If you’re under-insured and something happens to your vehicle, you’ll have to come out-of-pocket to pay whatever costs remains after your insurance pays out. Situations like this aren’t uncommon, and when they occur, it’s usually because someone buys the legal minimum liability insurance, or tries to save money on their premium by purchasing an auto insurance policy that doesn’t cover the total value of their vehicle.
Fear of being under-insured, whether from past personal experience or not, can lead some people to go too far the other way and end up with more auto insurance than they need. When that happens, and you end up over-insured, you’re essentially paying for coverage that you’ll never use.
Granted, it’s better to have too much insurance than too little, but why pay for something you don’t need? The key is to have enough coverage to do what your auto insurance is supposed to do – fix your car and/or protect you from any damages you may be liable for.
Discovering the perfect amount of coverage for you will depend on a variety of factors, including:
- Budget – can you afford more than the mandatory minimum as required by the state?
- Type of Vehicle – is your vehicle new or old? Is it high-end, a sports car, or an economy car?
- Frequency of Use – if you don’t drive much, the amount and type of insurance you want will be different than if you drive often
- And more!
Answering these questions yourself before you meet with an insurance agent to buy auto insurance can help a lot. For example, the mandatory minimum liability insurance required by the state is woefully inadequate in almost every situation. It should only be an option if you either can’t afford anything else.