Car Insurance Tips

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Five types of automobile insurance exost om Alaska. They are: (1) Liability; (2) Uninsured / Underinsured Motorist (UM); (3) Medical Payments; (4) Comprehensive; and (5) Collision. Here is what you need to know about each:

          1.       Liability Insurance:

Liability insurance pays the other guy when you accidentally do something stupid behind the wheel. In Alaska, stupid driving is called “negligence.” If you accidentally slide through an intersection, misjudge on-coming traffic, or just smash into another car because you weren’t paying close-enough attention, you were negligent. When you’re negligent, the law holds you responsible for all the "damages" you cause. Your 4500 lb. car can accidentally crush bodies, causing millions of dollars of injuries. Your liability insurance pays this bill. If you get sued, your liability insurance also pays for your defense attorney.

The state of Alaska requires but “50/100” of liability insurance (AS 28.20.440 & AS 28.22.101). That means your insurer will pay “$50,000 per person, up to $100,000 per wreck.” This is far too little. It won’t even cover the first week’s stay in the hospital, much less the lifetime of pain you can cause by a single, inadvertent mistake. Instead, consider buying at least $500,000 of liability insurance. (Actually, I bought an “umbrella” policy from State Farm. It covers me for up to $2,000,000 of liability claims and costs me $275/year. It’s well worth it.)

Note that $500,000 of liability insurance will cost you only a little bit more than 50/100. It’s not proportional. $500,000 of liability insurance does NOT cost 10 times as much as 50/100. It only costs a little bit more to get good insurance.

Liability insurance actually serves two purposes. First, it protects you from financial ruin if you do something stupid/negligent. More importantly, it helps the person you hurt. Not many of us have hundreds-of-thousands of dollars in the bank - money that we can give a victim to pay his/her medical bills and pain/suffering caused by our inadvertent stupidity. As socially responsible people, we recognize that driving a car can cause enormous damages. If we can’t afford to pay losses out-of-our-own-pockets, we make sure that we buy a ton of liability insurance.

          2.       Uninsured / Underinsured Motorist (UM) Insurance:

UM insurance pays you (and your family) and any “permissive driver” of your vehicle when an uninsured/underinsured idiot takes you out. For example, imagine you are sitting at stop light when a drunk idiot comes around the corner and smears you. It's 100% the drunk idiot's fault, but (shockingly) it turns out that most drunk idiots don’t have insurance. You thus have no way to pay your medical bills, lost wages and pain/suffering. Fortunately, you purchased UM coverage.

Like Liability insurance, the state only requires “50/100” of UM coverage. That’s far too little. Again, buy at least $500,000 of uninsured/underinsured motorist coverage. I have $2,000,000 on my vehicle, paying only an additional $275 every year.

This is the most important insurance you will ever buy. Get a ton of it.

VERY IMPORTANT: You don’t even have to be in your car for this insurance to protect you. UM is personal insurance. You could be walking in Australia, and get taken out by an uninsured kangaroo driving a dune-buggy ... and your uninsured motorist insurance from Alaska would kick in to cover your losses. Most insurance companies don’t mention the incredible breadth of UM insurance - but it’s true.

Finally, UM insurance covers all occupants in your vehicle. It also covers all resident family members, related to you by blood or marriage. It is extremely important insurance, buy a ton of it.

          3.       Medical Payments Insurance:

Medical Payments (MedPay) insurance pays medical bills when you’re in a car wreck. It is not required by Alaskan law. Most insurance companies either sell none, or $5,000. Again, that’s not enough. I recommend at least $50,000 of medical payments coverage. I have $100,000 of MedPay on my cars. It costs me about $25 every six months.

MedPay also covers all other occupants in your car. This is why military folks should buy it, instead of believing that their military health care is sufficient. Tri-Care may not do a bit of good for their passengers. Your passengers might not have any health insurance at all. Again, MedPay is extremely important insurance, buy a ton of it.

          4.       Comprehensive Insurance:

Comprehensive insurance covers theft, water damage, etc. I don’t like it, nor do I buy it. It’s expensive and (in my opinion) doesn’t do you much good. Note that if you don’t actually own your car (the bank still owns it) you will be required to buy comprehensive insurance. Banks like to make sure that their collateral (your car) is protected. They usually give you no choice on this insurance.

My advice is to buy as little as possible, with the largest deductible you can afford. This is NOT the place to put your insurance dollars. Instead, spend your insurance dollars on liability, uninsured/underinsured motorist and medical payments coverage.

          5.       Collision Insurance:

Collision insurance fixes your vehicle when you get in a wreck. Again, I don’t like it. I don’t have it on my vehicle - but then again I drive older pieces of (well insured) junk. My philosophy is that I want a mechanically sound vehicle that I can “walk away” from if it gets smeared. Yet again, if your bank has a loan against your car, you will be required to have this insurance.

My advice is to buy as little as possible, with as large a deductible as you can afford.