Unfortunately, sometimes it feels like paying for the insurance you need on your car is almost as expensive as paying for the car itself. Car insurance can be expensive, but in most states, you’re required by law to carry certain minimum coverage. And if your car is financed, the lender will generally require you to carry certain minimum coverage as well. The question is, how much car insurance do you really need?
Let’s start with the insurance coverage that protects the other people and cars with whom you share the road. This particular type of insurance, generally known as liability insurance, is a required purchase in 47 states in the United States. Most states have established minimum levels that you’re required to have in force as one of the requirements for operating a vehicle in that state. This liability insurance pays for any bodily injuries and/or property damage you cause another driver. If you’re involved in an accident, and you’re at fault, the injured party will look to you for payment of medical bills, repairs to their car, and possibly more if the injuries were serious, disabling, or fatal.
Most every auto insurance company can provide you with liability insurance – in fact, there are companies that specialize in providing only the minimum amount of liability insurance you need to comply with state laws. Typically with these companies, you get what you pay for – you’ll pay a low price for liability insurance, but you’ll generally get very little customer service if you file a claim.
In addition to requiring liability insurance, there are 15 states that require drivers to have Personal Injury Protection (PIP). This coverage will pay for your medical expenses and even lost wages in the event of an auto accident. As with liability insurance, the state generally establishes a minimum level of PIP insurance that drivers are required to have in force.
While your state may specify how much insurance you’re required to have at a minimum, that amount isn’t necessarily the amount that’s best for you. Think of vitamins – the recommended daily amount of vitamins is enough to see that you don’t come down with diseases related to vitamin deficiencies, but they don’t necessarily help you achieve optimal health or take into consideration the needs of your particular situation.
It’s the same with insurance. The state establishes a minimum, but that doesn’t take into consideration the needs of your particular situation. For example, states don’t require that you purchase insurance that will provide you with a rental car in the event your car is damaged in an accident. But if you’re in a situation where being without a car for a few days would negatively impact your ability to carry on your life – say there’s no public transportation available for getting to work – you may want to purchase that kind of coverage. On the other hand, if you generally take public transportation to work or car pool anyway, being without a car for a few days will only be a minor inconvenience, at best, so it may not be worth it to pay for insurance that would cover a rental car.
Another special circumstance not addressed in state insurance requirements is the leasing of a vehicle. If your leased vehicle is totaled, and the accident is your fault, how much money will you owe the leasing company for the car? Do you need insurance that will cover you in this type of situation?
There are also medical payments to consider. If you have adequate health insurance that will cover any injuries you may sustain in an automobile accident, you may not need to purchase extra medical coverage through your auto insurance provider, and vice versa. Medical coverage can also cover occupants of your car as well, which is something further to consider.
Deductibles can also influence how much money you pay for your insurance. In general terms, higher deductibles mean lower premiums. But be realistic – can you meet the deductible if your car is in an accident? It does no good to save money on a lower premium if you don’t set that money aside in case you need it for automobile repairs.
The best way to find out exactly how much car insurance you need is to sit down with an insurance agent and run through several scenarios. Ask the insurance agent as many questions as you can think of. What will happen if I total another car? What about replacement for my car? How big is my deductible? If I change my deductible, how much do I save versus how much more risk will I have?
When you go in for your meeting, you shouldn’t feel like you’re inconveniencing the agent – answering these questions is the job of the agent. If you don’t have an agent that you feel comfortable talking with, or who doesn’t seem to have the time to answer your questions, take your business elsewhere. There are plenty of good agents out there who will be more than happy to answer your questions and help you be certain that you’re purchasing the right amount of car insurance for your situation.
