Reasonable Auto Insurance: How to Know How Much Coverage You Need

Car insurance is a complicated subject, and it can be difficult to know exactly how much coverage you need. There are a few guidelines that you can follow to make sure that you have all of the coverage you require.

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Only getting the car insurance you need is one way to help ensure that your rates for coverage remain reasonable. Having too little insurance puts your financial well-being in danger, and having too much coverage will mean that you are paying more than you need to.

Liability Insurance

The first area where you will need to determine how much coverage you need is liability insurance. Liability insurance pays for damages and injuries that you cause to others, and it is a requirement in most states.

The first place to start is your state’s minimum amounts. These are the lowest dollar amounts of coverage that you can purchase and still drive legally in the state. However, the minimum amounts vary widely from state to state. Connect to your state’s department of insurance via the map provided by the National Association of Insurance Commissioners to find your state’s minimums.

Once you find your state’s minimum amounts of mandatory insurance, you then need to assess whether you will need more.

The Insurance Information Institute maintains that experts recommend $100,000 for each individual and $300,000 in coverage for an entire accident.

Whether or not you need that much coverage is up to you and your driving habits.

States such as Florida have very low minimums with only $10,000 in coverage for each injured person and $20,000 for the entire accident; drivers in states with low minimums will likely want to purchase more coverage. With hospital and doctor bills easily reaching $10,000 from even a moderate accident, $20,000 likely won’t be enough to cover you.

States with the highest minimum amounts of mandatory liability insurance include Maine and Alaska, with dollar amounts of at least $50,000 for each person and $100,000 for an entire accident. Those minimums are much closer to the recommended amounts, and you can look at your driving habits to assess your need for more coverage.

Those who drive more often will likely need more coverage. If you have a long commute or you travel extensively, then you should probably get as much liability coverage as you can afford. Furthermore, if you drive in city areas or on highways a great deal, then you should also consider more coverage.

On the other hand, if you drive infrequently or you stay off highways, you considerably lessen your chances of causing a major, high-dollar accident. However, no one can see all ends, and you might choose to get as much coverage as possible so that you are covered for every eventuality. If you cause a high-dollar accident without enough insurance, then the alternative is that you will be paying for whatever isn’t covered by insurance.

Furthermore, some states require that you purchase other coverage amounts such as personal injury protection, or PIP, and uninsured/underinsured motorist coverage. Again, you will need to assess the likelihood of needing such coverage and the consequences if you don’t have it.

First, PIP coverage pays your medical bills, lost wages, and funeral costs. It is usually a requirement in no-fault states. The New Jersey Department of Banking and Insurance allows drivers to rely on health insurance first and PIP insurance second, so you might not need high amounts of PIP coverage if you have good health insurance and life insurance. However, high amounts of PIP coverage are a must if you are without health insurance.

Uninsured/underinsured motorist coverage is a good idea to cover you when another driver causes an accident but can’t cover your damages. You can try to recoup thousands of dollars in damages from an individual that likely doesn’t have such money, or you can let your uninsured/underinsured motorist coverage pay for it. This is an important consideration, as the investigators at the Insurance Research Council estimate that one in seven drivers on the roads is without insurance coverage whatsoever.

Optional Coverage

Your next step in assessing your insurance coverage amounts is optional coverage. This includes collision, which pays for damages to your vehicle from an accident, and comprehensive, which pays for damages to your car from just about everything except an accident. Many drivers decide against optional coverage to save a dime, but that will leave you without any payment options if you sustain damages in the future for which another driver is not liable.

Generally, you are required by a lender to maintain collision and comprehensive coverage, and you should really only drop the coverage if your vehicle is near worthless due to age and high mileage.

Instead of estimating whether or not you need collision and comprehensive, what you really need to estimate is what your deductible should be.

A deductible is an amount that is your responsibility to pay when you have a claim. Starting at $250 and including amounts such as $500, $1,000, and $2,000, a deductible is meant as a deterrent against fraud and claims for cosmetic issues like scratches and dings. For instance, if you have a $500 deductible, then your insurance company will pay $1,500 on a $2,000 claim. Usually, the higher your deductible, the lower your premium costs for optional coverage.

You need to choose the deductible amount that will be easy for you to pay in the event of an accident or other loss. If you choose a $2,000 deductible for a lower price, but you don’t have $2,000 to put towards repairs, then your vehicle is not going to get fixed. In such a case, it would be smarter to have a $500 deductible and pay a little bit more each month.

Furthermore, you should also consider getting other optional coverage such as towing and rental car reimbursement. Generally, these options don’t really cost a lot, but they provide a lot of coverage if you need them. Towing usually costs a few hundred dollars, and most rental car costs start at $30 a day. You can easily incur near $1,000 in costs from towing and two weeks of renting a car.

Resources

If you need further assistance in determining how much coverage you need, there are many options out there for you. First, check with your state department of insurance to see if they have recommendations or guidelines that you can use.

Another option is to utilize an independent car insurance agent to help you find the right coverage amounts for you. An independent agent works with multiple insurance companies, and they have a wide knowledge of the exact details of the car insurance industry.

Non-profit organizations such as the Insurance Information Institute and the National Association of Insurance Commissioners have a wealth of advice and information for drivers. Additionally, asking friends and family members is another way to help you to judge how much insurance you need.

Other Ways to Keep Costs Reasonable

You should also be aware that fine-tuning your car insurance coverage is not the only way to find reasonable prices. There are many ways to lower car insurance costs so that they are affordable.

First, you should always try to reduce your risk in the eyes of insurance underwriters. This should be an ongoing effort of driving safely, obeying traffic laws, and maintaining insurance coverage at all times.

If you have a few black marks on your driving history, you can try taking a state-approved defensive driving course to take points off your license.

Next, you should look for discounts to lower the cost of your insurance coverage. Generally, most insurance providers will automatically give you the discounts for which you qualify, but it’s always a good idea to double check.

Make sure that you are getting a discount for being a good driver, a good student, or for having multiple vehicles with a company, just to name a few. You can also plan to get discounts that you don’t yet qualify for, such as by installing security alarms to get an anti-theft discount.

Shop Around for the Best Rates

One of the best ways to keep costs reasonable is to shop around and compare prices. Just like different car dealerships offer prices on the same vehicle that vary by hundreds or thousands of dollars, car insurance companies also have rates that can vary greatly.

The only way to know which company has the best rate for you is to get quotes from many different insurers. Get quotes for the same amount of coverage so that you can compare them side-by-side, remembering that different companies offer different discounts.

You can get quotes from agents, over the phone, or online. A new, online method for getting rate quotes for car insurance that is rising in popularity is using quote comparison websites such as this one. These sites take your information and send it out to multiple insurance providers. Those providers then send you quotes for coverage over the phone or by e-mail, and you can use those quotes to see who will offer you the best rates for coverage.

Shopping around and comparing quotes is considered one of the best ways to keep your car insurance costs reasonable.

Unfortunately, too few people invest the time and effort in shopping around for car insurance, and they end up paying more than they need to.

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