How Much Car Insurance Do I Need?

In this day and age saving money is all the rage, and for good reason – times are tough. It is surprising to find out, then, that a large percentage of drivers are actually over-insured in terms of car insurance coverage because they are not sure how much they need. It is important to evaluate your actual auto insurance needs and make cuts where appropriate so family funds can be diverted to other areas of your budget. Fortunately, this is one of the easiest ways to get cheaper rates, too.

What Does Being Over-Insured Mean?

Every state that requires auto insurance has minimum liability limits for property and bodily injury damages, so this is the basis upon which your car insurance policy should rest. Everything else that is added on, such as limits beyond the state minimum, roadside assistance, GAP coverage, personal injury protection, and medical payments, will obviously cost more.

Collision insurance and comprehensive coverage will sometimes be necessary, especially if you own a new car and just received a car loan from a lender, but many people add on other, expensive riders and have multiple, overlapping policies with high limits that will likely never be used. All this extra coverage isn’t necessary and means the policyholder is over-insured.

How Do I Know What Is Unnecessary Coverage?

Evaluate your current policy carefully with an eye for each type of coverage and its limits. Always make sure your liability exceeds the state minimum, but be realistic on how much more you want and need since your car insurance rates will be higher too. For example, insuring a 10 year-old car valued at $3,000 with a policy that has a $500 deductible makes no sense. Policy holders would be better off with a $1,000 or $1,500 deductible and the significantly cheaper premiums that come with it. In the case of an accident or the need to replace your vehicle, the money saved can be put to buying a new car.

If you have special kinds of insurance such as rental car insurance, roadside assistance, gap insurance, and personal injury protection (PIP) insurance coverage, your car coverage might be redundant in relation to other insurance and memberships you already have , such as AAA or credit unions that offer rental car insurance or roadside assistance or health insurance that will already cover your medical bills.

Furthermore, the kind of car you drive will determine how necessary physical damage coverage is. It makes sense to buy full insurance coverage on a brand new luxury or sports car with a $50,000 price tag that is used everyday to commute to work; otherwise, a car you drive once a week because it has sentimental value may not require liability, collision and comprehensive protection. Getting cheap car insurance gets easier by eliminating unnecessary items that increase your rates.

Rental Car Insurance

Rental policy riders are very popular for people who have collision and comprehensive coverage because this insurance will provide a rental car while your vehicle is in the shop for repairs. However, review that policy carefully to determine whether it’s worth the extra money. If the policy limits the rental car for a very short period of time and has an unrealistic spending limit (under $20 or $30), it may not be worth it. You might be able to get a rental car at a lower cost on your own without having to make a claim on your insurance and potentially affect your future rates.

Roadside Assistance

Roadside assistance is another expensive rider many people add on because it makes them feel safe. It’s comforting to know your insurance will send someone out to give you a tow, a gallon of gas, or a ride if something happens. Despite this benefit, there are inexpensive ways to go than with insurance.

Getting a membership with AAA or another auto club provides the same benefits plus more savings on other services, and just like with rental insurance, you can use those benefits without filing a claim with your auto insurance. These memberships are generally much less expensive than the rider.

PIP Car Insurance and Medical Payments Coverage

Personal Injury Protection (PIP) coverage is required in many states, especially those which are no-fault, such as Florida. Mandatory coverage is usually around $10,000, but many consumers get higher limits out of fear and forget about their health insurance. Moreover, they might add on other riders such as medical payments coverage in an effort to be thorough. Despite the best of intentions, what usually ends up happening is they are extremely over-insured, and its costing them money. Keep your PIP car insurance as high as necessary to cover the minimum requirements by your state, but remember that your health insurance (if applicable) will pay for your medical costs anyway.

Collision Insurance

Collision insurance is required when a vehicle is being financed through a car loan, but in many cases, it just isn’t necessary. An older vehicle is often not worth the deductible you have to pay for repairs after an accident. Most people raise their deductibles as high as they can afford to bring the overall cost of car insurance lower. This is an especially useful strategy if you are a very safe or infrequent driver and haven’t had an auto accident in years.

Again, if your car is only worth $1,000 to $5,000 according to its Blue Book value, then it’s not worth having collision insurance in the first place. If the accident isn’t your fault, the car will be replaced by the at-fault driver, and if you’re at-fault, you can put that deductible money to better use buying a new car.

Cheap Car Insurance

Since auto insurance is a legal necessity, it is important to learn as much as you can about your minimum coverage requirements, and what is and is not necessary. Once you have a good idea about your insurance needs, you can save money on a new policy by comparing auto insurance companies and quotes online.