Why You Should Set Money Aside in Case of a Car Accident — Even if You Have Insurance – The Motley Fool

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by Christy Bieber | Published on July 12, 2022
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There are often costs to pay even with great coverage.
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Car accidents can be very expensive to deal with, even if no injuries occur. The cost of a collision is the key reason why people need insurance. Most people can’t just pay tens of thousands of dollars out of pocket to replace a vehicle if a crash happens and the car is totaled. Even repairing a vehicle after a serious accident could be cost-prohibitive for many.
But while buying auto insurance can transfer much of the risk of loss to an insurer better equipped to bear the cost, drivers should not assume they are fully protected against all financial consequences of a collision. In fact, every driver should have money saved in case of an accident — even with insurance coverage. Here’s why.
Depending on what type of insurance covers costs after an accident occurs, it may be necessary to pay a deductible. This is the amount that a policyholder is responsible for when a covered loss occurs. A policyholder must pay the deductible before the insurer covers the rest of the losses.


A deductible can range from a few hundred to a few thousand dollars depending on what the policyholder chose when buying insurance coverage. Drivers need to make sure, at a minimum, they have the money to cover their deductible if something goes wrong and making a claim becomes necessary after a crash.
There’s also another key reason why it may be necessary to save money after a car crash. Insurance may not always pay enough to get a comparable car.
Insurers pay the fair market value of a vehicle if the car is totaled. They will assess what the car is worth and then agree to pay that amount. The problem is, it may not always be possible to get a comparable car for the cost the insurer is willing to pay.

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Say, for example, a driver had an older car in perfect condition that they maintained very well and that was very reliable — but because of the car’s age, the insurer valued it pretty low and gave them a few thousand dollars. Finding a similar reliable car for the same cost could be difficult or impossible and it might be necessary to pay out more money in order to buy an available vehicle and get back on the road.
If a car is totaled and the insurer pays out money to replace it, it might make good sense to get a vehicle that’s a little bit newer than the one that was destroyed — even if that means paying out more to do it. That’s because when a driver must buy a new car anyway, purchasing an older model could be shortsighted.
Let’s say a driver had a 10-year-old car they were going to be replacing in one year. If the car was totaled and the insurer cut a check for the fair market value, they’d probably get enough to buy another vehicle that was also around a decade old. But in a short time, they’d likely have to trade in this vehicle and buy a new one since they had originally planned to upgrade rather than drive a car that was so old. It wouldn’t make sense to go through the hassle and expense of buying the old car just to upgrade so quickly.
Of course, buying a newer car would end up costing more than insurance would pay out — but with money set aside in case of an accident, it would be possible to buy something newer and doing so would likely be the best financial choice in the end.
For all of these reasons, it’s a good idea to have a dedicated savings account in case a crash happens so drivers are prepared for the worst and don’t have to face financial stress on top of recovering from the collision.

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Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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