“I Don’t Worry, I Have Full Coverage”
Ah, one of my favorite phrases in all of insurance! Everyone wants to be fully covered but here’s the problem: you’ve got about as much of a chance at some ocean front property in Arizona as you do having full coverage in insurance.
Not a George Strait fan? Okay, here’s another one: “full coverage” is a unicorn. It sounds amazing when people talk about it, it just doesn’t exist.
The Full Coverage Ploy
I’m not going to name any names but “full coverage” was a brilliant marketing ploy designed by an insurance company several years back to make people feel better about their insurance coverage.
And who doesn’t want to feel better? Seth Godin calls this an “ideavirus” in his book: Unleashing the Ideavirus.
It was a great idea that spread, not just from company to customer, but eventually from customer to customer. That’s what’s happened with this phrase “full coverage.”
Today, it’s a full-blown epidemic, and like any good virus, it’s spread like wildfire into our common vernacular. I mean who wants to be partially covered?
My problem with the phrase is that it’s misleading, intentional or not.
In truth, there is no such thing as “full coverage” in auto insurance or any insurance for that matter.
No insurance company is going to accept all of your risk for all possible situations. Bare minimum, you are going to have to pay your deductible so even in that case you weren’t really “fully covered” right?
Plus, there can be a variety of other factors in the accident that may or may not be covered on your policy depending on the circumstances.
Now I know I’m weird because I think about this things all the time, but give me anybody’s insurance policy, and I can find holes in it where they are not “fully covered.”
Worse, most of the time I can find places where they think they are covered and in actuality they are not. That’s the biggest problem in the insurance industry today, when expectations don’t meet reality.
The good news is that you don’t need to be “fully covered”.
Better Solution: Adequate Coverage With Collision + Comprehensive
What you need to be is adequately covered. That means your coverage limits are at or above your personal wealth level.
Or at the very least, you need to know what you are covered for so you know what part of the risk you’re still holding.
In reality, when you hear someone talk about “full coverage” what they are alluding to is simply adding “collision” and “comprehensive” coverage to your auto policy.
Doesn’t sound near as sexy as “full coverage” vehicle insurance does it? Still, it is a good idea for a lot of people today because those coverage options protect you from a lot of common claims.
For instance, if you don’t have collision coverage and you cause an accident, the repair bills for your car will come totally out-of-pocket.
With collision coverage, you’ll pay your deductible, but then your insurance company will cover the repairs after your deductible up to the point that they total your vehicle.
Accidentally run off the road and hit a tree? It’s not covered without collision coverage on your policy so you’re responsible for the repairs on that one as well.
Collision can also help you in the event you are hit by someone who doesn’t have insurance or doesn’t have enough insurance.
There is a separate coverage called “Uninsured Motorist” you can purchase for your policy.
This coverage works better for a variety of reasons, but in a pinch, you can claim the accident on your collision, pay the deductible and get your car repaired.
There could be rate increases that you face down the road as a result, but in certain instances, it still makes more sense to make the claim on your own insurance than be forced to pay out-of-pocket for the repairs.
“Other Than Collision” or “Comprehensive” offers a lot of important coverage options are excluded from liability and collision coverage.
Comprehensive covers things like hail damage, flood damage, fire damage, damage from hitting an animal and theft.
Yes, you read that right. You are not covered for the theft of your car unless you carry comprehensive on your insurance. This is a big gap that most people don’t realize is in their insurance without Comprehensive.
The coverage works the same way as collision when it comes to the payout.
You pay your deductible, and then your insurance company will cover the rest up to the totaled vehicle value.
I’ve talked about this idea of “totaled vehicle value” in both sections and in a later blog I’ll explain what that means and more importantly what it doesn’t mean in more depth.