What is auto insurance and why do I need it in California?
In California we are not a no-fault state when it comes to auto insurance. We are required to have liability insurance on our cars by law in California. We are required by law to carry a minimum of 15/30/5 for an insurance policy. There is a California fair plan, and if you qualify, you may have lower rates than the 15/30/5 listed above. What the heck does this mean 15/30/5? Sure 101 right here. Let’s break it down –
$15,000 / $30,000 – Bodily Injury
$5,000 – Property Damage
Think of it this way: If you are driving your covered vehicle and you hit another vehicle on the road, in the parking lot, etc., the first $15,000 dollars is if there is a person in the other vehicle that you just hit and are injured. $30,000 is the limit on injury money and it is there in case there is more than one person in the car you just hit and they are also injured. So it’s $15,000 per person up to $30,000 per accident.
The $5,000 is for property damage – damage you caused to other people’s vehicles. Another property damage claim you may have to pay for is for guard rails on the freeway, if you park your can within 7/11 you will also have to pay for that damage. As you can see, these limits are extremely low and don’t give you much coverage, especially the property damage portion. In California they came up with these liability limits in the 70’s when you could buy a car for $5,000. Do you know what you’re going to get with $5,000 today? A down payment for car payments lol!
At our office you are likely to get 25/50/25 for an insurance policy because A) it is better coverage at $25,000 per person up to $50,000 per accident. B) You will have $25,000 to fix someone else’s because you crashed. C) It’s still not enough to fix a Mercedes, BMW, Cadillac Escalade, and a whole list of other cars on the road, so you still have to be picky about which car you crash, but it’s better than carrying $5,000. You will see that the price difference between the 15/30/5 policy and the 25/50/25 policy is approximately $40.00 every six months. It’s worth the extra loot to buy a better policy. We’ll talk about uninsured motorists in the next article. When and why you’ll want to have this valuable coverage as an integral part of your insurance policy.
How much will the insurance company pay for my car once it is considered a total loss? Insurance companies typically pay what is called fair market value or actual cash value for vehicles. The way they determine this is very different than it used to be. In the old days, they just went to Kelly Blue Book and looked for value. This is still a method used in appraisals today, but more and more insurance companies are using periodicals, private sales, and a few other clever ways to find out how much your vehicle is worth. Many people think that because they paid $50,000 for a 1976 AMC pacemaker, the insurance company should pay what they paid? Guess what? If you made a bad deal on your vehicle, the insurance company is not partnering with you to make a bad decision. In general, do your research on cars before you buy them and try to figure out the depreciation factor while driving your car.