How Much Auto Insurance Do You Need?

Posted on Oct 31st 2009, 01:29 am, under Auto Insurance 101

When you first buy a car, one of your primary concerns is getting insurance for it. We all know that it's dangerous to drive around uninsured, and if you get into an accident without auto insurance, you put your property at risk. However, the minimum amount required by your state is usually insufficient.

This minimum varies from state to state. Some require as little as $30,000 per accident, $5000 for property damage, and $15,000 per person. Around half of all states require $50,000 per accident and $25,000 per person. But as we mentioned, this is often not enough, so you should buy more than the minimum if you can afford it. 

However, having TOO much insurance can also be a costly mistake. You'll end up paying an excessive amount when you could have done just as well with less. The trick lies in making the correct judgment, based on your assets and income. So just how much auto insurance do you need?

Generally, the more you own and the more you earn, the more coverage you need. Many insurers recommend a minimum of $50,000 property damage coverage (if you own assets like a house), $100,000 personal insurance, and $300,000 accident insurance.

In addition, some insurers advise you to take out a "personal liability umbrella" policy worth $1 million. This works in combination with your homeowner's coverage; the umbrella policy protects you and your family in case you have to pay damages in a major lawsuit.

Of course, given the variability of individual circumstances, there is no "one size fits all" recommendation for buying insurance. Recent surveys show that an individual could pay anything from $500 to $2000 each year to get the same insurance package from different companies, because rates are so varied.

What can you do to get the best deal? Compare a few of the largest auto insurers (for example, Allstate and Statefarm). Then, ask around among independent agents who can quote premiums from differing companies. Always check insurance websites; several companies offer their quotes online nowadays. Basically, assess your financial standing, shop around and compare as many rates as possible. You'll get a much better deal that way.