Although everyone is different and the answer to the question, "how much auto insurance do I need," differs for every individual's needs; I believe that there is a base explanation to this question for everyone. When reading this article keep in mind that there are two categories of coverages that people shop. The first, liability insurance, pays damages to other people thus protecting you from litigation. The second category is all the additional coverages combined. These are coverages that help you and your vehicles.
In my opinion, liability is by far the most important coverage to consider when determining how much insurance to carry. Liability insurance is what is required by law. However, these limits are often too low to adequately protect the insured from legal problems. Fortunately, this coverage also tends to be the cheapest to upgrade.
There is a saying in the insurance industry, "when someone asks how much liability insurance they need, ask them how much he or she are going to be sued for next year, and that is how much you should carry." When I was a claim adjuster, I handled claims in California, Arizona, Oklahoma, and New York. All four states had different minimum limit requirements. When a client from any one of these states who had minimum limits filed a claim there was always a concern. If you have a maximum of $25,000.00 that the adjuster can pay, and you rear end a new Lexus who rolls into the Mercedes in front of him, you are not going to have enough to pay for the damages on these vehicles. I know this sounds far-fetched, but you would be surprised how quickly $25,000.00 is spent. I have had clients, who are very safe drivers, tap the gas instead of the break, and drive into the side of a building. I had a client clip a semi-truck on the highway. The semi-truck jackknifed and lost his load. He was carrying ten brand new Mercedes Benz vehicles.
Now that I own an insurance agency, I will not sell the state minimum limits. The coverage I recommend varies depending on the client's needs, but I always try to maximize their liability. Often we add an umbrella policy to my client's insurance products. Usually, you can increase liability coverage and add an umbrella policy without it raising your premiums. There are two reasons for this. One, the insurance company knows that individuals who carry higher insurance limits are often better risks. Secondly, they are willing to offer a higher multi-policy discount.
Comprehensive and Collision coverage is where insureds are going to see higher rates change. There are several reasons for this which, for the sake of time, I will not go into detail in this article. Let me just say that this is where I encourage clients to take on more self-insured responsibility. I prefer $500.00 to $1,000.00 deductibles (the amount you will pay to fix your vehicle if it is damaged). I do not understand why people like to carry $250.00 deductibles or less. If the damage to your automobile is below $1,000.00 then why file a claim? The premium increase at renewal will not justify the claim. This is why I recommend $1,000.00 to clients who can afford to pay a higher deductible at the time of a loss. It not only saves money on premiums but also encourages insureds to think twice before filing a claim. However, for clients that cannot pay $1,000.00 if their vehicle is damaged in an accident, we write $500.00 deductibles. There are occasions you can write $500.00 on comprehensive and $1,000.00 on collision. The main point is that this is the area that you have room to adjust to get a better premium rate.
Ultimately, my advice is to stay away from state minimum requirements. Stack your liability coverage as high as possible and look at an umbrella policy if the premiums are affordable. Consider the comprehensive and collision deductible first, if you need to reduce your premiums. However, the ultimate answer to the question, "how much auto insurance do I need" is simply "how much are you going to be sued for during the policy period? That is how much you need."