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June 6, 2014 7:31 AM   Subscribe

We will soon be owning and insuring a car in NJ, but are confused about how much coverage we should be getting. How much coverage do we need?

I know enough to know that the state minimums ($15k/$30k) are way too low to properly cover our liability in case of an accident, so how much should we be going for? The car is a 2006 Mitsubishi Gallant.

Also, it is worth paying for "accident forgiveness"? This is something our insurer (USAA) covers but having not owned a car in my adult life, I don't know if that's something worth paying for.
posted by ThePinkSuperhero to Travel & Transportation (8 answers total) 4 users marked this as a favorite
 
When it comes to liability coverage, the correct answer is "as much as you can afford." :( I have a super old tiny car, and I still pay for as much as my insurance company offers (I think it's 250/500). Obviously you hope nothing awful ever happens, but man, once I spent two hours in a hospital and the bill was like $8k. Multiply that by however much for a serious accident...
posted by goodbyewaffles at 7:42 AM on June 6 [2 favorites]


Insure what you can't afford to replace. Insurance is a gamble between you and the insurance company that the chance of an accident happening times the cost of that accident is less than the policy premium (cost). In other words, it's always a bad gamble for you unless you can't afford the cost of the accident. This is why people tend to carry very large liability policies (so that if they accidentally seriously injure someone, they don't lose all their assets), but don't tend to cover lower-cost expenses.

If you can't afford to replace your car, you should pay for comprehensive/collision insurance. Comprehensive insurance covers accidents other than automobile collisions (for instance, running into a deer or having your car start on fire). Collision insurance covers automobile collisions that are your fault. You should set your comprehensive/collision deductible to the maximum out-of-pocket expense you can afford. Hopefully, this is quite high (>$500). If you can afford to replace your car, comprehensive/collision insurance is not appropriate, because you'll be paying more for comprehensive/collision insurance than you can statistically expect to get back from the insurance company. Again, the insurance company knows the chance of you getting in an accident times the cost of the repair will be less than the cost of the premiums.

If you can't afford to pay for massive bodily injury claims (most people can't), you should pay for liability insurance up to the maximum possible claim. Many people use a rule of thumb that they should insure up to their available assets. Although that doesn't cover all bodily injury claims, it is quite difficult for the injured party to recover money in a personal injury case past your available assets. The term here is "squeezing blood from a stone" - if you don't have any money, there's nothing for the other party to get, since it's quite uncommon to garnish wages in a personal injury case. If you have few assets, you may consider lower liability limits. I consider $100K/$300K the practical minimum - in this case, $100K is the amount the insurance company will pay for each person in an accident and $300K is the amount the insurance company will pay per accident total. If you have significant assets, you may consider maximizing your liability coverage and looking for umbrella insurance (a separate policy) to cover yourself past the limits of your liability coverage.

If you can't afford for your insurance premium to ever go up, you should pay for "accident forgiveness". However, if that's the case, you probably don't have enough money to drive. So, I think in general you should not pay for accident forgiveness.

In general, you should remember that if it were statistically profitable for you to get insurance (ie, you are likely to get more money back from the insurance than you pay for it), the insurance companies wouldn't sell it. Insurance is always a statistically bad gamble for the insured party. As a result, you should only insure risks that you can't afford to cover yourself.
posted by saeculorum at 7:48 AM on June 6 [6 favorites]


The minimum practical i'd even consider for NJ is 100k/300k, and 250k/500k should be considered. Plenty of 100K+ cars in NJ, totaling one or more could exceed your liability policy. You may also want to get an umbrella policy over and above the regular coverage(which might only be available with the 250k/500k option).

Your car comes into consideration for if you want collision/full coverage on it. The liability stuff is how much damage you do to other people and have coverage.
posted by TheAdamist at 8:28 AM on June 6


Also, because insurance in NJ is so expensive, there's a decent chance you'll be hit by someone without it. Don't skimp on uninsured/underinsured motorist coverage.
posted by asperity at 9:48 AM on June 6


The minimum liability coverage where I live was $500,000 and at the end of driving school, we were advised to go for at least $1 million, being a nice round number that people tend to sue for sometimes. Lately the standard recommendation has been $2 million and that's what I have on my policy.

Regarding "accident forgiveness"... if you have an accident, your rates will go up and you'll have to pay more. This is a way to start paying more without needing to have an accident first. This will work out in your favor if you have an accident fairly soon, otherwise you could end up paying more over time than you would just by taking the hit to your rate if/when you have a claim.

Who do you think has the better stats on the probability of that happening, you or your insurance company?
posted by FishBike at 10:27 AM on June 6


I'd at least price out accident forgiveness. Ours is $30/year (geico, not usaa). My experience has been that an accident can raise your premiums by at least $150/years for 3 years. If we have an accident within 15 years, we've saved money by having the accident forgiveness. For me, it seemed like a no-brainer to get it.

Of course, the insurance company has to be making money somewhere, but I suspect it's related to either a) having higher deductibles or b) once you're in one accident, you're statistically more likely to get into a second.
posted by matildatakesovertheworld at 1:36 PM on June 6


IAAL.

The big liability insurance expense is for the legally minimum amount. Adding additional coverage costs very little. If you have possessions worth keeping, buy as much coverage as the insurance company offers. Mine is $1 million/$3 million.

Some people think having high coverage encourages big lawsuits for small injuries. But the insurance company conducts your defense. Insurers and plaintiffs' lawyers know how much a given case is worth and settle for that amount, regardless of your maximum coverage.

Be sure to get the additional bits like uninsured-motorist, towing and windshield replacement.
posted by KRS at 11:24 AM on June 7


This was very helpful everyone, thanks so much!
posted by ThePinkSuperhero at 8:17 AM on June 9


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