How to Gauge Just How Much Coverage You Need
No two auto insurance policies are the same, so find out what’s right for you.
With all of the different types of auto insurance options available, it may be difficult to decide which are best for your budget and lifestyle. As it turns out, there is no standard, one-size-fits-all policy – coverage depends on each driver’s needs. As you’re finalizing your choices, ask yourself these questions.
How Much Liability Insurance is Enough?
In 48 of 50 states (New Hampshire and Virginia being exceptions), drivers are required to have a certain amount of coverage – known as minimum liability insurance – to legally drive a car.1 However, according to Bob Passmore, assistant vice president of personal lines policy at Property Casualty Insurers Association of America (PCI), most drivers should get more coverage than the minimum requirement.
Ben Mellino, senior assistant vice president at Amica Mutual, suggests the same. “We recommend a minimum of $300,000 for adequate coverage in the event of a loss to provide protection of current and future assets,” Mellino says. To figure out the amount of coverage you need, you’ll want to consider what assets you have to protect – like homes and other valuable possessions – and how much you can reasonably afford each month in insurance payments.
“We recommend a minimum of $300,000 for adequate coverage in the event of a loss to provide protection of current and future assets.” – Ben Mellino, Amica
If you cause an accident and your policy doesn’t provide enough coverage to pay for the damage, your financial assets could be leveraged to help make up the difference. That said, you don’t want insurance that’s too costly for your monthly budget. “Usually, the rule of thumb is, buy as much as you can afford to protect yourself,” Passmore explains.
Do I Want a High or Low Deductible?
Choosing a deductible is an easy way to tailor your insurance policy to your budget and lifestyle. Deductible limits may seem confusing, but what you’re really deciding is how much you can afford to pay out of pocket if you need to file a claim, Passmore says.
A lower deductible is usually paired with a higher monthly premium, but you won’t have to pay as much toward a claim before your insurance takes over. This may be a better option if you don’t have a large nest egg to access if you get into an accident.
A higher deductible is usually paired with a lower monthly premium. If you want to pay less each month and you can assume the financial risk of having to pay the higher deductible before your insurance takes over, this may be the right choice for you. “You’re basically deciding how much of a loss you can afford to absorb,” Passmore says.
Should I Get Collision and Comprehensive Coverage?
If you own a vehicle you’d want to repair if it should get damaged, collision and comprehensive are a must. “That’s why they call them accidents,” Passmore says. “Things happen every day, and they’re unexpected.” For an experienced driver with a good record, it could be sensible to opt for a higher deductible for collision coverage. For example, an increase from $500 to $1,000 could cut your premium by $140 annually,2 and the chances of it coming out of your pocket are low.
What about Uninsured and Underinsured Motorist Coverage?
If you get into an accident where the other driver is at fault, there’s no guarantee that they will have sufficient insurance to cover your medical and property bills. That’s where uninsured and underinsured motorist coverage comes in: Once your deductible is met, it protects you from having to pay from your own pocket if the other driver’s policy doesn’t cover all of your damages.
“If you’ve got an injury that’s worth $100,000 and the other driver, who is at fault, has only a $50,000 bodily injury limit, you would be able to recover [the difference] from your underinsured motorist coverage,” Passmore says. For these reasons, uninsured and underinsured motorist coverage is recommended. However, be sure to check with your insurance company before you make a final decision – some states require uninsured motorist coverage.
Interested in learning more about how to customize your auto insurance policies to your needs? Call an Amica auto insurance representative at 833-513-3881833-513-3882 to hear about our coverage options.
- Understanding Minimum Car Insurance Requirements, The Balance, 2017.
- How to Save on Car Insurance, Consumer Reports, 2017.
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