Considering buying your
car insurance online? In former days, you bought car insurance from an insurance agent—an
agent who was either employed by, or associated with, an insurance company,
or an agent who was "independent," selling insurance from several
different companies. You would go into the agent's office and the
agent, face to face, would explain car insurance to you and make recommendations
for the kinds of coverage that you should buy. Online insurance has changed
all that. Even with an 800 number to call, it is very hard for most of
us to track the complexities of car insurance from a distance. We may
just give up and buy "the minimum" coverage or "the required"
coverage. Here are some guidelines to what you are buying—and why—offered
by a law firm that sees how car insurance works when it is really needed:
after you have been in a
This is the main reason to buy car insurance. If you cause an accident,
you are responsible for the damages that you cause. This means you are
responsible for the damage to the car you hit and all who may have been
in the car and were injured by you. Just think about that. You are on
the hook ("liable") for thousands, maybe even tens or hundreds
of thousands of dollars! You can lose your house, your bank account—everything.
Even your wages can be garnished to pay for those damages. In Colorado,
the "minimum" required car accident liability coverage is $25,000
per person, $50,000 per accident. This minimum hasn't changed in 20
years—but the cost of medical care sure has changed in that time.
The Colorado legislature has decided not to raise the "minimum"
required auto insurance coverage hoping that low limits (which cost less)
will encourage more people to follow the law and buy car insurance. That
may be true for some folks who are truly in financial need, but most folks
ignore the purpose of liability coverage and just buy the "minimum"
limits when they purchase car insurance—especially when they purchase
The "minimum" coverage required by Colorado law will not protect
you if your assets are worth more than $25,000. How to protect your assets
when you cause an accident? Buy sufficient auto liability insurance in
an amount which reflects what is really at risk if you cause a car accident.
If you have a job or any assets that are at risk, you need to have at
least $100,000 in liability insurance for each person hurt in an accident,
up to at least $300,000 per accident. More assets need higher insurance
coverage—as well as "umbrella" coverage, discussed below.
Recommendation: liability coverage of at least $100,000.
Collision and Comprehensive Coverage
When folks think of car insurance, this is the coverage most people think
about. This is the coverage that the bank or finance company for your
car loan wants to make sure is on your car to protect the value of the
vehicle if the car is damaged in an accident, especially one that was
your fault. Look at the details of this coverage really carefully. Most
insurance companies will only insure the current market value of your
car—regardless of the balance of your car loan. This means that
your new car could be a total loss in an accident and you are surprised
to find out that you will not get enough money back from your insurance
company even to pay off your car loan. Work the numbers very carefully
when you are deciding the amount of collision coverage for your car. Shop
different insurance companies that may offer you different options to
cover your car's car loan balance—or even cover the cost of
a replacement vehicle.
Recommendation: collision coverage sufficient to allow you to buy another
car if your car is totaled
Medical Payments Coverage
If you are injured in a car accident, even if it was the fault of the other
driver, you are responsible to pay your own medical bills as they are
incurred. The other driver's car insurance may make a one-time lump
sum settlement with you sometime in the future that will pay you back
for those medical expenses, but that payment comes only after you are
recovered from your injuries—maybe a year or more after the accident.
Meanwhile, the bills pile up and you have to pay them on time, or risk
lowering your credit score as those bills go into collections.
Medical payments coverage ("med pay") is basic to any car insurance
policy and, unless you have lots of money lying around, is absolutely
necessary for everyone to purchase. Purchasing med pay coverage is important
even if you have health insurance or you are on Medicare. All health insurance
plans now have deductibles of $3,000 to $5,000. Even if you are past your
deductible, or are on Medicare, your medical bills from a car accident
aren't paid 100% and you will still have a significant co-pay for
much treatment you receive. The medical treatment for most auto injuries
will cost between $3,000 and $5,000 (unless you are taken by ambulance
to the Emergency Room, which can eat that amount up in one ride and one
visit). Med pay has no deductibles and no co-pays. It pays 100% of all
reasonable and necessary medical treatment (including chiropractic) needed
for your auto injuries.
Colorado law requires the car insurance company to offer a minimum of $5,000
in med pay coverage, but many decline the coverage. The cost is minimal
compared to the benefits it provides. No one who has been injured in a
car accident, and then finds out that they declined the med pay coverage,
is happy that they did.
Recommendation: Medical payments coverage ("med pay") of at least $5,000
Uninsured Motorist Coverage
It is estimated that one in four drivers (about 25%) do not have car insurance
in Colorado. Even more drivers carry only the "minimum" liability
coverage of $25,000 just to stay legal, as discussed above. By their very
numbers, these drivers cause a high percentage of car accidents. In other
words, it is very likely that if you are injured in a car accident by
another driver, that driver is either uninsured or underinsured.
The car insurance company must sell you liability insurance. It is not
required to include uninsured (which includes underinsured) motorist coverage
in the insurance it sells you if you decline that coverage in writing.
Why would anyone decline coverage that protects themselves and their passengers
for an auto injury but buy liability coverage to make sure that someone
they hurt is paid? Often, this coverage is declined because the customer
doesn't understand what it is for and why it is so necessary in Colorado.
If you are hurt in a car accident that was the other driver's fault,
and that striking driver was uninsured, without uninsured motorist coverage
you will receive
nothing for your injuries—no matter how catastrophic those injuries may
be. Nothing. Uninsured motorist coverage insures you and your passengers
from uninsured drivers.
If you are hurt in a car accident that was the other driver's fault,
and that driver had only the "minimum" $25,000 in liability
coverage, without uninsured motorist coverage the most compensation you
can get for your injuries is $25,000-- no matter how catastrophic those
injuries may be. Uninsured motorist coverage also insures you and your
passengers from drivers who carry insufficient insurance to pay for the
damages that they cause.
Don't decline the insurance. Don't agree to uninsured motorist
coverage that is less than your liability limits.
Recommendation: Accept uninsured motorist coverage on your car insurance
policy in the same amount as your liability coverage. (If your liability
coverage is $100,000, the uninsured motorist coverage should be $100,000 also.)
This kind of car insurance is the best-kept secret in the insurance business.
If you have assets (or high wages) that need protection from a person
that you injured in a car accident, you can buy "umbrella coverage"
that operates as excess liability coverage to pay claims that are more
than your underlying car insurance coverage. Because these high dollar
claims are so rare, the risk is very low that the insurance company would
ever have to pay under this coverage—and that means that this coverage
is very, very inexpensive. Perhaps you just paid off your home (or are
very close to doing so). This is an asset that is probably worth more
than a quarter of a million dollars. It should be protected with inexpensive
umbrella coverage—and you will sleep better at night. Umbrella coverage
is typically $1 million, but can be less or more.
Each insurance company has a different formula for how much underlying
liability coverage you need to have in order to purchase its umbrella
policy. Purchasing the minimum underlying liability coverage to qualify
to purchase an umbrella policy with the same company can be a cost-effective
way to maximize your liability coverage at a minimum cost. (But be aware
that you cannot purchase uninsured motorist coverage in an amount that
exceeds your liability coverage, so you will need to weigh that as a factor
to determine the amount of your underlying coverage that will qualify
you for umbrella coverage.)
Recommendation: Purchase car insurance with at least $100,000 of basic
liability coverage to qualify you to buy the minimum umbrella coverage
offered by the insurance company (as well as purchasing uninsured motorist
coverage in the same amount as the liability coverage).