No one wants to go through an accident, but it’s always good to be prepared with the right insurance. Car insurance is one of those required things in life, almost up there with food and taxes. In every state, except Mississippi, New Hampshire, and Virginia, car owners are required to carry car insurance. Even in those states, car owners are required to either pay an uninsured motor vehicle fee or post a cash bond, and they’re still responsible to pay for damages they incur in an accident.
Liability insurance is the basic coverage required by most states. It covers the other party for bodily injuries and property damages. It does not cover the party that is at fault, nor does it cover the car of the party at fault. Each state has its own minimum coverage requirements. In Texas, it’s 30/60/25. What this means is that an insurance policy needs to include at least $30,000 of coverage per person injured, $60,000 of coverage all the people injured in the accident, and $25,000 for property damage.
When you consider that medical bills can get extremely expensive and that injured parties can file lawsuits, a higher coverage amount is recommended. Most financial advisors recommend at least a 100/300 coverage while others say you should go all the way up to 250/500.
Generally, 250/500 is the highest coverage you can get with an auto insurance company. If you have assets—personal or business assets—that have a combined value of more than $500,000, you should strongly consider getting umbrella coverage, which provides asset protection for any amounts above $500,000. You don’t want to risk losing a home or a business because you didn’t have enough coverage in an accident.
Collision & Comprehensive Insurance
For many people, it’s important to buy coverage for their own car too. Generally, if your car has a lien or is on a lease, you will be required to get full coverage for your car. This includes collision and comprehensive insurance. Collision coverage pays for damages to your car if it was in an accident while comprehensive coverage pays for damages to your car in any other circumstance—for example, you hit a deer or a thief breaks a window to steal something out of your car.
Some experts recommend dropping full coverage if your car is valued at less than $5,000 and is paid off. In this case, you should do a little cost/benefit analysis. Would your monthly premium plus your deductible cost more than what it would cost you to just replace the car yourself?
If you want to cut down on your car insurance costs without dropping full coverage entirely, you could try two things:
- Cut your collision insurance since that tends to be the most expensive part of your policy. Comprehensive coverage is the lower-costing one of the two.
- Raise your deductible. For instance, if your deductible is $500, you could raise it to $1,000, and then just make sure that you always have $1,000 in the bank to cover that. It’s a good idea to have a $1,000 emergency fund anyway.
Compared to some other insurances, car insurance can actually be a great deal, particularly when it comes to liability insurance. Make sure you have the amount of coverage that you need to avoid financial devastation. If you do get in an accident or your car suffers some other unfortunate incident (such as a tree falling on it), you can get some money out of it—whether by getting some money from the car insurance company or by selling your wrecked car to someone like us or by doing both.