Insurance or No Insurance: How it All Works and What it All Means! (Part I)

It is amazing to me how many people think they know all there is to know about insurance simply because we all have insurance! This is part of a series of blogs related to car wrecks and personal injury claims. Check out the related blogs here , here and here.

The most important time to know what kind and how much insurance you have and what options you have for coverage is before you’re in an accident and need your insurance!! Can’t change it then. Your stuck with what you have, the good and the bad. Usually the bad!

Here’s the quick and dirty on each kind:

Gap Insurance

Gap Insurance covers the “gap” between the money you owe on the car and the value of the car in the event of a collision. It is valuable only in the first two years and only if you purchased a brand-new vehicle.

Usually this coverage is sold to unsuspecting consumers who don’t need it. Think about it: the moment you drive your brand-new car off the lot, it is worth about 1/3 to ½ less than what you paid for it. That drop in value is called the gap – you still owe that money to your lender, but if you sold your car (or it was totaled and you were paid for it’s value) it would be less than what you owe on it. Gap insurance covers that “gap.”

Depending on the price and how likely you are to total your car, it is probably not worth it. Almost no one makes a claim on gap insurance, making it a money-maker for insurance companies. They want you to buy coverage you won’t use! The longer you own your car, the less gap there is.

I bought a new car in 2015 – there was a big gap in its value relative to how much I owed the bank, the moment I drove it home. But the value doesn’t continue to decrease at that rate. It slows down and levels off. Now that I’ve had it for four years, its value is more than what I owe on it, so I don’t have a gap at all!

This should help in your analysis of whether you actually need gap insurance coverage and if it’s worth the price.

Liability Insurance

Arkansas law requires that all drivers carry a minimum of $25,000 in liability insurance. This is not enough. Consideration must be given to the value of your estate.

You’ll see liability insurance talked about it three numbers such as 25/50/25. The first number is how much money your insurance carrier will pay to one single person for bodily injury if you are the at-fault driver in an accident. In my example, it’s $25,000. Any damage above that, could come out of your pocket. If someone is hurt, the the medical expenses alone can easily exceed $25,000, not to mention other damages such as loss of income.

The second number is how much money total your insurance carrier will pay total for bodily injury in one accident. Again, in my example, it is $50,000. The third number is how much the insurance carrier will pay for property damage – usually the other person’s car or home (if you ran over the curb into their property) if you are the at-fault driver.

Arkansas requires that all drivers carry a minimum of $25,000 in liability coverage. This is rarely enough to cover damages if you are in any kind of accident more than a fender bender.

Further, this coverage does nothing to protect you as the driver. Let’s say you’re in a single car accident, hit a patch of ice, and run into a tree. You break your leg and total your car. If all you have is liability insurance you get nothing (except probably your med pay).

Next week, in Part II of Car Insurance—Worth It Or Not?, we will discuss the many other kinds of of car insurance coverage you can purchase, and the pros and cons of each.

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