Should I buy more than the minimum auto insurance?

It is always a good idea to buy more than minimum auto insurance in order to protect your finances. Although it will cost you more in premiums, in the long run, it will save you a lot of time, energy, and money.

Car insurance is no longer optional in most states. The majority of states have made it mandatory for all drivers to have car insurance. States that require it outline the minimum amount required in terms of types of coverage and monetary limits.

Sometimes carrying just the minimum is okay but for most drivers, it is smart to purchase additional coverage.

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Reasons for State Requirements

States have put car insurance requirements in place to protect you and your assets.

If you are in an accident with another driver, one or both of you must be responsible for the damages caused to both the vehicles and the people. If you caused the accident, you are responsible, and vice versa.

If you caused the accident and don’t have insurance coverage, you will have to pay for everything out of your own pocket. If the other party caused the accident and doesn’t have insurance and also doesn’t have enough to cover the expenses, you would ultimately be responsible for payment.

These days the damages caused by accidents can be huge. The cost to repair or replace a car is one thing. Any medical expense can add to an already big headache. They can quickly wipe out your savings and assets. You can sue the other party for damages, but this is costly and takes a lot of time.

To help protect you from financial ruin, states have started to mandate insurance coverage. In fact, the majority of states have this in place for protection.

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State Requirements for Auto Insurance

Although most states require insurance, if a state does not require insurance specifically, it still requires proof of financial responsibility.

According to the Insurance Information Institute, all states have laws dealing with financial responsibility.

If you can’t prove that you have enough assets to cover accident claims then you need to purchase the minimum insurance.

There are a number of ways to find out what the minimum insurance requirements, if any, are in your state. If you are currently insured, your agent or insurance company should have that information. To find out for sure, you can contact your state insurance department.

This contact information can quickly and easily be found through the National Association of Insurance Commissioners’ website.

Minimum Types of Auto Insurance Coverage

The minimum car insurance requirements can vary slightly depending on the state in which you live. Liability is one type of coverage that pretty much every state requires. Liability helps to cover damages that occur when the accident is your fault, and it only covers damage to the other party.

There are two kinds of liability, bodily injury, and property damage. Bodily injury refers to damages to the bodies of the other driver and passengers and covers medical bills. Property damage refers to the other vehicle and what it costs to repair or replace it.

In addition to liability coverage, some states require uninsured motorist coverage. Others require you to have some sort of personal injury protection.

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States are not the only ones who can require you to carry a certain amount of car insurance. If you lease your car or have a finance agreement for it, many lenders will require you to carry insurance to protect their investment.

With a leased or financed car, you may be required to carry both collision and comprehensive coverage. These ensure that your vehicle is covered under certain circumstances.

Additional Types of Auto Insurance Coverage

Although you need to carry basic types of coverage, such as liability and sometimes uninsured coverage, it is highly recommended to purchase additional coverage. Even if your vehicle is not financed, it is often smart to purchase collision and/or comprehensive coverage.

Collision insurance coverage will help to cover damage to your own vehicle, even if the accident was your fault. This includes not only colliding with another vehicle but also if you hit another object, flip your car, or hit a pothole.

Collision coverage is especially recommended if you have a teenage driver, as the National Highway Traffic Safety Administration reports that a majority of crashes are caused by drivers aged 15 to 19.

Comprehensive covers damage caused by anything not related to collision.

If your car is stolen, it is covered under your comprehensive policy. It also covers you if hail, fire, flood, wind, falling objects, earthquake, riots, vandalism, animal contact, or explosion damages your car.

If it is not required in your state, uninsured motorist coverage is a smart thing to purchase. Although most states require insurance, the Insurance Information Institute reports that around 13.8 percent of the drivers on the road, unfortunately, do not carry it.

This means that if you are in an accident with them and it is their fault, you will need to either sue them for damages or pay for them on your own.

Uninsured motorist insurance will help you cover the costs not paid for otherwise.

It also covers you in hit-and-run accidents, where the other party leaves the scene of the accident. For accidents with drivers that have insurance but do not carry enough, underinsured coverage will help cover the difference.

Medical pay insurance may be a good idea to purchase if you do not have good health insurance.

In some states, it is referred to as PIP or personal injury protection. It may be unnecessary, however, if you have health insurance that is adequate to cover the damage.

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Raise your Limits

Another thing to be aware of in terms of minimum insurance coverage is the limit amount of your liability insurance. This varies from state to state and is listed as three numbers, such as 20/40/10. This means that the most the insurance company will pay for bodily injury

These numbers mean that the most the insurance company will pay for bodily injury is $20,000 for each person, $40,000 max for each accident, and $10,000 for property damage.

In that instance, if there were four people in the car, only $40,000 would be allotted for medical expenses for all of them, which is not very much when you consider how high medical costs are these days.

Other examples of limits in other states include 25/50/20, 15/30/5, and 50/100/55.

Once those limits are reached, you are responsible for the rest.

This is why the Insurance Information Institute and others in the insurance industry recommend that you carry bodily injury protection at a minimum of $100,000 per person and $300,000 total for each accident.

Although you can increase the limits of your liability insurance, you are unable to increase the limits of your comprehensive or collision insurance. These limits are based on the actual value of your car and how much repairs would cost.

This means that at some point you need to decide whether it is worth paying a premium every month for this coverage, especially if you have a high deductible.

If you are paying a $1,000 deductible and your car is worth less than that it would be a smart decision to stop paying for that coverage every month.

Other Ways to Save Money on Auto Insurance

If you only want to carry the minimum insurance requirements because of financial reasons, you would probably be making a smarter choice by carrying more coverage and saving in other ways. One thing that affects your insurance premium is your deductible.

The higher your deductible is, the lower your premium will be. Driving safe is one of the best ways to keep your premium low.

If your driving history contains a number of accidents and other traffic violations, work on keeping your record clean for the next three years and you will notice your rate decrease.

Your credit score also affects your car insurance rate, believe it or not. Because insurance companies associate poor credit with poor driving habits, it is important to work on increasing your credit score.

Ask your insurance agent if there are any discounts for which you are eligible. They may be for anti-theft devices, low mileage, loyalty, multiple cars, good student, or safety driving classes.

Also, sit down with your agent and evaluate your policy. You may find that you are paying for extra things that you don’t need and you can use the money to increase your limits.

If your car is old, for example, maybe you will decide to cancel your comprehensive coverage. Perhaps you are paying for roadside assistance but you also have AAA and you don’t need both.

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