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Unseen Costs of Cheap Auto Insurance (Is It a Bargain?)

By February 10, 2021March 25th, 2021Auto Insurance, Personal Insurance
Cheap Car Insurance

Cheap does not always mean better. 

Just think about the times that this rings true…

A cheap car doesn’t always mean reliable, gas-friendly, or attractive.

A cheap dinner doesn’t mean delicious or nutritious.

And cheap trash bags…we all know that can end in disaster!  

When we choose cheap we’re placing a higher priority on price than other factors. Factors like quality or endurance.

And this is true in terms of car insurance too. When you purchase car insurance solely based on the cheapest quote, you’re placing a higher priority on cost than on coverages. 

And with cheap insurance, you may experience some unseen costs – costs that you didn’t realize you might end up paying later.  

To take a deep dive into this topic, let’s look at what cheap auto insurance covers and what it doesn’t cover. Let’s consider the following:

  • State Minimum Limits
  • Uninsured or Underinsured Coverage
  • Comprehensive or Collision Coverage
  • Rental and Towing Coverage
  • Unseen Downsides

State Minimums

You can expect the least expensive auto insurance policies to have limits that only reflect the state minimums. These policies are the cheapest — sometimes costing only $50-$80 a month. 

In Pennsylvania, the state requires all cars to have the following limits:

Bodily Injury Total – $30,000

This limit means that your auto policy will cover medical expenses resulting from an accident you caused up to $30,000. This limit only applies to the others injured in the accident, not to yourself.

Practically, this means that if you hit another vehicle with four people in it, your insurance will only cover a total of $30,000. Even if their combined expenses are more than that, your insurance will only cover $30,000.

Bodily Injury Per Individual – $15,000

This will cover any one person up to $15,000 for medical expenses related to an auto accident. As in the example above, this means if you hit another vehicle with four people in it, your policy will only cover $15,000 per person. 

So if one individual’s medical expenses are $18,000, they will only receive compensation for $15,000. And your policy will max out at $30,000.

Property Damage – $5,000

This limit will cover damage to any vehicles or other property damaged by your vehicle. Let’s say you hit a brand new Ford Explorer and total it. Your insurance will only cover $5,000. (And we all know that most vehicles cost far more than $5,000.)

This also means that if you run into someone’s picket fence and mailbox and a telephone pole your insurance will only cover up to $5,000 in damage.

Personal Medical Coverage – $5,000

Pennsylvania requires every policy to have at least a $5,000 limit for your medical expenses resulting from an accident. 

If you need more than this amount to cover your medical bills, your car insurance will kick in first and then your health insurance will be used for the other bills.

What happens if the costs associated with an accident are greater than the state minimum?

This is where individuals can find themselves in trouble! 

If you cause an accident, you are responsible for the costs associated with that accident. 

If your car insurance doesn’t cover all of the expenses resulting from an accident you caused, you can be sued! 

You can be faced with the cost of hiring a lawyer, court costs, and settlement costs. In terms of unseen costs, these can be long lasting and ruinous!

If this happens to you, you can potentially lose everything!

Uninsured or Underinsured Coverage

Two coverages that cheap auto policies leave out are uninsured and underinsured driver coverage.

Let’s imagine you are in an accident and the other driver doesn’t have car insurance? You are badly hurt and need medical attention. Who’s going to cover your costs?

Now, what if that driver is underinsured? Maybe they at least have $15,000 of coverage for you. 

That may seem like enough, but the average medical costs of someone who has a disabling injury from a car accident are over $80,000. 

You could sue the other driver. But if they haven’t purchased car insurance or rely on cheap auto insurance, there’s a good chance they don’t have a lot of money. 

And if this is the case, suing them for damages won’t amount to much.

To guarantee that your medical costs will be covered if you are hit by an uninsured or underinsured driver, you can add uninsured and underinsured coverages on your car insurance policy. 

Typically, at Baily Insurance, we advise our clients to set their limits for these coverages at $100,000 to $300,000. 

These are coverages you definitely won’t find on cheap car insurance policies!

Comprehensive or Collision Coverage

Often these two terms get lumped together, so let me start by explaining to you the difference. 

Comprehensive coverage provides for damage to your vehicle if:

  • You hit a deer or other wildlife
  • Your car is damaged by fire
  • Someone vandalizes your vehicle
  • Your car is stolen
  • Your windshield is damaged

 You can see that this coverage is truly comprehensive!

Collision coverage only covers damage to your vehicle if you hit something. Comprehensive is always included in a collision policy. But, for a little less money, you can purchase a policy that only has comprehensive coverage.

Cheap auto policies will never include these coverages. That means that without these coverages, you will be responsible for the repair of your vehicle if you cause an accident. 

It also means that if your vehicle is totaled in the accident, your insurance policy will not pay out any money toward the purchase of a replacement vehicle.

Put simply, without comprehensive or collision on your policy, you can easily end up with no car and no money to get another car.

Saving money on a comprehensive or collision policy

If you do want to include this coverage on your policy, you can save money by agreeing to a higher deductible.

The higher the deductible, the lower the cost of the policy.

So, if you agree to a $100 deductible, your insurance will cover your expenses after you pay the first $100 toward repairs needed. If you have a $500 deductible, your insurance will cover your expenses after you pay the first $500 toward repairs.

If your vehicle is totaled, your insurance company will pay you the value of the car. This means they won’t pay to replace the vehicle. Instead, they will pay you what your vehicle was worth at the time of the accident.

Rental Car and Towing Coverage 

Finally, a cheap auto policy will never include rental car or towing coverages. These two coverages help you if your car breaks down or is in an accident.

Rental Coverage

If your car is in an accident, how will you get to work? How will you get your kids to school? How will you run your errands and get to the grocery store?

If you don’t have an extra car, you may need to rent one!

For a very minimal amount, you can add rental car coverage to your policy.

When you add this coverage you determine the limit you are willing to pay for. You can pay for as little as $30 a day toward rental coverage or as much as $50 a day toward a rental car. 

This coverage will have a maximum amount that the insurance company will pay for the use of a rental. For a $30 per day policy, you can expect your coverage to max out at $900.

So, if your vehicle ends up in the shop for two weeks after an accident, with a $30 a day policy, your insurance will cover up to $420 toward a rental. And with a $50 a day policy, you’ll be covered up to $700.

Without the coverage, do you have that kind of cash available to pay for a rental on your own? This is what you need to consider when you think about rental coverage.

Towing Coverage

Your policy can also include towing coverage. This coverage often gets used in the case of an accident but might also be used when your car is giving you trouble. 

For instance, one of my customers had an accident on the way to work. He was about 30 miles from home and hydroplaned. He needed to get his vehicle back to a local autobody shop. Of course, he used his towing coverage.

And what about if you break down? It’s expensive to have a vehicle towed to your mechanic, so knowing your insurance will cover this cost can bring added peace of mind. 

Similar to rental coverage, you can select the limit you want for your towing coverage. Most insurance companies offer policies with $75, $100, $150, or $200 in towing limits. The lower the limit, the less expensive your policy will be.

Unseen Downsides

Beyond lacking coverage you may need if you are in an accident, there is one other big downside that I want to be sure and mention. This downside has to do with coverage for your vehicle if someone else is driving it.

In Pennsylvania, we say that the insurance follows the car. So, if you lend your mom your car for the day, she is covered by your insurance. 

For some larger companies that advertise cheap car insurance, this is not the case. 

For instance, if you buy your insurance from Geico, you sign an agreement that states that your insurance will not follow your car. If someone borrows your car and has an accident, you agree that Geico will not be held responsible to pay for any damage. You alone are on the hook!

This is a big consideration when looking at car insurance. If you can guarantee that you will not be lending your car, this may not be a big deal. But if there is a chance that someone else may get behind your wheel, you may want to consider a different option.

Pay Now or Pay Later

With insurance, it often comes down to if you want to pay now or if you want to pay later. And sometimes if you choose to pay later, you won’t have enough money to cover the costs.

For instance, a $50 a month policy with only state minimums could result in tens of thousands of dollars in litigation if you are sued.

Or, a policy without comprehensive coverage that costs $1,200 per year, could keep you from paying $30,000 for a new vehicle if your car is totaled in an accident.

Or, for a mere $10 a month, you can have towing coverage that would otherwise cost you $150 if you break down on your way to vacation.  

With insurance, you are choosing when and how much you are willing to pay.

Need an expert to help you get the coverage you want at a good price?

While it won’t be as cheap as paying only for state minimums, great insurance coverage is available at a great price

As an independent insurance agent, we can price the coverage you want with multiple companies and find a policy that will satisfy you and not break the bank.

At Baily Insurance, we believe insurance is about way more than the cost! It’s about protecting you, your family, and those things you’ve worked hard for!

To provide that protection, we can advise you on which risks you want to take and which risks you want to pass on to the insurance company.

Maybe you don’t want to pay extra for towing coverage, you’d rather risk it. You want to pay for it if and when you need it. 

But you may want to know you have coverage for everything! Anything less makes you uneasy.

Insurance is a very personal decision. And being that you have to make that decision, it’s good to know what your options are. 

At Baily Insurance Agency, our goal is to help you understand what you want, what you need, and what we can offer you. We get to know you and help you create the insurance package that matches what you want.

If you’re looking for an insurance advisor, we’re here to help you! Just give us a call so we can start to get to know you and help you with your unique insurance needs.


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