THURSDAY, OCTOBER 15, 2015
When people ask me "How much insurance should I have?", I always reply "How big is the claim?" Seriously.
Unfortunately, when you pass your insurance licensing test, you do NOT also receive a crystal ball with your license. Without usage of a crystal ball, we have to make the best decisions we can at the time. Based on my experience, I do have some recommendations that should help guide you as you're making decisions.
If at all possible, pick an Ohio car insurance liability limit HIGHER than the state minimum
Yes, the state of Ohio says that a liability limit of $25,000 per person/$50,000 per accident bodily injury and $25,000 property damage liability qualifies you as "financially responsible" and able to operate a motor vehicle. But having seen many auto insurance claims, I will always recommend going higher than the minimum. With the cost of medical care continuing to increase, it only takes a moderate fender bender to reach that $25,000 per person bodily injury limit. And when a new car can easily cost $25,000, you can see that $25,000 property damage being used up quickly. And we're not even thinking of a multi-car accident here.
Bottom line: I don't want you to spend so much on your insurance premium that you have to eat Franks & Beans for dinner the next 6 months. But, since the purpose of insurance is to prevent you from having to pay for accidents out of your own pocket, you need to seriously buy as much as you can.
And if you're still not convinced, here's a real life example of how small the cost is between the lowest limit and the next higher, using myself. Quoting just my vehicle with our main carrier Erie, the premium for 25/50/25 liability limits is $166 for the year. Doubling those limits increases that premium by $14. For the entire year. That's about 4 more cents a DAY. Doubling again to 100/300/100 increases premium another $26 for the year. Which equals 7 cents a day increase.
The moral of the story? Choosing the next higher limit of car liability insurance is much more affordable than most people think. And it's worth it so the insurance can do what it's designed to do: pay on your behalf when an accident occurs.
Your home is your biggest investment- so don't skimp on the insurance coverage
There's still a big misunderstanding, especially among first time home buyers, about what the amount of coverage on a house should be. Let me be clear- insurance companies do NOT care about the price you're paying for your house. Your home's coverage amount is determined by its replacement cost. That's it. End of story. When the claim happens, the insurance company has agreed to rebuild or replace the damaged part using costs at the time of the loss. The price you paid for the house has absolutely nothing to do with that.
You can also think about it another way- if you only insure the house for what you paid for it, and something happens to level your house, do you REALLY only want the amount of money to pay off the mortgage? Most people I work with like the thought of having money to make a down payment on another house if theirs is demolished by a claim and they choose not to rebuild.
Note: If you buy an older house, there's a good possibility that your replacement cost may be much more than you expected. And perhaps you wouldn't rebuild the house exactly how it is (think old Victorians- most are multi-story with 10 foot ceilings and other special features, but you're getting older and would love a 1 story ranch). Insurance companies have come up with some creative solutions to address this problem. Talk to your insurance agent- he or she should be able to solve this problem.
The moral of this story? Replacement cost is the way to determine the amount of insurance coverage on a house. You can help with premium by choosing a higher deductible, but don't skimp on getting the right amount of coverage. Your safety & security depend on it. And don't forget- if you have the correct amount of coverage on your house, your chance of a claim going smoothly increases tremendously. Tip: you can calculate a rough idea of your Ohio home's replacement cost by multiplying $110 by the square feet. Add in $10,000 for an unfinished basement and another $10,000 for an attached 2 car garage and you'll get a quick view into whether you are underinsured or overinsured (it's seldom the latter).
When in doubt, buy the personal umbrella policy
So let's say you have a terrible accident and your car insurance liability limit is maxed out. Or you're hosting a party at your house and someone is injured so severely that the liability limit is exceeded. What happens then?
You get to pay the remainder of the bills. But when you have a personal umbrella policy, it takes over when the car and home policies are exhausted. And pays up to the limit of the policy. Most umbrella policies begin at $1 million and are available in increments of $1 million. Annual cost for a typical 2 car, 1 house household is between $150 and $200 for the year. You can read additional information about umbrella policies in an earlier article. You never want to use it, but if you do, it'll be the best money you ever spent.
How much insurance coverage should YOU have? Please call (937) 592-4871 or contact us and one of our experienced professionals will be happy to review your current situation and find the right solution for your Ohio car insurance and Ohio home insurance needs today.
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