It seems that lately, there have been a lot of commercials on TV that claim that you should “Only Pay for What You Need.” This isn’t anything new, there have been similar commercials in the past. One reason why you might be seeing more of them may be due to people having to watch their budget during this time of financial uncertainty. While that may very well be true, insurance isn’t something that should be cut back on to save money.
So, what do you “need?” Good question. There are three main components to most insurance policies: Coverage, Limits, and Deductibles.
Coverage is the part that determines whether or not you have coverage for a certain type of loss. For example, with car insurance, collision coverage is a coverage that will pay for the repair or replacement of your vehicle should it be damaged in an accident. So, if you ran off the road and hit a tree with your 2019 Chevy Silverado, you would have coverage, and the insurance company would pay for what they are responsible for.
The second component to settling your claim would be to determine what part of the loss you are responsible for; this is called your deductible. If the cost to repair your truck was $15,000.00, and you had a $1,000.00 deductible, your insurance company would pay $14,000.00, and you would be responsible for the rest.
For the third component is your limits. Let’s consider someone that only has state minimum liability limits for car insurance. The amount of Property Damage required by a state can range from $5,000.00 to $50,000.00. Let’s say your state has a $10,000.00 minimum limit, and that is what you opted for. Let’s also say you ran a stop sign and hit a 2020 Chevy Silverado valued at $50,000.00. You have property damage coverage, but your limit is only $10,000.00. What this means is that after your insurance company pays the $10,000.00, you are left responsible to pay the remaining $40,000.00.
So as you can see, how much insurance do you need, very often comes down to what you are able to pay out-of-pocket should you have a loss.
Determining “what you need” can be confusing. Before cutting back on coverage, increasing deductibles, and reducing limits, you should consult with an agent to determine what coverages, deductibles, and limits you actually need.