How to Figure Out How Much Car Insurance You Need

By Lucinda Gunnin

  • Overview

    Deciding how much car insurance you need is a lot like trying to navigate a maze. The simple truth is far from simple. You must by law have uninsured motorist coverage and liability coverage in every state in the union. Beyond that, the amount of coverage you should have will vary greatly depending on your own personal circumstances and the age of your car.
    • Step 1

      Take a look at the cars around you on the street. If you live in a neighborhood where the majority of the cars are hummers or foreign imports, SUVs or sports cars, you will need more insurance than if your neighbors all drove junkers. All car insurance policies have an upper limit on the amount they will pay for damages from a single accident. If you were in a multiple car accident and the damage exceeds that upper limit, the other drivers would have the option to sue you personally for the additional damage. Since most of us cannot afford to be sued, higher upper end limits are a good thing.
    • Step 2

      Consider the way you drive. While the law requires us to have insurance in case the person who hits us is not insured, but insurance is primarily for when you hit someone else. If you drive like a maniac--and have been in several accidents--you probably need more insurance than a person who drives defensively and avoids accidents.

    • Step 3

      Think about the car you drive. At high rates of speed, any car will do large amounts of damage when it hits something else. However, a car made mostly out of fiberglass--like a Saturn or a Kia--is going to do less damage than a 4x4 or SUV. The type of vehicle you drive may impact the amount of damage you do in an accident and how much insurance coverage you need.
    • Step 4

      Plan a budget. The simple truth of the matter is that most of us could use more insurance than we have both for our vehicles and for our lives. However, just because we should have it doesn't mean we can afford it. Look at your personal finances. Determine what you can afford to pay for car insurance. You may wish to consider raising the deductible so that you can afford higher coverage limits.
    • Step 5

      Assess the car you drive and the likelihood that it could survive an impact. Another place that many people are under insured is in the coverage for damage to their own vehicle. If you can afford it, full coverage insurance will cover damage to your own car after you have paid the deductible. Most people cannot afford to replace their vehicle, should it be destroyed in an accident without some sort of additional insurance. If the value of your car is low enough that it would be cheaper to replace the car after an accident than to pay a monthly insurance premium, you may not need full coverage insurance.
    • Skill: Moderately Challenging
    • Tip: If you are looking for an insurance policy for a new vehicle, be sure to get coverage that pays the replacement cost of the vehicle, not simply what the vehicle is worth at the moment it is destroyed.

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