Car insurance basics

Today I want to discuss car insurance.

I think most of us would agree car insurance is something we wish we could do without. Who really likes paying any insurance premiums?

Now everyone knows that car insurance is required by law. The State of Montana in its wisdom has decided it is a crime to not carry liability insurance if you drive a car.

Seems like a no-brainer. If you want to drive on our streets you must provide protection for those you might injure in the risky hobby of driving.

I think we all understand that not everyone buys car insurance. For all the tickets the State issues I'd say at least 10% of the drivers do not have car insurance. Kind of scary if you think about it.

Now those that do carry insurance, the state law says you have to carry $25,000 worth of bodily-injury-liability insurance per person and $50,000 total bodily-injury-liability insurance per accident. You also have to have $10,000 worth of property-damage-liability insurance. Think about that. While $25,000 may seem like a lot of money, is it really when it comes to the expenses that might need to be reimbursed in a car accident?

Let's take a look at an example.

Say you are driving west down Highway 2 and need to turn south on 87. Something distracts you as you are about to turn to your left. So you turn without really watching for oncoming traffic. Boom! A car smashes into the side of your own vehicle. Clearly you are at fault as you turned into oncoming traffic.

Think about the repercussions of that. Maybe it is a single driver driving a Hummer. If the driver is wearing a seat belt, he might not be hurt (we'll forget about the property damage you just caused to a $60,000 Hummer for now). But imagine it is mini van full of children coming to town to go to Walmart. Hopefully everyone is wearing a seat belt so the injuries aren't so bad. But rushing 3 kids and an adult to the emergency room isn't going to be cheap. How much do you think the ambulance rides alone will cost. Add in the cost of the emergency room visit and you can see how your $50,000 worth of insurance could be gone quickly.

Let's switch gears now and say the oncoming vehicle is a Chevy Corvette being driven by a surgeon. Say he is hurt badly enough he won't be able to operate on any patients for at least 9 months. Now you are liable not only for expensive medical bills you are also responsible to provide this doctor with an income while he is recuperating. How long would your $25,000 worth of insurance last? Once your liability limit runs out, the rest of the money comes out of your own pocket.

Luckily for us, the insurance companies do sell much higher limits of liability insurance. I'm convinced we all need those limits because we just don't know what might happen on the road.

I hope this gives you a little bit more to think about. I'll have more to say in my next post.