Insured?

How much insurance cover to buy?

How much insurance cover to buy?

If you were to ask the auto insurance companies or one of their agents, you would be told it's best to buy more coverage. Why? Because the more cover you buy, the more profit the insurers (and their agents) will make. Once you understand the insurers have a direct financial incentive to sell you as much insurance as you can afford, you can get down to the serious business of deciding how much you actually need.

Or to put it the right way round, low little insurance it's safe for you to have to protect yourself.

That said, you always get what you pay for so, if you do opt for the lowest premium rates, don't expect the best quality of coverage.

What insurance do you need?

If we start with liability cover, every state has a financial responsibility law which requires you to prove you could meet claims if you were involved in an accident. All but New Hampshire now imposes a mandate for a car insurance policy as the optimum way for people to meet claims for the cost of medical treatment, and the repair or replacement of any property damaged. The precise details of the mandated cover vary depending on the regulations in each state. The main differences are caused by whether the state is at-fault or no-fault, i.e. whether you are required to insure against claims made by those you injure, or you are inuring your own medical costs and property losses.

Is the minimum mandated amount enough?

The majority of states mandate $20,000 or $25,000 as the minimum amount should one person be injured. The question you have to ask yourself is whether you think this amount is going to be sufficient to pay the cost of treatment required for the average accident. In most cases, it will not.

Why should you buy more than the minimum?

No matter whether you are in an at-fault or no-fault state, the insurer is only required to pay out the amount set in the policy. So if the minimum amount of, say, $20,000 does not cover all the costs, you're faced with paying the rest of the bill out of your own pocket.

In a no-fault state, this could leave you in serious debt if the medical costs of your own treatment are high. But when it comes to liability claims in an at-fault state, you should look carefully at your financial situation. If you have:

    » a home you own rather than rent;

    » assets of any significant value;

    » a job with a better than average rate of pay; and

    » savings in cash or an investment such as a 401k account,

you could be exposed to the risk of a law suit to recover any amount not covered by the insurance policy. But if you live in a rental and have no assets or savings, it would be uneconomic to sue you, and it would be safe to make do with the minimum amount.

You have to decide how much risk you can accept. Once you understand the issues, you can get car insurance quotes for the amount of cover you think appropriate and decide whether the premium rates are good value for money.