By Ryam Ermey -
CNBC
Thanks to inflation, you may be paying more for just about everything these days, and your auto insurance is no exception.
Insurers have raised their rates 8.3% on average this year, according to data from S&P Global Market Intelligence, and analysts at Bankrate believe costs will continue to rise for consumers.
For insurers, price increases make sense: The rising cost of paying claims means insurance companies must charge their customers more to stay afloat.
But for drivers it means there are higher premiums for the same coverage.
Depending on your policy, that could be a big problem, warns Cate Deventer, editor at Bankrate.
“Increased costs mean your insurance may not cover as much as it used to,” she said.
"Several million people could be underinsured."
Here's why insurance experts say your coverage may not be enough, and why it's worth looking into your current policy to make sure you won't have to pay extra out of pocket in the event of an accident.
Stock image of a car accident. Yellow Dog Productions/Getty Images
Why Your Auto Policy May Not Provide Enough Coverage
The first step in making sure you have the right coverage is understanding how your current policy works.
"People buy a policy and pay the bill every month without checking what they really have," says Deventer.
Your policy may include comprehensive and collision coverage, which cover different types of damage to your vehicle, as well as other coverage that pays your medical bills in the event of an accident.
The key coverage to look out for, however, is third-party damage coverage, says Deventer.
If you are found to be at fault in an accident, this covers damage to property and other vehicles, as well as medical expenses for other drivers and any lawsuits you may face.
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In the event of an accident, your insurance will pay up to a maximum amount specified in your policy.
If the damage exceeds the amount your insurer covers, you could end up paying the difference yourself.
And the costs associated with auto accident insurance claims are on the rise.
The price of motor vehicle parts, for example, rose 13.4 percent last year, according to the Federal Reserve Bank of St. Louis.
Cars have also become more delicate
, explains Deventer.
"An accident that used to be a bumper dent could now be damage to cameras or sensors."
Then there are the medical bills.
In 2020, auto insurers paid an average of $20,235 for bodily injury claims in car accidents, according to the Insurance Information Institute.
But in the last 12 months, the price of health care has risen 5.6%, according to the Bureau of Labor Statistics.
It's a reason to worry, especially if your auto coverage is the state minimum.
A handful of states only require their policy to cover $15,000 or $20,000 in medical expenses per person in the event of an accident, and Floridians are not required to purchase medical liability coverage at all.
That means even an average medical claim could be thousands of dollars more expensive than your policy covers, and a particularly expensive accident could be financially crippling.
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You don't have to pay as much to get better coverage
If your premiums are already rising, you may not be excited about paying even more to make sure you're adequately protected.
Fortunately, doing so can be relatively inexpensive.
On average, a car policy with full coverage for the minimum third-party damage required by states costs about $135 a month, according to Bankrate.
Coverage that guarantees $50,000 per person in medical expenses, $100,000 in total per accident, and $50,000 in damages to third parties costs an average of $142 per month, just $7 more than the minimum coverage.
While some insurance companies allow you to quote different prices on their website or mobile app, others require you to quote with an agent, which is a good idea either way, according to Deventer.
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If you think it will be expensive to increase your coverage, start by asking your agent what common discounts, like those for low-risk drivers or digital accounts, might apply to you.
You can also find stronger coverage at a better rate by switching insurers.
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“Now it's more important than ever to go back to shopping for a rate and policy that works best for you,” says Pat Howard, managing editor and licensed property and casualty insurance expert at Policygenius.
“It is best to consult with an independent agent who is impartial and can find you the best rate.”
If you're considering continuing with a lower premium and a policy that may not ultimately cover all of your expenses in the event of an accident, remember that your policy can protect you from potential financial disaster.
“Paying more is not fun, but this is a very important time to do it,” says Deventer.
“Insurance is designed to protect your finances.
If you have an accident, your financial health is protected.”
