Inflation has caught up with auto insurance consumers, so much so that the current coverage the average American has is not enough to cover rising costs in key areas like medical costs and vehicle repairs.
Financial analysts call the syndrome “car inflation,” which defines the combined (and growing) costs of off-lot vehicle ownership, including car insurance, car repair and maintenance costs, and medical charges afterward. of being involved in a car accident.
One area that could make a difference for vehicle owners is auto insurance.
“Higher medical bills and vehicle repair costs mean your insurance coverage may be insufficient to adequately protect your finances in an inflationary environment,” said Cate Deventer, an analyst at Bankrate.com. “While premium increases continue due to inflation and accidents, it may be worth considering increasing your auto insurance coverage limits.”
The trick, Deventer said, is to be financially protected by reducing the risk of out-of-pocket costs in an accident.
“While the goal is not to overinsure yourself and unnecessarily inflate your premiums, the right coverage is crucial and can give you the peace of mind you need every time you’re behind the wheel,” he said.
Easier said than done
Having the exact car insurance you need in an inflationary environment but keeping insurance costs down is not a trip down the high road.
That’s especially the case with the high cost of vehicle accessories included in a typical car insurance policy.
This from Deventer.
Medical costs have increased: Consumer Price Index data shows that the costs of health care services increased by 5.1% between July 2021 and July 2022.
“Because medical expenses cost more, your coverage limits won’t go as far,” Deventer said. “Since different types of auto insurance coverage pay for medical bills in the event of an accident, you may be at risk of being underinsured.”
Vehicle costs have risen: Inflation has also caused the cost of new vehicles to rise 10.4% and used vehicle costs to rise 6.6% from July 2021.
“Cars are getting more expensive, which means higher repair and replacement costs,” he added. “Due to the rising cost of vehicles and parts, your policy’s coverage limits may be insufficient, especially if you have lower liability limits.”
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How to hit the auto insurance sweet spot
The good news? Getting the vehicle cost coverage you need right now is probably not as expensive as you think.
“Your auto insurance is an integral part of your overall financial health, and the amount of your coverage could mean the difference between financial discomfort and financial devastation,” Deventer said. “However, the premium increase for higher limits may not be too significant. For example, going from the state minimum liability limits to 50/100/50 coverage is a 5% increase, or $7 a month.”
One way to make the most of your car insurance money is to direct the cash where it will be most beneficial.
“Consumers who have comprehensive and collision coverage on their policies are well protected against rising repair costs because they are limited to paying only their deductible to repair their vehicles, regardless of the total repair costs,” said Ted Olsen, president of Human. Capital Development at Goosehead Insurance, an insurance services platform for consumers.
The area where consumers would do well to check with their insurance agent is the liability and medical limits of the policy.
“Fortunately, these coverages are the least expensive to add and provide the most protection against rising medical and repair costs for accidents where the consumer is responsible for the damages,” Olsen said. “Buying two or three times as much liability coverage often only increases the overall premium by as little as 5-10%.”
Auto insurance consumers can also look for ways to offset the increased cost of additional coverage needed simply by making smart insurance decisions.
“In the past, for example, it was affordable to have very low deductibles on our cars,” Olsen said. “Choosing a higher deductible for collision and comprehensive coverages will significantly reduce the price of the policy while still maintaining the coverage you need.
Most auto insurers also offer usage-based insurance programs that tailor premiums to the actual risk of the driving activity.
“If you let them track your hard braking or cell phone use while driving, for example, you could save a significant amount of money on your premiums simply because you follow safe driving practices,” Olsen said.
Olsen’s most sensible advice? Talk to an insurance agent and review your policy annually.
“Staying in one place for decades is not the best way to keep your premiums low,” he said. “The market is too dynamic and has too many factors to assume there isn’t a better option available elsewhere.”
“Have an independent agent do the shopping for you and present several options to ensure you maximize your protection and minimize your premium burden,” he added.