How Much Car Insurance You Buy Affects Your Rates

Car insurance is a requirement in most states. But how much you buy is mostly up to you. Here's how the amount you buy affects your rates.
Young man driving car down an asphalt road.

Auto insurance rates aren’t a set number. Your insurance might cost more or less than someone you know, even if you have a clean driving record. Insurers determine your rates using a wide range of factors. These factors are usually facts about you that relate, even if somewhat loosely, to driving and car insurance. Knowing about these rate factors can help you figure out how to pay less money for car insurance.

 The major rate factors include:

  • Age
  • Gender
  • Driving record
  • Credit score
  • Where you live
  • The car you drive

However, these aren’t the only factors that can cause your rates to be high or low. The type and amount of coverage that you buy will impact your rates in a big way. This might seem like an obvious rate factor. But it’s important to keep in mind so that you don’t end up paying for more than you can handle.

Each state requires a minimum amount of coverage. But this doesn’t stop you from adding more coverage. It’s up to you to select your deductibles and limits as long as they fit your state’s bare minimum requirements.

In this article, we’ll explain how the types of coverage that you add to your policy can impact your rates. You’ll also learn about how the amount of insurance that you buy can cause you to pay more than you want. This includes taking a look at the pros and cons of carrying more insurance on your policy.

Full Coverage Will Cost You Extra

Full coverage insurance is something that you might consider adding to your policy. No state will require you to have full coverage. In general, adding full coverage to your policy is up to you. But if you’re financing your car, your lender may require you to have it.

Full coverage isn’t a type of insurance. It’s made up of collision and comprehensive insurance. Collision insurance protects you against any accidents you get into with other cars, objects, or even potholes. It may also cover rollover accidents that don’t involve any other vehicles. You don’t need it, but if you get into an accident and are at fault, you’d have to pay out of pocket for the damages.

Comprehensive insurance covers damages to your car that occur from events that are out of your control. This includes:

  • Natural disasters e.g., hurricanes, tornadoes, large storms
  • Floods
  • Fires
  • Vandalism and theft
  • Collisions with an animal, such as a deer

Comprehensive coverage isn’t something your state will make you buy. But if you live in an area at risk of harsh weather or crime, you might consider buying it. But keep in mind that doing so will raise your rates.

Deciding to add full coverage to your policy will, in most cases, be your choice. Just remember that your rates might rise substantially if you do it. The general rule of thumb is to add as much insurance as you can afford. It’s important to weigh your options and decide if these are within your budget.

Other Types of Insurance That You Might Consider

Collision and comprehensive aren’t the only coverage types 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 types of insurance that you can typically add to your policy:

  • 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 insurance 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 coverage (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 if an accident makes your car undriveable.
  • Rideshare coverage. This type of coverage will protect you if you drive for a rideshare service, such as Uber or Lyft.
  • Roadside assistance/towing. Roadside assistance will cover the costs to help you if you’re stuck on the side of the road. This includes towing costs.
  • Umbrella insurance. Umbrella insurance protects you if an accident’s damages go over your coverage limits. This protects you from paying out of pocket in accidents with expensive cars or property.

Many of the above coverage types are add-ons to your insurance policy. All add-ons will cost you extra money if you choose to add them to your policy. It’ll be up to you to decide whether they’re worth it or not. You can price check these coverage by getting quotes from several insurers and comparing rates.

How Much Insurance You Buy is Key

The amount of insurance that you add to your policy is important. Every state that requires insurance sets a minimum limit for you to have. An auto insurance limit is the max amount of coverage that your insurer will provide to you. 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 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 lot of money. You should only set your limits 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.

Your Deductible Will Impact Your Rates

A car insurance 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 your deductible to an amount that you’ll be able to pay if you have to file an accident claim.

Should You Buy More or Less Insurance?

Everyone wants to keep their insurance costs as low as they can. But there are reasons why you may want to buy more car insurance. The idea of adding extra car insurance 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. Don’t buy gap insurance unless you own an expensive or new car. But you may need comprehensive coverage if you live in an area that has weather or crime concerns. You’ll have to decide what’s right for you.

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.

Frequently Asked Questions

Q: How much insurance should I buy?

A: This can vary depending on the person. States will generally 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.

Q: What should I set my deductible at?

A: The number that you set your deductible at will have an impact on your auto insurance rates. Setting your deductible higher will lower your rates. Lower deductibles will mean higher rates, but the cost will be more manageable if you get into an accident. You should set your deductible at an amount that you’ll be able to pay when you need to file a car insurance claim. Don’t set it at an amount that you can’t pay later on.

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