Your auto insurance rates depend on several details about you, such as how old you are or what your driving record is. According to the Insurance Information Institute (III), the type and amount of coverage purchased impacts premium significantly. This might seem like an obvious rate factor, but it’s important to keep in mind. Otherwise, you could end up paying more than your budget can handle.
Each state sets minimum coverage requirements. But this doesn’t stop you from adding more. It’s up to you to select your deductibles and limits as long as they comply with the law. But the more coverage you add, the higher your premium. It’s as simple as that.
In this article, we’ll explain how the types of auto insurance you can add to your policy and how each impacts your rates. You’ll also learn about the part the limits play in the ultimate price of pay for coverage. We’ll also take a look at the pros and cons of carrying more coverage on your policy.
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Full Coverage Costs Extra
Most drivers prefer full coverage policies, including at least liability, collision, and comprehensive. Of course, most states require liability insurance, at a minimum. This will protect other drivers from damages or injuries you cause in an accident.
However, no state requires collision or comprehensive. So, anything above and beyond state minimum requirements is up to you to add. But if you’re financing your car, your lender will almost certainly require full coverage.
Also keep in mind that full coverage isn’t a type of insurance or a product you buy. It’s a combination of the three major coverage types:
Collision insurance protects you against accidents with cars or other objects. This includes things like your house, potholes, or even black ice.
Your collision insurance also covers rollover accidents that don’t involve any other vehicles. It’s not a requirement, but if you get into an accident and are at fault, you’d have to pay out of pocket for the damages. According to a 2019 study of NAIC data by the Insurance Information Institute (III), 75% of auto policies include collision coverage.
Comprehensive insurance covers your car from damage-causing events or “acts of God” but not vehicle collisions. Qualifying events includes:
- Natural disasters e.g., hurricanes, tornadoes, and hailstorms
- Collisions with an animal, such as a deer
Comprehensive insurance isn’t something states typically require. But if you live in an area at risk of harsh weather or crime, you should at least consider it. But keep in mind that adding comprehensive will raise your rates. According to the same III study, as many as 79% of drivers added comprehensive coverage to their policies.
Adding collision and comprehensive insurance to your policy is usually a personal choice. Just remember that your rates might rise a lot if you do it. The general idea is to purchase as much coverage as possible. It’s smart to weigh your options and decide if these are within your budget.
Other Types Worth Considering
Collision and comprehensive aren’t the only types of auto insurance that you can add to your policy. Insurers offer plenty of other options that you might want or need to add. All of these options can be useful, but they’ll also cost you extra money in the long run.
Here are the other insurance coverage options available depending on your carrier:
- Personal injury protection (PIP). PIP covers personal injury expenses after an accident. Some states require you to have it. Be sure to consult your state’s laws to see if you need it.
- Medical payments coverage (MedPay). MedPay is similar to PIP. It helps you and your passengers avoid having to pay expensive medical costs after an accident. Some states may also require you to have it.
- Uninsured and underinsured motorist (UM and UIM). This protects you if you get into an accident with a driver who has little or no insurance. Some states will require you to have this on your policy.
- Gap insurance. Gap coverage protects you from owing money on your loan if an accident totals your car. It’ll cover the difference between the loan and your car’s cash value.
- Rental reimbursement. This will pay for a rental car after an accident makes your vehicle undrivable.
- Rideshare insurance. This coverage protects you if you driver for a ridesharing service, such as Uber or Lyft.
- Roadside assistance/towing. Roadside assistance coverage will cover the costs to help you if you’re stuck on the side of the road. This includes towing costs.
- Umbrella insurance. An umbrella policy is extra liability insurance that protects you if an accident’s damages exceed your coverage limits. This helps you avoid paying out of pocket in accidents with expensive cars or property.
Many of the above insurance types are add-ons to your policy. All add-ons will cost you extra money if you choose them. It’ll be up to you to decide whether they’re worth it or not. You can price-check these coverages by getting quotes from several insurers and comparing rates.
Your Limits Affect Rates
The amount of coverage that you add to your policy is important. Every state that requires insurance sets a minimum limit for you to have. A car policy limit is the maximum amount your provider will pay out when you file a claim. Each type of auto insurance has its own limit.
You have the option of just sticking with the minimum amount or adding as much more as you want. Setting your limits low can result in a degree of financial risk. You’re potentially setting yourself up for disaster later on. In many cases, a state’s minimum amount of insurance won’t be enough to protect you from paying for expenses with your own money.
Setting your limits too high can also cost you a ton. You should only set them as high as you can afford. It would be a wise choice to speak with your agent about how high you should set your limits.
Deductibles Impact Your Premium
A deductible is the amount of money that you must pay your insurer when you file a claim. How high or low you set your deductible affects how much you pay for your car insurance. Setting your deductible higher means that your rates will be lower. For example, raising your deductible from $500 to $1,000 will result in lower premiums. If you lower your deductible, you’ll be paying higher rates.
You’ll be responsible for paying the deductible when you file a claim. Only set it to an amount that you’ll be able to pay if you have to file.
Should You Buy More or Less Coverage?
Everyone wants to keep their insurance costs as low as they can. However, there are reasons why you may want to buy more coverage than required. The idea of adding extra can give you a feeling of security because it protects against disaster. Though, it can get expensive.
The general rule is to buy as much insurance as you can afford. You should, however, note that how much coverage you buy will cost you extra. State requirements are often not enough to cover the expensive damages in an accident.
You should aim to buy coverage types that fit your needs. For instance, you shouldn’t buy gap insurance unless you own an expensive or new car. On the other hand, you may need comprehensive if you live in an area that has weather or crime concerns. Ultimately, it’s up to you decide which types you need and how much of each.
It’s also important to figure out what your limits and deductibles will be set at. Try to set your limits as high as you can to protect against financial disaster. Deductibles can also save you money if you set them higher. But make sure you’re able to pay for it.
The amount of insurance you buy should match what you can afford to carry. As long as you don’t take on too much at once, you should find the right balance between your rates and how much coverage you need.
Other Car Insurance Rate Factors
How much coverage you buy is a major rate factor, but it’s not the only one. Auto insurance companies use a variety of other details to decide your costs. These typically relate to you or your record to predict your risk-level. Here are the most common rate factors insurers use:
- Age. If you’re younger or have less driving experience, your rates may be higher. On the other hand, older drivers over the age of 65 can also expect more expensive costs.
- Credit score. In some states, poor credit ratings result in higher premiums. Several states ban this practice, but enough allow the use of credit scores to make this a major rate factor.
- Driving record. Having tickets and accidents on your driving record shows you may be a high-risk for insurance providers. This will result in higher rates.
- Where you live. Your state, city, and Zip code factor into your premium. Costs vary greatly depending on how much coverage your state requires or how risky your city is for accidents or claims.
- Yearly mileage. The more you drive, the higher the chance of an accident and the more your policy will cost. Driving over than 7,000 miles per year may result in a more expensive premium.
Frequently Asked Questions
How much car insurance should I buy?
This can vary depending on the person. Most states require you to buy a certain amount. But the general idea is to buy as much insurance as you can afford. This ensures that you have the right amount to protect your finances if you get into an accident. Also, be sure to select different coverage types that fit your needs.
What should I set my deductible at?
The number you set your deductible at will have an impact on your auto insurance rates. Setting it higher will lower your rates. Lower deductibles will mean a higher premium, but the cost will be more manageable if you get into an accident. You should set your fee at an amount that you’ll be able to pay when you need to file a claim. Don’t set it at an amount that you can’t pay later on.
Are my state’s minimum car insurance limits enough?
Your state’s insurance requirements are just that: the bare minimum just to be able to drive. Car accidents often result in expenses that far exceed the minimum required limits. Generally, everyone should buy as much coverage as they can afford. However, personal factors will dictate how much protection you need to buy to satisfy your risk tolerance.
Do you really need full coverage insurance?
This depends on each person and their situation. Lenders always require full coverage when you’re financing a car. But if you own your car outright, it ultimately comes down to how much you love it. If your car is of little value (we’re talking a beater), it’s almost never worth it because insurance payments could end up exceeding its value.
How high do car insurance experts think your limits should be?
According to the III, you should set your car insurance limits at around:
- $100,000 for bodily injury or death of one person
- $300,000 for all injuries or death in an accident
- $100,000 for property damage liability
- $25,000 for MedPay or PIP
- $25,000/$50,000 for UM and UIM coverage
Additionally, you should have a $500 collision and comprehensive deductible if you choose to buy full coverage.