Why Cheap Car Insurance Isn't Best In Memphis, Tennessee

There are few things in the world that are more annoying to pay for than car insurance. Every month when you see the charge deducted from your credit card statement, you can’t help but feel as if that was money wasted. The result of this is that we decide to go for the cheapest possible car insurance we can find, the whole time thinking “I’m not going to get in a crash, so why spend so much on it.” I think we actually feel smart after we do this, like we’ve beaten the system or come up with a great workaround.

The thing is, cheap car insurance isn’t the same as affordable car insurance. Affordable car insurance means you got a bargain on it; cheap just means you got the lowest grade car insurance money can buy. Another way to look at this is cheap car insurance is the $1000 beater car you buy when you’re 16, whereas the affordable option is the deal you get on a car after haggling with the salesman and adding some additional maintenance packages on etc. These are two very different ways of doing business.

There are a lot of reasons why cheap car insurance isn’t best, but the one that needs to be highlighted the most is that your downside risk is larger than just the value of your car. Even if you do have a cheap beater and you think premiums would cost more than the actual car in the end, you still need insurance in case you end up in a collision with another car. If you don’t have enough coverage, you will be forced to pay out-of-pocket for whatever damage occurs.

In life, there are two types of mistakes: the ones you learn from today, or the ones you learn from for the rest of your life. As a general rule, you only want to make the ones you learn from today, because they hurt you a lot less and are minor in the scheme of things. The second kind will chase you around your entire life and constantly remind you of your past errors. Not having adequate coverage is one of these mistakes. I don’t want to worry you too much, but by getting just the minimum level of coverage, you can put yourself in the position of being financially crippled for life.

A simple example of this is if you get in a car accident and are deemed legally liable for the other driver’s medical expenses. Your $30,000 of bodily injury liability insurance doesn’t cover all $50,000 of medical costs and the rest you need to pay out of pocket. Whether as garnished wages, a payment from your savings or even the sale of your house, this is a terrible situation to be in.
Another key point to consider is that your insurance isn’t just meant to cover the damage to your car, it is meant to cover any damage that occurs in an accident. You could be driving a very inexpensive car and think it to be a poor economic decision to insure such a piece of junk, but if you have a collision with a brand new sports car, you are in a terrible position if not insured.

All of this talk about insurance is about managing your downside risk. Not to be alarmist, but every time you leave your house, you are at risk of getting in a car accident. The goal here isn’t to save $5 a month; it’s to make sure that your worst case scenario isn’t even that bad. Dropping something like comprehensive coverage today to months later needing to pay a ton of money fixing or replacing your car is a brutal trade-off. Don’t put yourself in this position.

The ideal insurance situation is that you have an agent provide you with discounts, rather than cutting your coverage. Getting a good deal on insurance is a great thing, skimping out on certain types of coverage is just asking for trouble. Another way to think about auto insurance is in terms of the factors that go into determining your rates. Things like your ZIP Code, age, marital status and gender all contribute to the rate you pay, but there are also factors that you can control. For example, your credit history, driving record, and claims history are all contributing factors in your rate. No one means to neglect these, but by paying careful attention, you can save a lot of money in the long run.

In Tennessee, drivers are required to have a minimum of $25,000 of bodily injury liability per person, $50,000 bodily injury liability per incident, and $15,000 for property damage liability per incident. The question then becomes, do you really want to go for the minimum? Cheap car insurance is unlikely to be the best car insurance, so don’t make your decision based on the lowest amount you can spend. Make it based on spending as little as possible to get the exact coverage you need.

A final example of this is when people foolishly drop their uninsured and underinsured motorist coverage. When you do this, you are basically saying “I am so cheap that I am going put myself at risk of crashing into someone even cheaper who will likely not be able to pay me anything.” This is a dangerous and risky move to make, and you are putting yours and your family’s health and financial well-being on the line by doing this. It is estimated that 20% of drivers in Tennessee are uninsured. This amounts to a tremendous risk you put yourself under by not shielding yourself from those situations.

By simply agreeing to pay a slightly higher premium now, in order to increase your coverage, you can save huge amounts of money in the case that you are in a car accident. Yes, it would be nice to have that extra money now. But in the meantime, you can have that relaxed demeanor that comes from knowing you won’t completely ruin your financials if you make one mistake while driving. At the end of the day your peace of mind is well worth all of it.

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