Auto Insurance Made Simple: What You Actually Need

Insurance protects two things:

Other people (if you cause an accident)
Your car (if it gets damaged)

What You MUST Have

Liability Insurance (Required by Law)

This pays when you hurt someone or damage their stuff.

The Problem with "Minimum Coverage":

State minimums are dangerously low (often $25,000)
One serious accident can cost $100,000+ in medical bills
You'll be sued for the difference and could lose your house, savings, everything

What to Actually Buy:

$100,000 per person / $300,000 per accident (minimum)
Costs only $20-40 more per month than minimum coverage
This is the ONE place you should NOT cheap out

Simple rule: Buy as much liability as you can afford. It protects everything you own.

What Your LENDER Requires (If You Have a Car Loan)

Collision & Comprehensive

Collision = your car gets hit
Comprehensive = everything else (theft, hail, deer, fire)

If you're financing, you MUST buy these. No choice.

The Deductible Decision:

Higher deductible = lower monthly payment
Choose the highest deductible you could pay in cash tomorrow
Most people pick $500 or $1,000

What You Should Probably Buy (Even Though It's Optional)

Uninsured Motorist Coverage

The situation: Someone hits you, but they have no insurance (or crappy insurance).

Without this coverage: You're screwed. You pay for your own medical bills and repairs.

Cost: About $10-20/month

Worth it? YES. About 1 in 8 drivers has no insurance.

The Big Decision: Should I Insure My Old Car?

If you OWN your car outright (no loan), you can DROP collision and comprehensive.

Use This Simple Test:

How much is your car worth? (Check Kelley Blue Book)

How much would collision + comprehensive cost per year?

If the insurance costs more than 10% of your car's value, drop it.

Example:

Car worth: $3,000
Collision + Comprehensive: $600/year
That's 20% of the car's value → DROP IT
Save that $600 and use it to fix or replace your car if needed

Exception: If losing this car would be a financial disaster (you can't afford to replace it), keep the coverage even on an old car.

What You Can Skip (Usually)

Gap Insurance

What it is: Covers the difference between what you owe and what the car is worth
Buy it IF: You put less than 20% down on a new car
Skip it IF: You put 20%+ down, or you're buying used
Pro tip: Buy from your insurance company, NOT the dealer (much cheaper)

Rental Reimbursement

Pays for a rental car while yours is in the shop
Cost: $20-40/year
Worth it IF: You have no backup transportation
Skip it IF: You can borrow a car or work from home

Roadside Assistance

Cost: $15-30/year from insurance
Alternative: AAA membership may be better value
Skip it IF: Your car already has manufacturer roadside assistance

The Money-Saving Strategy

Smart Way to Save:

✅ Keep high liability limits ($100k/$300k minimum) ✅ Keep uninsured motorist coverage ✅ Raise your deductible to $1,000 (saves 15-25%) ✅ Drop collision/comprehensive on old cars worth less than $4,000 ✅ Bundle with home/renters insurance (saves 15-25%) ✅ Shop around every 2-3 years

Dumb Way to "Save":

❌ Buying only minimum liability (exposes you to financial ruin) ❌ Skipping uninsured motorist (1 in 8 chance you'll regret it) ❌ Paying monthly instead of in full (adds fees)

Quick Decision Chart

New Car (Financed)

✅ High liability ($100k/$300k)
✅ Collision & Comprehensive (required)
✅ Uninsured motorist
✅ Gap insurance (if you put down less than 20%)
Maybe: Rental reimbursement

Used Car (Financed)

✅ High liability ($100k/$300k)
✅ Collision & Comprehensive (required)
✅ Uninsured motorist
Maybe: Rental reimbursement

Old Car You Own

✅ High liability ($100k/$300k)
✅ Uninsured motorist
❌ Skip collision/comprehensive (self-insure if car worth under $4,000)

Bottom Line

Protect yourself from catastrophe (high liability), protect your assets (uninsured motorist), and don't overpay to insure a car worth less than your insurance costs.

Most people can get good coverage for $80-150/month depending on age, location, and driving record.