With Summer approaching and things becoming more normal, I want to take a moment and discuss how the landscape of auto insurance may have changed over the course of the last 15 months while also providing a few suggestions to look for with your coverage to make sure you are getting the best value.
In the past year, we have seen most insurance carriers provide some sort of COVID-19 relief. In addition to the relief, the carriers also experienced fewer claims because there were far less vehicles on the road. In all, the auto insurance industry was able to provide premium rebates to most clients while keeping renewal premiums steady or even slightly less. To illustrate the impact of fewer vehicles on the road, we experienced a snowstorm in March where it snowed all morning and into the evening. From an insurance perspective, these are always high claim frequency events because most people are at work and need to get home on snow covered, slippery roads. According to a body shop we insure, the Milwaukee Metro area experienced just under 100 auto accidents in the storm. The owner indicated if that were a normal rush hour event, there would typically be around 500. This is obviously a huge difference.
With rates staying pretty level, people getting their rebates, and a lot of other things going on, it can be easy to overlook your car insurance and some things that may need to be addressed. I am going to review three of those things below.
In Wisconsin, the law states that you need to purchase $25,000 per person and $50,000 per accident for bodily injury and $10,000 for property damage. While this may cover your legal obligation, we would suggest more coverage for what you may become legally liable for in an accident. $50,000 for injuries and $10,000 for property damage do not go very far in today’s climate. We recommend at least $100,000 and $300,000 respectively with $100,000 property damage at a bare minimum. Those amounts were very popular 10-15 years ago and many considered that to be enough coverage. Society has changed and damage judgments have certainly increased. You can typically increase your auto liability to $250,000/$500,000 for $15-30 per vehicle per year. If you have $100,000/$300,000, with the stabilization of the rates, now might be a great time to check out the cost and get those limits increased.
From there, we also recommend checking the cost of an umbrella policy. This provides additional coverage above your auto liability. You can purchase $1,000,000 or $2,000,000 of additional coverage at very affordable rates. Two vehicles are usually around $150 annual for $1M and $275 for $2M.
This coverage is liability that you are purchasing for yourself to protect against an uninsured or underinsured driver. We cannot stress enough the importance of purchasing the same amount of coverage that you have for liability. If you are injured in an accident where the other party is at fault, your uninsured motorist will respond to take care of your injuries if they have no insurance coverage.This also applies to underinsured people if they do not have enough. In both cases, if you purchase $250K per person and $500K per accident, it will go a long way to making sure you have adequate coverage.
Lastly, let’s talk about physical damage on vehicles. This is comp and collision on an insurance policy. Think of it as comprehensive covering everything that is not a collision and then collision as running into something. One thing you can do to control cost is change deductibles. The most common are $250 and $500, and as vehicle value increases, sometimes $1,000. If you are looking to save some premium, you can increase the deductibles. I believe the way to look at these is on a cost/benefit analysis level. For example, you look at increasing the collision deductibles on your policy from $500 to $1,000. We run some rate for your two vehicles, and the annual savings is $80. You are risking $500 (difference between deductibles) to save $80. In this example, to make the risk pay off, you would have to go 6-7 years without a loss ($80 X 6 years=$480.) If you go through the same exercise and save $200, you have a 2.5 year payback. We would recommend not going the route of the first example, but making the change in example two.
Another route you could take would be deleting the comp and collision coverage for an older vehicle. Again, it becomes a matter of the money saved versus the value of the vehicle. These cases vary significantly, but you are measuring the cost of comp and collision against the value of the vehicle and can make the same determination as to whether or not the change makes sense for you.
The last thing to discuss with all of these changes, is that the math on the premiums and their effect on the policy can sometimes be counterintuitive. Let’s say you have two people in a household with squeaky clean records. When we look at an increased deductible or taking physical damage off a vehicle, oftentimes the savings are not significant. This is because statistically, the carrier believes the squeaky clean risk is not going to have a loss at all. In that case, increasing the deductible might not result in significant savings. On the other hand, if you have a household with four cars and three kids with some tickets and an accident, it is far more likely that an incident will occur so the cost savings by increasing deductibles or deleting physical damage can be more significant. The carriers will reward the changes because the risk is higher.
If any of these things stand out or you would just like a review, we would love to hear from you. If you have friends, coworkers or relatives that might benefit from a review, send them our way. As always, we provide a $20 gas card for you and the person you refer as a thank you for the opportunity.
Thanks again for allowing us to protect your families.