Monday, December 7, 2009

How Much Auto Insurance Do You Really Need?

When you purchase auto insurance you’ll walk a tricky line between being adequately covered and not paying too much. Even before you start shopping insurance companies you’ll want to determine the amount of coverage you want. Don’t let the insurance company figure this out for you.

Your first step is to learn how much you have to have. If you’ve got a car loan the lender may have requirements. States also set minimum coverage amounts. In Colorado, the minimum requirements are $25,000 of bodily injury liability for one person, $50,000 bodily injury liability for all people and $25,000 property damage liability (25/50/25). Some states also require Personal Injury Protection (PIP), or Medical Payments (MedPay). Colorado does not.

Okay, so now you know what is required, it’s time to decide if you need more than that. Some insurance agents recommend that if you have a lot of assets you should get enough liability coverage to protect them. For instance, if you have $100,000 in assets, but only purchase $50,000 of bodily injury liability you could be sued for more than your coverage if and the other party's medical bills exceed $50,000.

General recommendations for liability limits are $50,000 bodily injury liability for one person injured in an accident, $100,000 for all people injured in an accident and $25,000 property damage liability (that is, 50/100/25). Here again, though, let your financial situation be your guide. If you have no assets, don't buy excess coverage.

Another thing to consider is how likely it is that your car will be stolen. Insurance companies have data on every model of car; it’s attractiveness to thieves and safety records. And speaking of insurance companies…the amount of data they collect is incredible. They use this data to create statistical risk models. They are good at predicting driver behavior and accident rate.

As always buying insurance is a gamble against the unexpected. Your financial picture is going to be the biggest determinant of how much you’re willing to spend.
photo by daveynin

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