Auto insurance is a necessary expense for anyone who owns a vehicle. However, are you aware of the concealed fees that may not have crossed your mind? These additional costs can accumulate and influence your overall financial strategy.
In this article, we’ll explore some of the most prevalent hidden expenses linked to car insurance and assist you in comprehending how they might impact your financial situation.
What You Need to Know
The strategy of opting for low-cost auto insurance is misleading. In reality, you’re likely to incur higher expenses over time if you’re involved in an accident while having such budget-friendly coverage. The reason?
These policies generally offer insufficient liability protection, subpar claims processing and customer support, steep deductibles, and no assistance with towing in severe accident scenarios. When all expenses are tallied, it becomes evident that one could have saved more by investing in a more comprehensive insurance plan. Although this might have resulted in higher monthly payments, it would have substantially reduced overall long-term costs.
Consider these ten reasons for opting for more extensive auto insurance coverage beyond the basic requirements.
- No Coverage, Or Reduced Coverage, For Some Drivers
Typically, a standard insurance policy covers you, your household members listed on the policy, and occasional use by friends or relatives you permit to drive your vehicle.
However, if you have a high-risk driver residing with you, such as a teenage male with a speeding violation, a nonstandard policy might require their exclusion from coverage.
Some nonstandard policies exclude coverage for permissive drivers – individuals who use your car occasionally with your permission. Alternatively, they may exclude coverage for permissive drivers under 25 or 21.
In certain states, insurers can incorporate step-down provisions into their policies. These provisions reduce liability limits to state-mandated minimums when someone not named on the policy operates your vehicle. Consequently, even if you purchase higher-than-required liability coverage, you might have less protection when lending your car to a friend compared to when you’re driving it yourself.
- Exclusion of Punitive Damages Coverage
Some nonstandard insurance policies do not protect punitive or exemplary damages if you cause an accident and face legal action. If a court rules in favour of the plaintiff, you would be responsible for paying these damages out of pocket.
- High Deductibles
Consider increasing your deductible as a way to cut costs, in addition to lowering your coverage limits. While this approach could decrease your premium payments, it will also increase out-of-pocket expenses before your insurance coverage begins.
For example, opting for a $1,000 deductible instead of a $500 deductible for comprehensive or collision coverage will likely reduce your premium. (It’s worth noting that liability insurance doesn’t involve deductibles.)
Comparing the Impact of $1,000 vs. $500 Deductibles
Consider a scenario where you’ve chosen a $1,000 deductible for your collision coverage, and your vehicle sustains damage in an accident. Collision coverage would contribute to the repair costs, regardless of who was at fault. If the repair costs total $5,000, you would be responsible for paying $1,000 (your deductible), while your insurance company would cover the remaining $4,000. In contrast, with a $500 deductible, you would only pay $500, and your insurer would contribute $4,500.
Even worse, if the damage to your car is minor and the repair bill amounts to only $900—which is $100 less than the $1,000 deductible—you would have to cover the entire cost yourself.
- Less Coverage for Repairs
Standard insurance policies offering collision or comprehensive coverage generally cover the full cost of repairs, except when a vehicle is considered a total loss. In cases of totalled vehicles, the policy reimburses the car’s depreciated value, which is its market value, immediately before the damage.
However, some nonstandard policies apply depreciation even to repair costs. For instance, when repairing hail damage on an older car, these policies only cover a fraction of the repair costs, calculated using the vehicle’s depreciation rate, instead of paying the entire amount.
- Restricted Annual Mileage
Specific insurance policies for speciality vehicles impose strict yearly mileage limits, sometimes as low as 2,000 miles. Even if the car isn’t used for daily commuting, this allocation might be insufficient for those who attend car shows. Consider your anticipated driving distance and ensure the policy provides adequate mileage coverage to meet your needs.
- Car Repair Bills From an Accident
Repairing a vehicle damaged in an accident can be expensive, potentially costing thousands of dollars. For instance, fixing a damaged car frame could cost up to $10,000. This is where comprehensive and collision coverage comes into play. These types of coverage are optional but may be required if you have an auto loan or lease until the term ends.
Comprehensive coverage handles damage not caused by collisions. It can cover harm from fires, floods, tornadoes, or falling tree branches. It also covers theft of the entire vehicle or its parts. According to the Insurance Information Institute, this coverage typically costs slightly over $134 annually.
As its name implies, collision coverage pays for damage to your vehicle resulting from collisions with objects such as guardrails, telephone poles, or rollover accidents. The Insurance Information Institute estimates the annual cost of this coverage to be $290.
- Expenses for Towing and Labor
Many basic insurance plans don’t include coverage for towing and labour expenses. These costs can accumulate rapidly, particularly if your vehicle needs to be towed following an accident. It’s worth considering adding this coverage to your policy to assist with these potential expenses.
- Compensation for Rental Vehicles
You’ll require alternative transportation when your car is undergoing repairs after an accident. Coverage for rental car reimbursement can assist in covering the expenses of a temporary vehicle while yours is being fixed. This coverage option is typically available for an extra fee.
- Elevated Insurance Rates
Regrettably, some insurance providers raise your rates after you submit a claim. This can result in a substantial expense, especially if you already pay high premiums. You must know your insurance company’s policies regarding rate increases following a claim.
- Transportation Expense Coverage
If your vehicle is damaged in an accident, you might require funds for alternative transportation while repairs are underway. Coverage for loss of use can assist with these expenses. This coverage option isn’t typically included in basic policies but can be added for an extra fee.
Final Thoughts
When evaluating auto insurance options, it’s crucial to consider the less obvious expenses that could affect your overall financial strategy. These hidden costs include deductibles, policy charges, gap insurance, protection against uninsured or underinsured drivers, towing and labour expenses, car rental reimbursement, potential increases in insurance rates, and loss of use coverage. It’s essential to thoroughly understand these expenses and ensure you have adequate coverage to safeguard yourself and your finances.
For a complimentary quote, reach out to Insurance Brokerage of Texas today.