Car insurance is a hefty expense, luckily, there's a lot of ways to save. One that jumps out to most people is to simply opt for the most minimum amount they are legally required to have. Each state has a minimum threshold they need to meet that is far cheaper than opting for "full coverage." Before you choose to get the most basic protection, here are a few considerations you need to know about.
The Advantages of Going with Minimum Car Insurance
As we pointed out above, the biggest upside to going with the minimum is that it is far cheaper than any other coverage. For a clean driver without prior accidents, it is usually at least half as expensive as "full coverage", and can be closer to 66% cheaper in certain states. We found the average cost of car insurance for a sample 30 year old male driver is around $1,521. If our sample driver were to go with minimum coverage he could potentially save around $700 a year!
The Disadvantages of Going with Minimum Car Insurance
The downside is obviously not being adequately insured. What does it mean to be adequately covered? In some states, you are only required to carry enough insurance to help pay for another driver's damages in the event of an accident. If you are at-fault for an accident, minimum car insurance won't provide any means of paying for your damages, be they medical or property. Admittedly, there are a handful of states that make it mandatory for your insurance to cover your own injuries. However, there are only 12 of them. If you are from the 38 that don't however, you are potentially taking a large financial risk by driving around with just minimum coverage.
Who Can Opt for the Minimum
There are two main groups of people who can get away with driving with the minimum:
- Those with excellent health insurance. In the event you are injured in an accident, and do not have personal injury protection insurance, you may use your health insurance to cover your medical bills. However, There are certain things under Personal Injury Protection (PIP) coverage that you will not get with just a health insurance plan, so be mindful of that.
- Those with a low-value car. When you opt for the minimum, you are forgoing collision and comprehensive coverage, which are meant to cover vehicle damage. If your car is worth less than a couple thousand dollars, the insurance probably isn't worth it.
If you are a part of the above groups and come from a state with mandated PIP, like Massachusetts, then you may be adequately covered by going with the minimum. You just need to make sure that together, your PIP and health insurance will be able to cover the medical costs of a car accident, which can tip over $60,000 in certain cases.
When You Should Not Opt for the Minimum
People who drive others, have a valuable car or have a high level of disposable income should all opt for higher limits and/or full coverage. If you drive other passengers frequently, and your limits are low, there may not be enough coverage to compensate everyone injured in a potential accident. This would leave you open to litigation.
If you are high net worth individual, you should definitely have high limits as well. If your insurance is inadequate, and people are seeking a higher amount for compensation, they can sue against your assets to get that money. If you have money stored in a bank account, 401k, savings account, or even your future earnings, a plaintiff can sue against those assets to pay for the injuries sustained in an accident you caused. There is a steadfast rule in insurance; have enough to cover your net worth. If after debts that number is $70,000, then you need $70,000 worth of protection, if that number is $500,000 then you need $500,000 worth of protection.
Finally, if you have a valuable car, you should get collision and comprehensive coverage. Valuable cars will cost a lot to repair, and will cost even more to replace if they are totaled or stolen. Without those two coverages, you will have to foot that bill out of pocket. Collision and comprehensive together usually double your monthly bill, but may be well worth it if you have a valuable car.