How Much Auto Insurance Do You Need?

One thing to consider when you are buying car insurance is how much coverage you require. Most of us tend to think in terms of “full coverage,” but that term is rather generic and covers quite a variety of types of auto insurance policies.

Here is what is usually meant by “full coverage” and a few add-ons that many companies throw in for good measure – take a few minutes and consider your vehicle, your access to cash, and whether you really want to pay for all these types of coverage.

  1. Liability Coverage. This is the primary type of insurance most people need. It covers you in the event you cause an accident, paying for the damage to the other person’s body and car. Liability limits are set by the state; while you can extend your liability limits, it costs more to do so. For example, if your state sets limits of $25,000 per person and $50,000 per accident minimum for liability insurance, it means that your policy must carry at least these amounts of coverage. Many people opt to raise their limits; in this case, a customer might choose to carry $50,000 per person and $100,000 per accident, or double the state-mandated amounts. Why? Because liability limits show the maximum your insurance company will pay if you cause an accident, and many people are afraid those limits will not be enough to protect them. However, by doubling your liability limits, you are also raising your premiums in most cases.
  2. Uninsured Motorist Coverage. In an ideal world, everyone would have car insurance. Unfortunately, up to 25 percent of all cars on the road today are traveling with no coverage. If you are hit by an uninsured driver who has no personal assets, your company will pay for your damage if you have uninsured motorist coverage. This is usually a good policy to have no matter what your circumstances, since the chances are fairly high that you may be involved in an accident with an at-fault, uninsured driver.
  3. Collision Coverage.If you have a new car, it is imperative that you have collision coverage if you hope to avoid high bills for “fender benders” and other bodywork which must be done if you cause an accident. Because so many accidents result in high repair bills, it makes sense to carry this coverage if your vehicle’s bodywork will be costly. On the other hand, collision coverage does not make much sense if you have an older car. This is because the premiums you pay, coupled with your deductible, may be more than the car is worth to have repaired. Rather than pay collision premiums on an older car, you may decide to take the money each month you would put into collision coverage and place it in an “emergency” account from which you can have your car repaired if needed.
  4. Comprehensive Coverage.While not quite as “optional” as collision coverage for older cars, the same principles apply to comprehensive coverage, which pays if your car is stolen or damaged in a non-accident-related incident, such as weather damage. Comprehensive coverage premiums make sense when your car is new; they may not be as sensible if your car is older and worth little to replace.Be aware, also, that many financial institutions insist on comprehensive and collision coverage as long as your car is financed, so be sure to figure this into your calculations when financing a used car.
  5. Optional Coverage. Insurance companies love to load on the “extras” – towing coverage, gap coverage, rental car reimbursement, and other optional policies. While these may be a good investment, they may not be necessary in some cases. For example, if you are a member of AAA or have a towing plan through your cell phone company, you do not need “roadside assistance,” and can save that little bit off each month’s insurance bill. Similarly, gap coverage is a wonderful idea if your car is new and financed; it is not necessary if the car is worth very little.

Be sure to examine your policy carefully and think about what coverage you really need. You may see a surprising savings in your insurance premiums!