Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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When purchasing auto insurance, it’s important to buy enough coverage to meet your needs. It is possible, however, to purchase more insurance than you really need. Buying more coverage than you will ever use is a waste of money that could be better used toward other necessities. Therefore, it’s important to take the time to assess your needs and purchase the appropriate amount of coverage for your own situation and budget.

There is no “one size fits all” answer to auto insurance coverage. Every person’s situation is unique, and sufficient auto insurance for one person would be excessive for another. Instead of searching for an absolute answer, the best course is to understand how insurance works and determine what you need so that you can obtain the appropriate coverage. Here are a few things to consider:

What is Required in Your State?

At bare minimum, all insurance policies will need to meet the state minimums for liability insurance. If an insurance policy drops below these minimums, the insured could be reported to the DMV for being under-insured; this can lead to a suspended license and leaves the driver unprotected from liability after a collision.

State requirements vary from one location to another, so be sure to check your specific state’s insurance laws to see what you need. Some states only require that drivers carry bodily injury liability and property damage liability coverage. Other states may require drivers to have uninsured motorist insurance and personal injury protection coverage as well. Be sure to verify not only what coverage is necessary but also what the coverage limits should be.

How Much is the Car Worth?

It doesn’t make much sense to pay for full coverage auto insurance on a very old or run-down vehicle. The deductible may cost nearly as much as the car is worth, and any accident will cause it to be a total loss. If the annual insurance premiums cost more than the value of the car, the insurance is probably not worth maintaining. You will still need to carry basic liability insurance, but collision, comprehensive and other first-party coverage is an unnecessary expense.

On the other hand, carrying full coverage auto insurance on a new vehicle is a worthwhile investment and is usually a requirement if the car has a lien holder. Vehicles that are being financed must maintain full coverage insurance until the car has been paid off. Even if you own the vehicle outright, it’s worth paying for first-party insurance coverage until the value of the car has depreciated significantly.

For brand new vehicles, it’s also a good idea to purchase gap insurance. This coverage bridges the gap between a vehicle’s actual worth and what’s left to pay on the loan. Because cars depreciate very quickly, it’s possible that the vehicle may be totaled in an accident for less than you owe to the financing company; gap insurance ensures that you will not be stuck paying a car payment on a vehicle you can no longer drive. Most car dealerships offer affordable gap insurance, and the premiums are paid at the same time as the car payment.

Do You Need Additional Coverage?

Once you’ve decided to purchase full coverage insurance, you have the option of purchasing additional coverage to supplement the policy. For example, you may wish to purchase rental reimbursement coverage, roadside assistance or first-party medical coverage. When obtaining these additional coverages, be sure that you do not already have a program that can pay for these expenses. For example, if you are already enrolled in AAA, you probably do not need your insurance company’s roadside assistance program. If you already have a second car, you might not need rental reimbursement coverage.

What Can You Afford?

Once you’ve settled on the coverage that you need, you may need to make some adjustments to fit the policy into your budget. This may mean reducing the policy limits for liability coverage or raising the deductible for collision and comprehensive. Take care not to reduce the limits too far, however, and choose a deductible that you can reasonably afford.

In addition to tweaking coverage, an insured can save money on the overall cost of auto insurance by taking advantage of discount programs offered by the insurer. Safe driving discounts, multi-policy discounts and good student discounts are just a few examples of ways that a person can save money on an auto insurance policy. Be sure to ask the insurance company what other options are available.

By working with the insurer to determine how much coverage is necessary and finding ways to make it affordable, you can be sure that you’ve purchased enough insurance to meet your needs without overpaying.