How To Know if You Have Enough Auto Insurance

Your needs will change over time. Understand how insurance works.

By Gary Foreman


When it comes to buying car insurance, you want to buy enough to prevent serious problems down the road. On the other hand, if you buy too much, you are wasting money.


To complicate matters, the answer isn't the same for everyone. Not only will our needs for insurance change as we acquire wealth, but the value of the car we drive makes a difference.

Why Insurance?
Insurance is to pay for financial commitments that you can't handle yourself. In the instance of car insurance, it is for commitments that come from accidents involving your car.
Generally, drivers must be able to pay for any losses that they cause others while driving their car. Since the potential amount of damages is greater than most drivers’ assets, they use insurance to make up the difference.

What Kind of Insurance

Let's start by examining the types of dangers car owners face. The most obvious one is to the car. The second would be to our health and the health of our passengers. Finally, an accident could put our money at risk.

The first priority is to protect our car. If you lease or finance your auto, you may be required to carry collision and comprehensive coverage. Collision pays for damage to the vehicle caused by your car running into another car or object. A simple definition of comprehensive is that it covers things that aren't caused by a traffic accident, such as  theft and fire.

If you need to buy collision insurance, make sure to get enough to cover the balance of the value of the car after you pay the deductible.

Next, decide what insurance you need to protect your wealth. By owning a car, you have agreed to be responsible for any damage it causes. Liability coverage pays for damage that you're responsible for and have caused to other people or their property.

If you life savings is only $300, then there's not much a lawsuit can take from you and some would advise that you only buy the minimum liability coverage required by the state. You might be uncomfortable with that. Not having enough coverage to help a child hurt in the accident might not be something you can live with.

As you accumulate wealth, your need for liability coverage becomes more important. You would not want a lifetime of savings to be wiped out in one accident. Fortunately, increasing you liability coverage is not that expensive. In fact, many people purchase a “liability umbrella” that kicks in when your auto liability limits are reached.

At a minimum, you need to buy the coverage that's required by your state. The most common requirements are liability and no-fault coverage.

Saving Money
The best way to reduce the cost of auto insurance is in the collision and comprehensive coverage. If you can raise your deductible, too, you can make another serious dent in your bill.


If you are  driving an older car, you may be able to go without collision coverage. No sense paying $1,000 a year for insurance to cover a car that's worth $1,200.

Naturally, you will want to compare costs between different insurance companies. Just make sure that everyone is quoting the same coverage.

You may also qualify for some discounts. A safe driving record, a car alarm or multiple car discount could help. Using the same company for your home or recreational vehicles (boats, RV's) might also cut the bill. In some states, teenagers with good grades or who have taken a drivers’ ed course qualify for modest discounts.

Don't be afraid to talk with your agent. Each state has its own laws and insurance terms can be confusing. Not only could you save money today, but because it's too late to change your policy after you've had an accident, you want to make sure you have the right coverage.

Gary Foreman is a former purchasing manager who currently edits The Dollar website and newsletters.