How to Choose the Right Level of Auto Insurance Coverage


If you drive a car in the United States, you have to have adequate insurance coverage, or you will face steep fines and possibly have your license revoked. Most states mandate minimum coverage. For example, Arizona mandates that drivers be insured at $15,000/$30,000, a number that will vary from state to state.

Just because you have minimum coverage does not make it optimum coverage. Determining what level of auto insurance coverage you should get does not have to leave you pulling your hair out. The simple guidance offered here can help you select the best coverage for your needs.

Factor Your Financial Demographic

What financial demographic do you sit in? Are you well-off with plenty of assets and available liquid funds? Are you middle-class or are you struggling to get by? Do you have a lot to lose if you are sued, like home equity, assets and so forth? Or is there barely a cookie left in the jar?

A higher coverage limit will result in a lower out-of-pocket deductible, which means you will spend less when you have to make a claim or if you have been involved in an accident. Determining your deductible is something that you should do diligently. Ask yourself this: if you are involved in an accident, can you afford to pay a $1,000 deductible, or does it need to be lower at $500 or even $250? Keep in mind that the lower the deductible, the higher the premium fee will be each month.

Different Vehicles Present Differing Options

Whether you lease a vehicle, have taken out a loan to buy one or own your car outright, there are different options that are presented to you with your auto insurance coverage and premiums.

  • Leased vehicles require a specific set of insurance coverage, mandated by the auto companies.

  • Loaned vehicles require a set minimum comprehensive and collision coverage that is mandated by the bank financing the loan.

  • Owned vehicles can use coverage at the owner’s discretion, provided that they at least meet the minimum requirements as set forth by state law, which varies from state to state.

Be cognizant of the fact that if you have a lot of assets to protect, lots of liquid cash or a high net worth, it’s always better to go with higher limits. If you are worth a lot of money, you may need to look into umbrella protection to further shield your financial assets from liability.

If you lease or have financed your car, you will be required to have at least comprehensive and collision coverage. Typically, the limits of this coverage have to meet the value of the car or better. This makes it easier to choose your insurance option because you can opt for what deductible you want or choose to increase the coverage limits to enjoy greater peace-of-mind.

If you are leasing or have financed your car, make sure you look into loan/lease gap coverage. If you are unfortunate enough to total your vehicle in an accident, the gap coverage will come in handy. It will pay for the difference that your vehicle is worth versus what is owed. It protects you from paying for a car you can’t even drive if the car is totaled.

Medical Payments

Most auto insurance coverage includes a protection for medical payments. These are funds that the insurance company pays to you and other passengers to assist with accident-related medical costs. Check with your health insurance plan to see what is covered and what is not. Chances are that you will want to ensure that the medical coverage will take care of any associated annual deductible your health insurance mandates so you are not out-of-pocket if you need to be hospitalized.

Driving Record

Insurance companies will factor in many elements when determining your monthly premium. Your driving record is an imperative element of this algorithm. If you are a safe driver and have no bad marks, you will get a better rate, but you may want to opt for a higher deductible to save some money. On the other hand, if you have some bad marks and have been in a few accidents, you may want to lower the deductible. You can also expect to pay a much higher rate due to the inherent risk. Also, consider where you are driving and how often, as that may necessitate a higher coverage for ample protection.

Type of Car

If you have a brand new car, you will need collision protection and comprehensive, which cost more. However, if you have an aging vehicle, you may want to deal with repairs on your own as they will often be less than the cost of tendering the deductible, which means that you would be paying for them out-of-pocket anyways.

Where You Live Matters

About 80% of minor accidents occur in urban areas so if you live in a city, you will likely want to have the highest auto insurance coverage available. According to the National Insurance Crime Bureau, cities with populations exceeding 200,000 have the most auto theft, so comprehensive insurance is worth exploring in this situation as well.

Other Things to Consider

  1. How secure is your car at night? Is it garaged, or parked on the street? You may need to factor theft and vandalism in when choosing your auto insurance coverage.

  2. What can you afford to pay in fees? If you don’t have much liquid in your checking accounts, you may want to get a lower deductible.

  3. What emergency funds do you have? If you don’t have a lot to use in the case of an emergency, you will want better coverage limits, but those will also result in higher premiums.

  4. Prepare for anything because accidents do happen when you least expect them. Make sure that you are covered with the right protection in advance.