How to Determine How Much Auto Insurance to Have
- 1). Learn the minimum requirements for your state. Liability insurance is a mandatory coverage when it comes to automobile insurance. Each state sets forth the minimum liability insurance limits required to meet the financial responsibility laws of the state. Visit your state's Department of Motor Vehicles website to find out the minimum amount of auto liability insurance you are required to carry.
- 2). Check your financial obligation with your lending institution. Pull out your finance contract to see what you are required to carry. Usually the finance agreement states the amount of insurance you must carry to avoid a breach of contract. Keep in mind that the lending institution still has a financial interest in your auto and they want to make sure it is adequately insured.
- 3). Review the lien holder. The lien holder is usually the party that has a financial interest in your car (finance company or bank). If you refinance your car, make sure to change the lien holder on the policy. Even more important, make sure to have the lien holder removed when you have paid off your loan. You don't want the insurance company to issue a claim check to you and a nonexistent lien holder in the event of an auto accident.
- 4). Determine the age of car and the need for physical damage coverage. If you no longer have a loan on the vehicle, you are no longer legally or contractually required to carry comprehensive and collision insurance (aka physical damage coverage). Physical damage coverage protects you, the policyholder in the event of a car crash. It's the portion of the policy that pays to repair or replace your vehicle. It is recommended to maintain physical damage coverage on new vehicles; however, it is not as important for older cars.
- 5). Analyze the deductible size. After determining whether physical damage coverage is necessary, take some time to decide how large or small a deductible you can handle. The larger the deductible the more money you save on premium, but that means you will have to pay the deductible out of pocket for each and every claim. If you cannot afford a high deductible, it's best to stick with a lower deductible and pay the additional premium.