Dealing with car insurance can be quite confusing. That is especially true for those who just started driving or for people who are just beginning to get the concept of car insurance.
Every car insurance policy or plan is different and somewhat unique. That is because each policy has their own offers, advantages, and disadvantages.
And that is what makes it confusing. So if you are a beginner in this type of thing, you must be wondering, “How much car insurance do I need?”
In this article, we will tell you about how much you need in your policy.
How Much Car Insurance Do I Need?
Well, the answer to that question can be quite complicated. But we do our best to simplify it as much as possible here.
There are a lot of factors that you have to consider before you know how much car insurance you need.
This means that, ultimately, the answer to that will depend on a case-by-case basis. The factors that you will need to consider before buying car insurance includes the following:
- Is the car you are using used or new
- The year the car is manufactured
- Where you live
- Your driving record
- How much you earn / how much saving you have
If we are talking about personal factors, then the most important factor is the value of the car to you.
Minimum Insurance Requirements
Now another factor that needs to be considered is your state’s car insurance minimum requirements.
So that means that you need enough insurance to drive legally. Be sure to know your state’s minimum requirements by checking out the Insurance Information Institute’s website.
Avoid Financial Ruin
Another thing to consider is a hard one to think about. It’s financial ruin. If you are in a car accident, the expenses can add up quickly. Repairing or replacing a car, healthcare costs and more.
You want to make sure you have enough coverage to protect you from financial ruin if the expenses start adding up.
That can generally be achieved by purchasing a minimum coverage car insurance policy. But like I said earlier, this will be on a case-by-case basis.
Minimum Coverage Car Insurance Policy
So who needs a minimum coverage car insurance policy? This type of policy is recommended for people who are/have:
- Not able to easily afford car insurance
- No savings or assets
Although a minimum coverage policy is sufficient for certain people, in most states, this type of insurance policy is only enough for one to drive legally.
How Much Coverage Do You Have?
Now let us say that you can afford more than the minimum coverage amounts. How much coverage of car insurance do you really need now?
There are three levels of liability coverage offered and each will vary by the state and the insurer. These three levels of liability coverage are often seen as ratios, and each number represents something.
For example, in a 20/40/5, the first digit, 20, stands for $20,000 your insurance can pay the person you injured during an accident. The second digit, 40, refers to the $40,000 the insurer will pay anyone injured in the accident regardless of how many people were involved.
The second digit is the maximum amount the insurer will pay for the people injured in the accident. The last digit, which is the 5 is the $5,000 your insurer can pay for the property damage you have caused to the other party’s car.
Again, costs from a bad accident can easily go way above those numbers. So while it will cost more to get higher coverage, it may be worth it to avoid financial ruin.