How Much Car Insurance Do I Need?
There’s no getting around buying auto insurance for yourself and your vehicle. Almost every state in the country requires motorists to have insurance and carry proof of coverage in their glovebox. Driving without insurance can result in heavy fines and/or suspension of driver’s licenses. Each state sets the minimum amount of insurance each driver must have and those amounts, depending on the age and condition of the vehicle, may be all the coverage a motorist buys. But there is more to consider than minimums. Premiums vary widely based on the driver’s age, citation record, credit scores and accident histories. The trick is in finding the right level of coverage for the right amount of money.
What Kind of Insurance Coverage Do I Need?
Vehicle and driver insurance is sold in modules, allowing the consumer to choose among a range of coverage options that protect them from damage and injuries resulting from an accident.
Here are the most common types of coverage:
- Collision (COLL) — provides coverage toward damage to your car from impact with another car or inanimate object – no matter who is at fault. There are typically deductibles that the consumer pays as part of the repair bills.
- Bodily injury liability (BIL) — provides coverage for medical expenses of others arising from an accident where you are at fault.
- Property damage liability (PDL) — provides coverage for damages to vehicles and other people’s property if you’re at fault in a collision.
- Uninsured and underinsured motorist coverage (UM, UIM) — provides coverage for medical expenses for the driver/passengers if the other driver has insufficient or no auto insurance.
- Comprehensive (COMP) — provides coverage toward the vehicle for damage from theft, acts of nature, or vandalism. Chosen most frequently by owners of newer or more expensive vehicles.
- Personal Injury Protection (PIP) – provides coverage for driver/passengers’ medical expenses caused by an accident, no matter who is at fault.
Risks of Having Too Little Coverage
Carrying sufficient liability insurance should top every list. While BIL coverage won’t pay for the consumer’s injuries in an accident, it can stave off lawsuits when the other party is injured if you’re at fault. Liability insurance is expressed in three numbers, for example, 100/300/50. That coverage level insures you up to $100,000 for injuries to the other driver, $300,000 for injuries to multiple people, and $50,000 in property damage. While each state sets the minimum amounts of insurance all motorists should carry, it can be catastrophic to depend solely on bare-minimum coverage. Do some homework. The American Institute of Certified Public Accountants lists the minimum amount of coverage required by each state. In California, liability minimums are 15/30/5. That’s paltry if there’s a serious accident. In Maine, for comparison, the minimums are set at 50/100/25.
When it comes to liability coverage, buy the most you can afford to cover the amount you stand to lose without it. A lawsuit can take your home, car, investments and other assets. If you’re still paying for the car, the lien holder may require full coverage and if the driver lapses on premiums, the lender may force them to overpay for coverage at higher rates.
Risks of Having Too Much Coverage
Having exceptionally high amounts of liability insurance can actually work against the consumer. After an accident, the other party’s attorney may decide the coverage is high enough to justify a lawsuit. The Wall Street Journal (WSJ) says paying the minimum on Personal Injury Protection coverage might be sufficient for drivers who have employer-paid medical coverage and disability insurance.
When evaluating coverage, also assess collision insurance. How much is the vehicle worth? How old is it? How high is the deductible? Is it better to live with some dings and scratches than pay for the coverage? Once a vehicle becomes nothing more than transportation, and not eye candy, some drivers drop collision coverage. For collision insurance, choose the highest deductible you can afford since that can drop the premiums.
When shopping for car insurance, the WSJ recommends all consumers to ask for all the discounts that may apply to them. Young drivers may get “good student” discounts. Safety features in the vehicle can qualify drivers for lower premiums. Buying towing insurance is probably unnecessary if the owner carries their own auto club membership. Improving their credit can also qualify drivers for lower premiums. Check your credit score for free at LendingTree.
Expect to pay higher premiums for luxury vehicles, sports cars, or if you have negative items on your driving record. It may be possible to lower “bad driver” premiums by taking a voluntary defensive driving course. Get free, competitive insurance quotes at LendingTree. Compare the prices against the same levels of coverage on each policy.