Step 60: Car Insurance

Step 60 of the 100 steps mission to financial independence: Car Insurance
Step 60: Car Insurance

Car insurance, also known as motor or auto insurance, is often obligatory to have in order to use a public road. Most countries distinguish between insuring a driver and insuring a vehicle, and in some you insure a car regardless of its drivers (as long as the driver has the car owner’s permission to drive it), whereas in other countries you might insure the driver regardless of which car they drive.

Characteristics of car insurance:

A car insurance generally has different parts to it and whilst the terms used for these coverages can vary from one country to the next, most insurances use a similar classification system.

  • Medical coverage – covers any medical costs as a consequence of an accident. This can be for the driver, the driver’s passengers as well as any potential medical costs of the third-party. This coverage usually has two parts:
    • Bodily Injury Liability – covers any injuries you may have caused to others in an accident.
    • Medical Payments or Personal Injury Protection – pays for any injury to yourself and any passengers of your car. This could also include funeral costs as well as lost wages protection if you decided to take out a full coverage.
  • Property coverage – pays for any damage to any property, such as cars, but also to other types of property such as a mailbox, a fence, lampposts or even buildings if they were damaged as the result of an accident. Property coverage can also have two parts:
    • Property damage liability – for any damage to other people’s property
    • Collision – for any damage to your own car as a result of a collision
  • Comprehensive coverage can be taken out as an extra part of a car insurance to protect yourself financially against any damage that didn’t happen as a result of an accident. Think about damage or loss due to theft, fire, vandalism or natural weather occurences such as hail or storms.
  • Uninsured Motorist coverage – covers you in the event of a traffic accident with somebody who is not or insufficiently insured and therefore can’t cover (some of) the costs of the accident. This extra policy usually also covers you in the case of a hit-and-run situation.

When contracting a car insurance you are usually not obliged to contract all parts, although depending on the legislation of your country / state it might be compulsory to take out at least liability and medical coverage up to a certain limit. In terms of the liability part, bear in mind that it is usually wise to cover yourself up to the value of your assets, so that you don’t run the risk of losing these if you were sued. At the same time, if you have a very old car you might decide not to get the property coverage or to take a high deductible on that part.

Extra parts of car insurance

The degree to which any of the coverages mentioned above are insured depends on your insurance and specific policy. Apart from upping the limit on these, you can also often add other parts to a car insurance, a few examples include:

  • A replacement car in case your car is in the garage for a certain amount of time.
  • Towing costs after an accident
  • Windscreen / windows cover for broken glass
  • Audio equipment and / or sat nav coverage
  • Lost or stolen keys

Most car insurance offer a deductible (or “excess”) that can be higher or lower depending on the premium you pay. As with other types of insurance, if you are happy to accept a higher deductible, your monthly premium is lower than if you have no deductible at all. It is worth checking how much you need and have at the moment as depending on how your situation changes, you might also want to change your deductible.

Step 60 – Car Insurance – in detail:

By now after going through the other insurance steps you can probably more or less guess what the baby steps here involve, but here goes:

  • Dig out your current car insurance policy to find out what is covered, how much you pay and what extra coverage you have and don’t have and how much extra it would be. Request this information from your insurance company if you don’t have access to it. Check the cancellation policy and potential costs as well.
  • Decide how much coverage you actually need. Bear in mind that the more assets or income you have, the more you might lose if you were ever found liable for an accident.
  • What is the value of your current car? If it is a relatively old car that isn’t worth much, consider taking out an insurance with a high deductible on the collision coverage which pays for damage to your car.
  • How much savings do you have and what could you potentially pay for? If you have some savings or a decent emergency fund, taking out an insurance with a high deductible saves on monthly premiums.
  • Contact various other insurance companies for some quotes and compare them on the following:
    • Yearly premium
    • What is included
    • What isn’t included
    • How much any extras would be that you deem necessary
    • How a higher or lower deductible will change the monthly premium.
    • Customer satisfaction.
    • Cancellation policies
  • Based on all the information above, decide whether to stick with your current insurance, whether to make some modifications or whether to go with a new insurance all together.
  • Commit to following through with any changes this week and set a day and time in your calendar to complete all the necessary paperwork.

Slowly but steadily we have been working our way through the various most common insurances most people need. Rests us one last type of insurance that is one of the “big five” to comment on in the next step: long-term disability insurance.

Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s