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How Much Auto Insurance Do You REALLY Need?

By January 4, 2013February 23rd, 2023No Comments

How Much Auto Insurance Do You REALLY Need?

Ask any insurance agent how much insurance you really need and you will probably get a recommendation to buy the maximum amount of coverage possible, topped off with an emergency roadside assistance policy that you may never, ever use. In all honesty, many drivers are driving around with a boatload of insurance that they really don’t need. By contrast, some drivers are driving around blissfully unaware that they don’t have enough coverage. So how can a driver know if they have the right level of coverage?

How Old Is Your Car?

A good way to judge whether or not you have enough coverage is by looking at the age of your car. If you are driving a fifteen-year-old jalopy that is ready for the crusher anyway, then you can probably feel safe with a liability-only policy that is based on the minimum requirements in your state. After all, if your car is only worth $2,000, then even a minor fender-bender would probably result in your car being declared a total loss, since the cost to repair the car would be what your insurer would go by when processing your claim. If the cost of repair is more than the “blue book” value of the car, then the insurer will just pay you the assessed value. If your car is a late-model car, then you probably do need collision and comprehensive coverage, since your out-of-pocket repair costs would be more than most people could come up with right away.

What are You Trying to Protect?

Another way to determine if you have the right level of coverage is to determine what you are trying to protect by buying insurance. Sure, you want to be sure that you protect the investment that you have made in your car, and that you are protected from liability on the road. If you have a high net worth, or if you have a lot of assets that might be susceptible to seizure if you are sued by someone for an accident that you cause that results in damages that go beyond your policy limits, then it makes a lot of sense to buy the maximum amount of insurance possible.

Are You Required to Keep Collision and Comprehensive Coverage?

Finally, you might be required to keep collision and comprehensive coverage on your vehicle. This is true when you finance or lease your car. Many companies require that you keep this coverage so that their collateral (your vehicle) is protected until it is paid for in full. As an added protection for yourself and your financial situation, you might want to purchase so-called gap insurance. This insurance will pay the difference in your car’s worth and what you owe on it if you have an accident that causes your car to become totaled within a short time after you first purchase or lease it, usually within the first year. This means that you are not left holding the bag and paying for a car that you can’t drive just because the value of the car declined so rapidly once you pulled off the dealer’s lot.

Bottom line, if you have few assets and a car that is not worth that much, you may be better served in buying a liability-only policy. If your car is fairly new or if you still owe on it, you may need to buy more insurance.