Inflation has soared to a 40-year-high, and like nearly everything else, auto insurance rates are increasing. However, as prices continue to skyrocket, you need to consider how rising costs affect more than just your budget. While your car insurance premiums increase, your car insurance coverage remains the same. And as medical and vehicle repair costs continue to rise, your coverage today may not go as far as it used to, potentially leaving you underinsured. Rethinking your coverage is important and how increasing your coverage may affect your bill.
Inflation affects car insurance coverage
Depending on your car insurance coverage, your policy can pay for many things in an accident, such as damage to your vehicle, damage you cause to another driver’s vehicle and injuries. The problem is that inflation is driving up vehicle repairs and injury-related costs, such as medical bills. Inflation and increased accident frequency are causing insurance companies to raise policyholders’ car insurance rates to compensate for these higher and more frequent expenses.
However, despite paying more for your policy, inflation is also lowering the level of financial protection your car insurance provides. Understanding this issue and your current car insurance coverage is key to deciding if you need more coverage.
Medical costs have increased
Because medical expenses cost more, your coverage limits will not go as far. Since different car insurance coverage types pay for medical bills in an accident, you may be at risk being underinsured. Your bodily injury liability, medical payments, personal injury protection, uninsured motorists’ bodily injury and underinsured motorists coverage pay toward medical-related costs from an accident.
Drivers with lower coverage limits may find that inflation is making their coverage insufficient. Increasing limits to keep pace with inflation could help you avoid high out-of-pocket costs.
Vehicle costs have increased
Inflation has also caused the cost of new vehicles to go up 10.4 percent and used vehicle costs to increase 6.6 percent since July 2021. Cars are getting more expensive, which means higher repair and replacement costs if you damage or total someone’s vehicle in an accident or if they total yours.
Just like with medical costs, car insurance policies have coverage types designed to pay for vehicle damage. These include property damage liability, comprehensive coverage, collision coverage and uninsured motorist property damage coverage. Due to the increased cost of vehicles and parts, your policy’s coverage limits may be insufficient, especially if you are carrying lower liability limits. To account for increased expenses, if you were to be involved in an at-fault accident, it might be worth considering bumping up your coverage to minimize your risk of being underinsured.
Finding the right coverage in today’s economy
There is such a thing as over-insuring yourself. However, unless you increase your limits significantly, you likely won’t be over-insured if the economy starts to level back out. Higher limits provide more financial protection, so keeping the higher limits may be a good thing.
But if you feel that lower limits would meet your needs in the future, you can adjust your policy back down. Consider talking in detail with your Aitken & Ormond Insurance agent about what coverage you need. The goal is not to over-insure yourself but to make sure you are financially protected with sufficient coverage based on today’s costs.
While premium increases continue due to inflation and accidents, increasing your coverage limits may be worth considering. After all, it can be reassuring to know that you’re financially protected by reducing your risk of out-of-pocket expenses in an accident. While the goal is not to over-insure yourself, the right coverage is crucial and can offer you the peace of mind you need every time you’re behind the wheel.