With Auto Prices Up, Why Full Coverage Car Is Very Necessary

Updated: September 14, 2022

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Full Coverage During Inflation

Inflation can be sneaky. While it may grab your attention at the grocery store checkout or gas pump, it can also appear when you least expect it, like in your car insurance quotes. Yes, auto insurance inflation is a thing.

It may be the last topic you want to think about, but if you’re in the market for car insurance, inflation is one of the first things you should be considering — even if you’re pretty happy with your current policy. Your budget-friendly, minimum coverage policy may be putting you at financial risk. It's time to think about upgrading to full coverage.

Inflation is making the price of everything go up

According to the Consumer Price Index, the consumer’s bible for detailed price information, inflation has increased the cost of nearly everything. That block of cheese you bought yesterday is around 13% more expensive than it was last year. Your dry cleaning? That’s 10% more expensive. And car repairs, which include parts and labor, is, on average, 8% more expensive than it used to be.

The numbers get worse, if you start considering the cost of a car. Since the beginning of the pandemic, used car prices have shot up by over 50%, and it’s now 18% more expensive to buy a new car. That is, if you can find a new car on a car lot, since the recent ongoing new car shortage.

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    Cost of car repairs on the rise

    With the cost of car repairs on the rise, it’s risky to have anything less than a full coverage car insurance policy.

Inflation has also driven the cost of car insurance rates up by over 7% in the last year, according to the Consumer Price Index. Mark Fitzpatrick, insurance content director at the personal finance website, MoneyGeek.com, provided insight regarding the hike in car insurance rates.

“As the pandemic has eased, people have also returned to the road, and with more people on the road, more people are driving and getting into accidents, and with inflation going up, it’s even more expensive for insurers to repair or replace vehicles, and so insurers are raising rates,” Fitzpatrick says.

How car insurance helps when inflation is high

While car insurance is getting more expensive, the cost of car repairs is also increasing. Tires cost around 15% more than they did a year ago. Vehicle parts and other equipment are over 11% more expensive. Even simple car maintenance is more expensive; motor oil, coolants and auto fluids are 18% pricier than last year.

Insurance generally won’t cover you for an oil change, but it will pay for replacing vehicle parts and tires if they were damaged in an accident. Meanwhile, Fitzpatrick points out that the gap between your car’s worth, considering its depreciated value, and the cost of the accident-related car repairs will just get wider and wider.

So, you really want to make sure you’re insured for collision and comprehensive coverage rather than just liability, which will pay for the damage to another car but not your own, if you’re found at fault in the accident.

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“There does come a point where comprehensive and collision coverage isn’t worth it,” Fitzpatrick says. “If you have a car that’s really old, maybe one that would sell for $2,000, and you’re spending $500 per year on insurance, you may ask yourself if you really want to keep paying that year after year.”

You may want to get new car replacement insurance

However, Fitzpatrick says that for most people, it makes sense to have full coverage. He also points out that you may want to have new car replacement insurance.

Cost of new car replacement insurance

The cost of new car replacement insurance varies between policies, but generally, industry experts suggest that it’s often 5% of the insurance policy. For instance, if your current policy costs $1,000 per year, you might end up paying $1,050 per year if you add new car replacement insurance.

New car replacement insurance covers you if your car is totaled shortly after you buy it. A car depreciates by 10% to 30% the moment you drive it off the car lot. This means that if you get into an accident, such as crashing into a tree, immediately after you purchase your $50,000 car, your car insurance may only reimburse you $35,000 to $45,000. And if you only have car insurance covering liability, you won’t be paid a thing.

Everybody needs good car insurance

It’s an accepted fact that everyone could benefit from purchasing car insurance with sufficient coverage. If having car insurance wasn’t a good idea, states wouldn’t mandate laws that require motorists to have at least the bare minimum of coverage.

Where most people differ, however, is exactly what type of car insurance is best for them based on their needs and budget. It’s a game of number crunching and risk assessment. Certainly, there are sound arguments for a motorist to forgo adding new car replacement coverage or other supplemental coverages, like accident forgiveness.

But these days, it’s harder than ever to argue that your car shouldn’t be fully protected with collision and comprehensive insurance. After all, things happen. Parked cars can be damaged by felled trees and floods. Moving cars can unexpectedly crash into vehicles or telephone poles. If you find yourself with a totaled car, but without full coverage car insurance, you may not be able to fix or replace your vehicle. As such, if you lack the means to replace or repair your car without the help of your insurance provider, you may be putting yourself in financial danger every time you get behind the wheel.

About Geoff Williams

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Geoff Williams has been a professional writer for over three decades and a personal finance journalist for over 15 years. He contributes financial content to MoneyGeek, with expertise in personal finance, real estate, entrepreneurship, credit cards and loans. He has been writing for various publications, including The Wall Street Journal, The Washington Post and CNNMoney. He also authored several books, including “Living Well with Bad Credit.”

Williams earned his creative writing degree from Indiana University Bloomington.