Insurance is big business. The industry makes over $259 billion per year in revenue. All of which comes from average Americans paying into the system that covers them should an accident occur.
And that market size isn’t all that surprising. The most recent data shows 6,296,000 car accidents per year, with fatalities trending upwards. The more time spent driving, the more time “at risk” for expensive accidents or injuries.
While it’s important to ensure you’re covered in case of emergency, it’s also important to understand what exactly you’re paying for. How much coverage do you really need?
For us freelancers, the answer is not much. Working-from-home means significantly less time driving than our office-based counterparts. Pooling an equal amount of money as someone driving twice as much doesn’t make sense.
Buying car accident insurance as a freelancer means understanding how insurance companies operate, and how to play the market…
Car Accident Insurance 101
Most Americans are legally obligated to carry some amount of car accident insurance. This amount varies by state, but even those in insurance-free states often choose coverage for its financial protection.
The system works like this. Everyone pays in a set amount to a pool (each company), and those companies pay out claims from the pool. The amount you contribute per six months (or year) varies based on your coverage.
The idea being, people with higher coverage get higher payouts, thanks to their higher yearly contribution. Those who drive less also pay in less because they’re at less risk for an accident and thus payout less.
Those with tickets or other traffic infractions also payout more than those with clean driving records. Speeding increases the chances of an accident, and companies charge accordingly.
However, insurance companies are just that, companies. They’re in the business of making money, and that means taking as much per year per customer as possible. They want to assume you’re at more risk for an accident than is realistic.
This doesn’t work well for freelancers. We’re not driving very often, but insurance companies sometimes don’t take that into account.
How many miles do you drive is a common question. And it’s valid, except it doesn’t account for what kind of miles you’re driving. Highway? Commuter traffic? To the grocery store and back?
Which brings us to our first tip…
Clarify Your Miles
Any insurance agent asks how many miles you average driving per year. They use this to help generate your rate, based on the compounding chance you’ll end up involved in an auto accident.
Though like we mentioned above, not all miles are created equal. They’ll also ask about your profession. Someone who says “delivery driver” should expect higher rates than someone who says “human resources.”
However, if you’re a freelancer marketer, that agent might assume you work from an office. And why wouldn’t they? That assumption means more cash for the insurance company.
Always clarify that you work from home. Make it clear that the miles put on your car are for leisure activities (yes, going to the grocery store counts as leisure). Leisure vehicles have cheaper insurance rates, and better represent your accident risk.
Cover Rates
Different states require different levels of coverage. Some states mandate bodily injury for both driver and passenger, and some for the driver only. Others require both bodily injury and property damage coverage.
And others yet require no coverage at all. You’re free and clear to drive without car accident insurance (not that you should).
Deciding on your own personal coverage rates means first determining what your state demands. After that, making a decision becomes a little more difficult.
Striking a balance between coverage and the odds of an accident isn’t easy. You could go years without an accident, lower your coverage, and have a fender bender the next day.
Property damage is one thing, but the real worry is bodily injury. If you’re at-fault in an accident, the other party’s hospital bills become your responsibility. The insurance company will payout, but only up to your coverage limits.
That’s a real issue, depending on the severity of the injury, medical payouts can easily range over $50,000 (a common cutoff rate for insurance companies).
Here’s a Real World Example
You’re driving to dinner after work to get yourself out of the house. Someone stops short at a light and you rear end them. Normally, rear-ended collision injuries aren’t the worst.
But today is different. You’re at fault and not only did you break your wrist, but the other person broke an ankle. Thankfully, you’re insured for both yourself and the other party up to $50,000.
This example ends with an insurance payout and everyone moves on with their lives.
Example 2
Let’s hold everything constant, except your coverage level. You’re bodily injury only extends to $25,000. That’s not good. In our scenario above you’ve used all $50,000 of the other’s party’s coverage under on your plan.
Now, you’re on the hook for whatever medical bill exceed $25,000.
So What’s the Right Choice?
That depends on many different factors. Is your city traffic heavy? Do you live in the country without much traffic? Just how much do you drive (more miles means more chances to crash)?
Standard advice says the more coverage the better. However, those who truly drive a mile or two a week might not feel the need to spend for the extra coverage. The decision is ultimately yours, but it’s better safe than sorry (in our opinion).
Insurance Encapsulated
Car insurance, like any other insurance, is essentially gambling. Companies gamble large payouts, covering themselves with variable rates due to prior accidents, expected miles, etc.
Drivers gamble on their coverage level. Paying less for less coverage, but paying dearly if their coverage turns out inadequate.
While personal recommendations are abound when it comes to car insurance, the general sentiment for freelancers is as follows.
Pay less for driving less, and classify your car as leisure. Don’t get bullied into paying more than is fair. But don’t skimp on coverage, either. Accidents don’t discriminate and neither do payouts.