When The Minimum Car Insurance Isn’t Enough

minimum-car-insurance

It’s well-known that in almost every state, you need car insurance. And when most drivers are starting out, they usually go under their parent’s policy. But then a few years go by, the kid is older and self-sufficient, and they get their “own” car insurance.

That’s when the age-old question comes into play – how “much” car insurance to get? For many young people, “the bare minimum allowed by state law” is the answer they come up with. And this is because, in plain terms, it’s the cheapest. Usually, this is a policy that has something like $10,000 – $20,000 in liability coverage (which is very low), no collision / rental coverage / etc. But most important to the young driver, it fulfills the “I have insurance” requirement to be legally able to drive the car.

But that can pose a problem, too. After all, the “legal minimum” in terms of car insurance is more meant to protect other people than the driver and his or her vehicle. But car accidents can often get expensive.

If someone (let’s call them person A) with the bare minimum insurance causes an accident, their insurance company pays the other party up to the policy maximum, and that’s typically it. There is nothing for fixing Person A’s car, or their own comfort / well-being. And if the policy minimum is something low (like the 10/20 mentioned previously), Person A can be sued for anything their policy doesn’t cover.  If Person A hurt someone badly or destroyed property in the accident, they can be personally liable for thousands (or even millions) in damages.  If Person A owns a home or some other asset, that asset is at serious risk.

The better question to ask in determining how much insurance you need is “what can you afford to lose?” If you own a home, a business, or any kind of large asset, you need enough car insurance to ensure (or is it “insure”? 😉 that even a bad accident or loss of life is sufficiently covered. You cannot expose your family, home, savings, or other assets to possible loss to save a few dollars every month.

It’s about your assets, your net worth, and how much you are willing to risk. If you are driving an old beater and own nothing of any value, I’d be surprised if you bought anything but the bare minimum allowed by law (some people may criticize that statement, but we all did it).

Likewise, if you had a family and owned a home, I’d be surprised to see you with anything less than the best coverage you can possibly afford.