Don’t Buy More Car Insurance Coverage Than You Need

By Desiree Baughman
Desiree maintains insurance licensure in 46 states, and by combining years of experience as a writer and insurance professional, she delivers information consumers can easily relate to and understand. A graduate of Sweet Briar College with a diverse writing portfolio, she regularly serves as an expert source and commentator for respected outlets like CBS Money, Bankrate, and Ragan.com.

Don't Buy More Car Insurance Coverage Than You NeedWhen it comes to auto insurance, there are a myriad of options. There’s the trusty (ahem, mandatory) liability insurance, collision and comprehensive, uninsured and underinsured motorist coverage, and the list goes on. An insurance agent may try selling you any policy under the sun to help bolster their commission, which is why car owners really need to step back and determine what kind of insurance they need before committing to a policy or before even beginning to shop for one. You also definitely don’t want too little coverage, which is financially irresponsible. So how do you find the sweet spot?

Three Questions to Determine Your Car Insurance Coverage

#1: How high should I put the auto liability coverage limit on my car insurance?

What makes this a tricky question is that no one knows exactly how much you’d have to pay if you caused an accident. One accident may be a minor scrape-and-ding, while the next could leave you with two or more totaled vehicles. The average property damage claim is enough to jar just about anyone though – according to the National Highway and Safety Administration, it hovers right above $26,000 per accident.

Each state has its own minimum liability insurance requirements. Wyoming, for example, has a $25K/$50K/$20K minimum liability coverage limit (the first two numbers refer to bodily injury liability limits, per person, and per accident, respectively, while the third number refers to the property damage limit per accident.) Maine, on the other hand, has a minimum liability coverage limit of $50K/$100K/$25K, among the highest in the United States. Now compare that to Florida, which requires $10K/$20K/$10K — perhaps inadequate once you consider the average property damage claim and the price of today’s new cars and medical expenses.

States with mandatory minimums on the higher end, like Maine, likely have car owners who are happy with sticking with the state minimum. If you live in a state with lower liability coverage like Florida, it would absolutely be in your best interest to increase coverage far beyond what the state says you need to carry. Amazingly, you’ll often find that it’s only a matter of pennies between the two, in terms of premiums.

#2. Should I have collision and comprehensive coverage?

With the exception of Virginia and New Jersey, every state mandates that car owners have liability insurance. However, states don’t require collision and comprehensive insurance coverage, which are different coverages for damages to your vehicle. However, if you’re leasing or financing your vehicle with an auto loan, the lender or lessor will usually require this coverage. Without these coverages, you don’t have any coverage on your vehicle at all. Comprehensive pays for damages resulting from things out of your control, such as tree falling onto it, hitting an animal, theft, or vandalism. Collision pays for damages caused when you collide with another vehicle or object while driving.

This type of coverage is beneficial for all cars, though it is particularly important to have on newer models. When your car is high-value, having this type of coverage can protect you from severe financial loss. As your car ages, however, you may want to consider dropping or limiting this type of coverage to save money (perhaps set aside your savings as a down payment for a new car!). If the value of your vehicle is far below what it would cost to repair or replace it, forgo on this type of coverage.

#3: What should my deductible be?

One piece of advice that many car owners are given is that in order to reduce their premiums, they should opt for a higher deductible. While this is a wise money-saving measure for some, you have to be realistic about your lifestyle and how much in savings you may be able to push aside for your insurance deductible should you be involved in an accident.

So be honest with yourself: how much can you afford to pay on short notice? If the most that you can scrounge together is $200, then that is what you should keep your deductible at, for your own peace of mind. If you regularly set money aside and have savings, then a $1,000 deductible is one that you could reasonably be comfortable with. Just look at your accounts, saving habits, and do the math, but don’t assume you’ll build a savings cushion after the fact if you don’t already have one now.

Other Bells and Whistles: Do You Need Them?

Depending on what state you live in, your lifestyle needs, and how you use your vehicle, there’s a wide range of interesting, additional coverage options you may come across. Determining which ones are worth it and which ones you should snub will be something you and a trusted insurance professional decide together.

Personal Injury Protection: Also known as “PIP”, this coverage would pay the medical expenses of you and any passengers in your vehicle after an accident, and may also cover lost wages.

Worth It? Maybe not, although some states will require some form of it. As tempting as it sounds as you panic at the thought of a medical emergency, many health insurance, disability, and accident insurance policies offered by employers often cover the same things. Do your research beforehand.

Uninsured/Underinsured Motorist: This type of protection would kick in if you’re involved in an accident that’s not your fault with someone who doesn’t have any insurance or who doesn’t carry enough liability insurance to pay for your medical expenses or damage done to your property. It could also cover cases of hit-and-run. Worth It? No question about it – definitely. With 14 percent of Americans driving around every day without any insurance, and with even more underinsured (particularly in states with low liability minimums – ahem, Florida) — this type of insurance is a must-have for everyone. It’s in your best interest to at least match your underinsured/uninsured motorists coverage with your own personal liability limits – after all, you wouldn’t want to insure someone else for more than you insure yourself.

Towing Insurance: When purchased, you’ll have a guaranteed tow anywhere, and at any time. Usually there’s a cap on what the insurer will pay per incident (about $50 to $75 per vehicle disablement). The big kicker here though is that although towing coverage has been around for decades on auto insurance policies, it doesn’t necessarily apply outside of a car accident. So if your breaks down due to mechanical issues and has to be towed to the nearest garage, your standard policy won’t cover you at all.

Worth It? This coverage may not as valuable as a AAA membership (which also offers towing), depending on whether you will use the other benefits offered by an auto club membership.