Thanks to inflation, you’re probably paying more for almost everything these days, and auto insurance is no exception. Insurers have hiked rates by an average of 4.9% so far this year, according to data from S&P Global Market Intelligence, and the cost to consumers is likely to rise further, analysts at Bankrate say.
For insurers, the price hikes make sense: The rising cost of adjusting claims means insurance companies need to collect more from their customers to keep up. But for motorists, it means paying higher premiums for the same coverage.
Depending on your policy, that could be a big problem, says Cate Deventer, insurance writer and editor at Bankrate. “Increasing costs mean your coverage may not stretch as far as it used to,” she says. “Several million people could be underinsured.”
Here’s why insurance experts say you might not have enough coverage, and why it’s worth checking your current policy to make sure you won’t have to pay out of pocket in the event of an accident.
Why Your Car Policy May Not Provide Enough Coverage
The first step to making sure you’re adequately protected is to understand how your current policy works. “People buy a policy and pay the bill every month without checking what they actually have,” says Deventer.
Your policy may include Collision Damage Waiver and Collision Insurance covering various types of damage to your vehicle, as well as other coverages that pay your medical bills in the event of an accident.
The most important coverage to focus on, however, is liability insurance, says Deventer. If you are found to be at fault in an accident, this will cover damage to property or other vehicles, medical expenses for other drivers and any legal proceedings you may face.
In the event of an accident, your insurance will pay up to a maximum amount specified in your policy. If the damage exceeds the amount your insurer will pay out, you could be hooked for the difference.
And the costs associated with auto accident insurance claims are rising. For example, according to the Federal Reserve Bank of St. Louis, the price of automotive parts rose 13.4% last year.
The cars themselves have also become more complicated, says Deventer. “An accident that used to be a dent in the bumper could now be damage to cameras or sensors.”
Then there are medical bills. In 2020, auto insurers paid out an average of $20,235 for personal injuries in auto accidents, according to the Insurance Information Institute. But over the past 12 months, health care costs have increased by 5.6%, according to the Bureau of Labor Statistics.
This is an issue, especially if you have minimum state auto coverage. A handful of states only require your policy to cover $15,000 or $20,000 in medical expenses per person in the event of an accident, and Floridians are not required to have medical liability insurance at all.
That means even an average medical claim can exceed thousands than your policy will cover, and a particularly costly accident could be financially crippling.
You don’t have to pay much more for better coverage
If your premiums are already increasing, you might not be thrilled at the prospect of paying even more to make sure you’re properly covered. Fortunately, this can be relatively inexpensive.
On average, comprehensive insurance with minimum federal liability insurance costs $135 a month, according to Bankrate. Upgrade your liability coverage to the $50,000/100,000/50,000 model (i.e. $50,000 per person for medical bills, up to $100,000 total per accident and $50,000 for property damage) and you pay an average of 142 US Dollars – an increase of US$7 per month.
While some insurance companies let you fiddle with your coverage on their website or mobile app, others require you to speak to an agent, which is a good idea anyway, says Deventer. “They will be able to understand your specific needs,” she says.
If you think it’s costly to increase your coverage, start by asking your agent what general discounts — such as discounts — are available. B. for safe drivers or paperless accounts – may apply to you. You may also find more robust coverage at a better rate by switching insurers.
“Now more than ever, it’s more important to shop again to find a rate and policy that works best for you,” said Pat Howard, Editor-in-Chief and Certified P&C Insurance Specialist at PolicyGenius. “Your best approach is to consult an independent broker who is unbiased and can find you the best price.”
If you’re considering rolling with lower premiums and coverage that may not meet the requirements in the event of an accident, remember that your policy is there to protect you from a potential financial disaster.
“Paying more is not fun, but now is a really important time to do so,” says Deventer. “Insurance is designed to protect your finances. If you get into an accident, your financial health is protected.”
Join Now: Keep in touch with your money and your career with our weekly newsletter
Do not miss: Inflation is up 8.3% since last year – and more Fed rate hikes are likely ahead