Car travel is pretty much unavoidable in California. About fourteen million automobiles are registered in the state, and there are about twenty-five million drivers. With so many cars and drivers on the state’s roads, it’s not surprising that there are over two hundred thousand injury accidents a year, with the cost of those accidents exceeding $4.5 billion. Having car insurance is required by law in California, and residents pay some of the highest insurance premiums in the country.
With these unsettling statistics in mind, let’s look at some car insurance basics and why having proper coverage is so important.
The costs of car accidents
In California, drivers are typically involved in 3-4 accidents over their lifetimes. The cost of those accidents can be broken down into five categories:
- Medical costs and missed work – In California, about $40 million a year is paid out on auto insurance claims for the payment of medical costs associated with a traffic accident. These costs include emergency room visits, follow-up doctor visits, ongoing therapy, and time from work to recover from the injuries.
- Liability for injury or property damage – The cost of paying for the medical costs of an injury to someone else, or damage or loss to another person’s property. Property damage can include damage to their car, their house or business, or public property such as a lamp post. More importantly, you could be legally responsible for a person’s lost income, legal fees, and pain and suffering if it were due to your negligence.
- Auto repairs – Cars today are lighter, safer and get much better gas mileage. However, newer manufacturing technology also makes auto body repairs more expensive. From dents and scratches, bumper repair, or more severe damage, the cost of repairs has skyrocketed.
- Car replacement – with the prohibitive cost of repairs, it may cost more to fix your car than the car is worth. In that case, the insurance company will “total” the car and you’ll receive the amount that they determine your car is worth. If you have a car loan, you may owe more than what you get from insurance. In that case, you will be responsible for paying the lender any balance left on the loan. Then there is the cost of buying a replacement car, not to mention the difficulty in finding the right car and waiting for a car to become available.
- Car rental fees – While your vehicle is being fixed or replaced, you may need to rent a car to have transportation. This can cost thousands of dollars if you need to rent a car for an extended period.
Basic components of car insurance
- Bodily Injury. This coverage pays for the injuries caused to others by the driver of the vehicle. For this and each of the items listed below, you (and any family members) must be listed on the policy to be covered by the insurance.
- Medical Payments or Personal Injury Protection (PIP). This covers injuries to you and your passengers. It may (check your policy) cover lost wages or even funeral expenses.
- Property Damage. This covers the damage that you (or someone driving your car with your permission) cause to others. While typically it applies to the car you hit, it can also include other property like fences.
- Collision. Collision coverage pays for the damage to your vehicle caused by a collision. This will cover damage regardless of who is at fault for the accident.
- Comprehensive. This covers a loss to your car caused by other than collisions, such as rocks, theft, fire, etc.
- Uninsured/Underinsured Motorist. Roughly 1 in 6 drivers in California are un- or under-insured. Uninsured Motorist coverage can help pay for repairs and medical bills if an uninsured (or hit-and-run) driver hits you. It can also help cover medical payments for your passengers. Some insurers may differentiate between property damage and bodily injury (or liability) coverage.
Why having adequate coverage is so important
Car accidents happen all the time, no matter where you drive. If you are involved in a car accident, you might be responsible for the costs associated with it, including your costs and the cost of damages to others. For people with substantial assets or income, a lawsuit over damages, injuries or death can be the single greatest financial risk you may face.
At Blankinship & Foster, we help you evaluate all the risks you may have exposure to and develop an action plan to manage them. We help you clarify and organize your finances so that you always have a clear picture of your situation. As life happens, we will be there to support you in your journey. Contact us to learn more about how we bring clarity, confidence, and direction to your personal finances.