How Much Car Insurance Do I Need?

Car Insurance, Recent Articles

Car insurance is essential when you own a car. In fact, it is mandatory by law and if you are caught driving without it you might get into serious trouble. However, car insurance is a significant yearly expense for every driver. If you are looking for a way to pay less for your car insurance premium there are a few different factors to take into account to determine how much coverage you really need. Depending on your situation it might make sense to have less coverage, which could potentially save you money on your auto insurance premium.

Which Factors Determine the Car Insurance you Need

Your car insurance premium is calculated based on your demographics, your driving record, and the car you are driving. The same factors will also help you decide how much coverage is right for you. 

#1 The Required Minimums for Your State

Every state, except for New Hampshire, has laws that require you to have liability insurance. If you meet these minimum requirements, you are considered to have the basic necessary coverage required by your state. Moreover, many states require you to purchase other types of coverage, in addition to liability. For example, in some states you must purchase Personal Injury Protection (PIP), Medical Expenses (MedPay), and Uninsured/Underinsured Motorist (UM/UIM). For this reason, make sure to check your state’s minimums before you decide on a car insurance premium.

#2 The Net Worth of your Assets

Another factor that influences the amount coverage you need is the value of your assets. In general, the more expensive vehicle you own, the more coverage you will need. You should always make sure that your liability coverage can cover the net worth of your car. You may also want to take into account other assets you own such as a home. In the event you are involved in a lawsuit due to an accident caused by you, the claimant could potentially come after your assets such as your home. For this reason it’s important to take into account your assets when determining how much coverage is right for you.

#3 Your Age

Another factor that you should take into consideration for your car insurance coverage is your age. Young drivers are usually riskier on the road and for this, they are more prone to being involved in an accident. If you are a new driver it may make sense to have more coverage.

#4 Your Driving Record

Insurance companies will take your driving recored into account when determining your auto insurance premium. If you have been involved in accidents or have frequent traffic violations you will most likely result in paying a higher insurance premium. For this reason it’s important to obey traffic laws and maintain a clean driving record. If you are an accident prone driver it may make sense to add more coverage.

#5 Your Risk Tolerance

It is important to consider the amount of money you can afford to pay for car insurance. If you are on a tight budget, then you should only aim for your state’s minimums. However, if you can afford it, we would recommend you to add more than just the minimum for addition financial protection and peace of mind. Keep in mind if you choose to have only the minimum required by your state you may have to pay higher out-of-pocket costs in certain situations.

#6 Your Ownership Status

If you lease your vehicle or have a car loan, then there is a high chance that your lender will require you to get collision and comprehensive coverage. This is to ensure that no matter what happens, you will have the insurance you need to repair it. Your lender will tell you the insurance minimums that are required which may be higher than what your state requires.