It's a common question: How much car insurance do I need? Unfortunately, there's no black and white answer. It depends a lot on what coverages you need and the amount of deductible you feel comfortable with. So let's try to break it down:
How much liability insurance do you need?
Liability covers expenses when you're at fault in a crash. The coverages extend to the vehicle and persons impacted by the crash but not the individuals in your car. Most states require you to carry a minimum amount of liability coverage on your vehicle.
No one can predict exactly how much you'd have to pay if you cause a crash. But the key question to ask is: Can you afford to cover any damages exceeding your coverage limits? The higher your liability coverage limits, the more damages your policy might cover.
To get an idea of how much liability coverage you might need, add up the value of your home, cars, savings, and investments. Then subtract your debts (what you owe). For example, if the total "net worth" was $220,000, you could consider $250,000 liability for injuries per accident. If you feel you need additional coverage, you can increase it typically in $50,000 increments up to $500,000. If you feel you need coverage beyond that, consider an umbrella policy.
Do you need comprehensive and/or collision insurance on an old car?
Collision coverage covers repairs to your car if you're in an accident. Comprehensive coverage covers your car if it's stolen or damaged outside of an accident. You might not have not a choice to carry this coverage if your car is leased or financed; most lenders will require you to carry enough coverage to cover the cost of repairs to your car.
If your car is older, it might be time to drop the collision and comprehensive coverage and put that money into savings. You can take the cost of collision and comprehensive coverage and see if the insurance policy cost more or the same as the worth of your vehicle. If so, it might be time to drop the coverage. For example, if your car is worth $1,000 and your coverage costs $500 a year plus a $500 deductible, you're not really getting anything for your money.
How much should my collision and comprehensive deductibles be?
This is a balancing act. Higher deductibles typically lower your premium, but will increase your out-of-pocket costs if a loss occurs. Ask yourself how much you're willing and able to pay directly, often on short notice, to potentially save on your premium. If you want to lower the amount you have to pay when a crash occurs, you might want to opt for a lower deductible.
If saving money on your insurance is your motivating factor behind removing your collision and raising your deductible, consider these other car insurance money savings tips.
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