor, it would be sheer folly to do anything other than take out one of the best auto insurance policies available and the cost of the auto insurance is likely to be insignificant when considering the overall annual cost of the car.

However, if you have a car that is nearing the end of its life, have a low cost car and previous claims or are a new driver then the cost of the auto insurance versus the benefits you might receive need to be given greater consideration. Comprehensive auto insurance premiums are likely to be disproportionately high for older vehicles, new drivers with low cost autos or drivers with accident history.

Whatever your circumstances you are legally obliged to take out a basic level of auto insurance that will cover you against third party claims and given the level of damages awarded seem to be increasing out of control then my advice would be to get the best possible third party liability auto insurance cover that you can afford.

The legal requirements for auto insurance does vary from state to state so you’ll need to clarify the level of cover you require when taking out auto insurance but only insuring to the legal minimum isn’t necessarily the best choice to make.

If you have a lot of money sunk into your car or your auto is leased then you really should take out comprehensive and collision auto insurance to cover you for things such as fire, theft, acts of god or collisions that are your own fault.

If you live in an area where cars are regularly vandalised you might want to consider comprehensive auto insurance when perhaps you wouldn’t have otherwise done so. The cost of your auto insurance will generally be higher if you live in such an area but that is something you have to weigh up against the cost of repair.

Personal Injury Protection is something that everyone should consider as this element of your auto insurance will cover medical costs associated.

Despite legal requirements some people still persist in driving around without auto insurance leaving the others with a need to insure against the uninsured motorist. Uninsured auto insurance will cover you for damages in the event of an accident with an uninsured motorist. Again, insurance that everyone should give serious consideration to given an auto accident could leave you unable to work or your family without any means to earn.

If you want a more comprehensive auto insurance policy but want to limit the cost then you could look at opting for a higher level of deductibles. Deductibles are the amount you would have to pay before you could make a claim against your auto insurance policy and generally, the higher level you agree to the lower your auto insurance premiums.