Buying auto insurance is a necessary evil for anyone who wants to drive a car. In fact, each state has passed laws mandating that people buy at least some insurance. Typically, for example, states will have a requirement that liability insurance be purchased. This requirement is listed in terms of a three digit ratio, such as 25/50/10. In a state with this ratio, a driver who bought the minimum in insurance would be covered for up to $25,000 in costs for someone who he injured in a car accident. The driver would be covered for up to $50,000 in total injury costs paid out to people injured in an accident, and would be covered for $10,000 in costs for property loss.
In addition to liability insurance, some states also impose other minimum insurance requirements as well. For example, in twelve states including Florida, Hawaii and New York, drivers must purchase “no fault” insurance that covers their own medical expenses and lost wages regardless of who is at fault in an accident. Finally, in a few states, there is a requirement that drivers buy uninsured motorist coverage to pay for their bills and costs in the event that they are in an accident with someone who has no insurance or insufficient insurance to pay their bills.
While you have to buy at least the minimum insurance required by your state, for many people, buying the minimum is simply not enough and you need to consider purchasing more than is required.
Buying More Types of Protection
In many cases, when you purchase auto insurance, you will want to buy certain types of insurance that are not necessarily required by law. For example, you may wish to purchase collision insurance on your vehicle even if the law does not mandate that you make such a purchase. Collision coverage will pay for property damage to your own vehicle if you become involved in an accident (required liability coverage, on the other hand, only pays for damage you do to someone else). Collision coverage is typically required for leased cars or for vehicles that you have a car loan on, but even if you own your vehicle free and clear, buying this type of insurance protection is smart if it would cost too much for you to replace your vehicle out-of-pocket in the event of an accident.
Buying gap insurance may also be a smart move. This type of insurance will provide you with the money to repay an auto loan if there is a gap between what the vehicle is worth at the time of the accident and what you owe on it. For example, if your car is actually worth only $10,000 and you owe $15,000, gap insurance would pay the $5,000 difference so you wouldn’t be left making payments on a car that had been totaled and that you could no longer drive.
Finally, if your state does not require that you purchase uninsured/underinsured motorist coverage, you should strongly consider purchasing this voluntarily anyway. If you don’t, you could be left facing significant medical and other costs in the event that you get into an accident without insurance.
Buying More Coverage
In addition to purchasing more than the required types of insurance, you may also wish to purchase insurance above and beyond the minimum coverage amounts. For example, if your state only requires that you buy $25,000 in liability insurance, you may want to buy much more than this. A serious injury is likely to result in much more than $25,000 of damage and if you injure someone and he incurs medical bills in excess of what your policy covers, he can come after you personally and file a lawsuit.
Typically, the more assets that you have that someone could come after in a lawsuit, the more coverage you need to purchase to protect those assets. If you do not own a home or property and if your income is around $30,000 a year, there isn’t a lot that someone could take from you if you were in an accident and injured them and they got a judgment against you. In this case, you would probably be OK purchasing the state minimums. However, if you make a lot of money and have a lot of assets, then you will want to buy more coverage because otherwise a person you injure could garnish your wages and even take your home or other assets.
The cost of upgrading your coverage- even to $1 million in protection, is relatively small (around $150 to $300) and the peace of mind you will get from knowing that you are protected and that your assets are safe is worth the small additional investment in insurance premiums.