How Much Car Insurance to Buy

When someone buys automobile insurance they usually only consider what the state, or the finance company, requires. However, you should seriously consider the value of all of your personal assets to assess the right number for auto liability coverage.

Comprehensive/Collision Coverage

These types of coverage protect your vehicle.

Comprehensive insurance provides protection for damage that is not the result of an
accident. They offer compensation for losses from fire, theft, natural disasters, vandalism, even hitting (or being hit by) animals in the street.

Collision coverage pays to repair or replace your vehicle in the event of an accident
involving another vehicle, a structure (building, lamppost, mailbox, etc.), or a rollover.

If you are involved in any of these events, you don’t want any out-of-pocket expenses, so you need to have enough insurance to prevent that. In most states, if you are financing or leasing your vehicle, comprehensive and collision insurance is required. If you own a newer or more expensive vehicle, you should buy enough insurance to cover the replacement cost of the vehicle.

If you drive an older vehicle, you should determine if the cost of comprehensive/collision coverage is worth the expense. A good rule of thumb is if the car’s replacement value is less than two years worth of insurance cost, it is not really a value, financially. Be sure to talk with your insurance agent to determine the value of your car vs. the coverage that you wish to purchase.

Personal Assets and Liability Insurance

Liability insurance pays for personal injury and property damages in the event of an accident that is deemed your fault. Most states require a driver to have liability insurance or proof of financial responsibility, which is good. If you cause damage or injury to another, legally you are responsible for paying the costs associated with those damages. Liability insurance will protect your personal assets in these cases.

A personal asset is any possession with monetary value. They could include:

  • Personal accounts like checking and savings accounts, 401Ks, even life insurance policies.
  • Properties like homes, real estate, art collections, automobiles.
  • Businesses or rental properties that generate income.

If you don’t own a home, and only have a modest bank account, you generally won’t need a great deal of liability insurance, since it is unlikely that the injured party could successfully collect the damages from you directly.

Conversely, if you own a great deal, like an expensive home, rental properties, or other assets, and you don’t have sufficient insurance coverage to pay the property damages and medical expenses of the other party, they could sue you and seize those assets.

Protecting Yourself is Key

No matter what your assets are worth, it is recommended that you carry as much insurance as you can reasonably afford. It is worth the time to discuss, in detail, the value of your assets, the state’s requirements, and your budget with your agent when buying a new auto insurance policy.