Why Good Car Insurance Coverage Costs Less Than You Think

Many motorists feel they have to make do with a less than desirable level of automobile insurance coverage. They cannot even dare to check how much they would pay should they add a little more. This is not a surprise considering how expensive minimum third party liabilities policy can be. Looking at how little coverage is and how expensive it costs; people would assume it really is expensive to insure a vehicle. 

There are several reasons why a basic state enforced policy would be pretty expensive. This would be even clearer when you look at what you are getting for every dollar spent. Most states set the minimum legally required levels as low as they can. This means that a company selling such policies will be paying the limits in many cases so they have to price them high enough to avoid losing money. 

Also, there are other reasons for not hesitating to charge heftily for a basic Liability vehicle insurance. First of all, this is the portion every vehicle owner must buy. Not being optional puts buyers at a disadvantage and companies at a great advantage. Besides they want to make sure that they make some profit even when a policyholder only buys the absolute minimum. All the administration costs of setting up a policy and some profit margins are included in a basic policy.    

This also explains why motorists can get a good level of liability car insurance cheaply. Since they have already covered all the admin costs and have some profit margin forecasted in the premium, they can sell further coverage at near cost. If they make only limited profit from further sales, they are still comfortable with it. Since consumers do not have to buy anything more, they lose the power of force selling. Now, auto insurers have to be nice, reasonable on price and generous on coverage so that they can sell more.  

Another key point to understand is that the probabilities go down very fast as you keep adding extra. If your coverage is only for $30,000 maximum, there is a high chance insurers will have to pay the full amount for most medium severity accidents. When the cover is for $300,000 the insurers will still be liable for the first $30,000. The accident needs to be really big or you need to be unlucky to crash into an expensive car for them to pay much more than the basic cover. 

So, while there is a high chance most accidents will cause insurers to make some sort of claim payments, only few accidents force them to pay large sums to justify charging high rates for extra cover. Possibility of companies paying the full $300,000 on such a policy is very low. That is why they have to use a declining price chart for every extra amount added. 

How much premium each vehicle owner has to pay depends on many factors like age, driving history, credit score, type of car insured, other drivers listed on the policy and zip code. The best way of explaining would probably be with an example. Say absolute minimum liabilities coverage with $30,000 total amount insured costs you around $500. To increase this cover ten times and get yourself a $300,000 possible pay-out limit would probably cost you less than $400. 

If you were to apply basic math you would assume you would be paying $5,000 for such an increase on the policy limits. But it is not a simple correlation. You should always remember that it is much more complicated to calculate car insurance premiums. Therefore, you should let the companies do their calculations and you just concentrate on comparing the prices they offer. This way, you can just pick the best offer without getting bogged down with details.