The amount you pay for your auto policy depends on several factors, such as your age or driving record. According to the Insurance Information Institute (III), the type and amount of coverage you buy affects rates significantly. This might seem obvious, but it’s important to keep in mind. Otherwise, you could end up paying more than you can afford.
In this article:
- Extra protection costs more
- Other Coverages worth considering
- How limits affect rates
- How deductibles impact your premium
- Buy as much coverage as you can afford
- Frequently asked questions
Extra Protection Costs More
Most drivers prefer full coverage policies, including at least liability, collision, and comprehensive. Of course, most states require liability, at a minimum. This will protect other drivers from damages or injuries you cause in an accident. Sounds great, right? The only problem is that adding these will more than double your premium.
However, no state requires collision or comprehensive, so adding anything above and beyond state minimum requirements is up to you. But if you’re financing your car, your lender will almost certainly require full coverage until your pay off your loan.
Collision
Collision protects you against crashes with cars or other objects. This includes your house, potholes, or even black ice. This coverage also pays for rollover accidents that don’t involve any other vehicles. It’s not a requirement, but if you get into an incident and are at fault, you’d have to pay out of pocket for the damages.
Comprehensive
Comprehensive protects your car from damage-causing events or “acts of God” but not vehicle collisions. This coverage isn’t required but if you live in an area at risk of harsh weather or crime, you should at least consider it.
Other Coverages Worth Considering
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 coverage options available:
- 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 it’s required.
- 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 coverage. Some states will require you to have this on your policy.
- Guaranteed Asset Protection (Gap). Gap insurance 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. Ridesharing coverage protects you if you driver for a car-sharing service, such as Uber or Lyft.
- Roadside assistance/towing. Roadside assistance coverage offers emergency assistance if you’re stuck on the side of the road. This includes towing costs.
- Umbrella. An umbrella policy is extra liability protection that protects you if an accident’s damages exceed your limits. This helps you avoid paying out of pocket in accidents with expensive cars or property.
How Limits Affect Rates
Every state that requires auto insurance sets required policy limits that are the maximum amount your insurer will pay out when you file an incident claim. Each type of coverage 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 car insurance requirement won’t be enough to protect you from paying for expenses with your own money.
Setting your insurance 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 yours.
How 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 premium. 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.
Buy as Much Coverage as You Can Afford
Everyone wants to keep their premium as low as they can. However, there are reasons why you may want to buy more insurance than required. The idea of adding extra coverage can give you a feeling of security because it protects against disaster.
The general rule is to buy as much auto insurance protection as you can afford. You should, however, note that higher limits 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.
Try to set your limits and deductible 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 coverage 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 protection you need.
Frequently Asked Questions
How much coverage should I buy?
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?
Setting your deductible higher will lower your rates, while a lower one means a higher premium. You should set yours 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 limits enough?
Your state’s coverage requirements are just that: the bare minimum just to be able to drive. Car accidents often result in expenses that far exceed the required limits. Generally, everyone should buy as much insurance 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?
Lenders always require full coverage when you’re financing a car. But if you own yours outright, it ultimately comes down to how much you love it. If your vehicle 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 should your limits should be?
According to the III and other experts, you should set your coverage 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.
