How Much Car Insurance Do You Need

Getting the right insurance policy can be really tricky, some people just pick the minimum requirements or just dive right in and take everything available to them. Sometimes it can be an overwhelming process leaving you in a spot where you pay more than needed. 

Justine from Debt Free Millennial’s explains exactly this. In her video How Much Car Insurance Do you Need you’ll be able to become a much smarter shopper! I’ve attached her video below for you to take a look at, but in all honesty, if you don’t want to, you can read the transcript as well!

Hi, what’s up? It’s Justine from Debt Free Millennials, the channel for all things millennial money and debt-free living. If you want to learn how to live a debt-free life subscribe to the channel because today I’m walking through car insurance. This can be super confusing for a lot of us.

I have to tell you I had four separate conversations with my students in Budget Bootcamp and the Freedom Project. If you don’t know what those programs are, I will link to them in the description below. I was talking to the Debt-Free Millennial students and I was shocked, because so many of them were, in my opinion, overpaying for car insurance. We had talked about, “Oh, well my parents had this for my car. Then when I got the title, I just took the same coverage.” While that may be really easy for you to do, you could actually be throwing a lot of money down the drain. Let’s talk about how much car insurance you really need.

Step one. You need to understand the three types of car insurance coverages available. That includes liability, comprehensive, and collision. Okay, so liability coverage, liability insurance covers any bodily injury or property damage when you have an accident that is your fault. In other words, if you were to hit somebody, your insurance would cover the cost of the repairs to that car, or if you caused any harm to the person like physical injury, liability insurance. This is the basic type of insurance that everybody needs. It’s illegal to not have this type of insurance. Make sure you have it, so bodily injury liability, think of this as medical cost, property damage liability, think of this as the cost of the repairs to the car.

Comprehensive insurance covers any repairs to your car that did not result from a collision. Let’s say your car got broken into, a tree branch fell on top of it, your car caught on fire unexpectedly from a natural disaster, hailstorm came around. Any of those things would be covered by comprehensive insurance. The last type of insurance, number three, is the collision insurance. Collision insurance covers the cost of repair for your vehicle if you are involved in an accident. It doesn’t matter whose fault it is, whether it is the person who hit you or you hit somebody else. Collision coverage will cover the cost of repairs to your car.

Your own liability insurance does not cover the cost of repairs towards your car unless the other person is at fault, and then their liability insurance would cover the cost of your repairs. Let’s say the other person didn’t have enough liability insurance to cover the cost of your repairs, this is where collision coverage would help you out. One important thing to note here is if you have a car loan you may be required to have full coverage which means all three types of insurance on your car. While you may not have the opportunity to pick and choose the different types that you want, you do have the option to shop around different insurance companies to get the best rate.

Step two, you need to determine how much car insurance you need. I will say this, it is a really good idea to maximize your liability coverage. Generally, most insurance companies will max out in three different areas. This would include personal injury, total injuries per accident, and property damage. When you go into your insurance coverage, you can log on to your account. You should see three different numbers. The max generally for personal injury is $250,000. The total injuries per accident is $500,000. The property damage max is $100,000. I wanted to show you guys exactly what type of insurance I’m carrying with my 2015 Subaru Forester so you can get an idea.

I have maxed out bodily injury and property damage liability to those exact numbers, 250, 500, and 100. It’s a good idea for you to max this out if your numbers don’t match mine. To give you an idea of how this would impact your premium, I went ahead and went inside of my insurance coverage. I did some changes hypothetically to see how it would impact my rate. From the drop-down menu, and I’m on Progressive right now. I could select from the 250, 500, 100 and let’s say that I just dropped it down to half that. 100 per person, 300 per accident, and 50 per accident, and see what that does for my car insurance premium.

You can see it actually reduces my premium from $215. This is paid out every six months, to $197 for a six-month premium. My premium overall would drop $14 and 78 cents if I switched within my policy period. If you look at the effect of the entire six month period because I pay my car insurance every six months, which we’ll talk about how that saves you money as well. That’s the difference between 215 and 197. It only changes my six-month premium by $20. Let’s get this straight. Cutting my liability in half only saves me $20 for six months. It only saves me $3 and 33 cents per month. I don’t know about you, but paying just three dollars extra to literally double my liability, I think that’s a pretty good deal.

Maximizing your liability insurance is key. Next, you’re going to take a look at your comprehensive coverage. It’s pretty inexpensive to add, so I would suggest including this as well. Here’s a very important note about comprehensive and collision coverage, raise your deductible. If you have $1000 in your oh shit fund, that’s set aside for emergencies. If you have at least $1000 in savings, raise your deductible on your comprehensive and collision coverage. Just for kicks, I’m going to show you what happens when I reduced my deductible from $1000 to $100. Remember, comprehensive insurance covers any repairs to your car that did not result in a collision.

These are things like natural disasters, theft, that sort of thing. When I went into Progressive and I changed my comprehensive deductible from $1000 to $100, that was the difference between paying $23 two paying $76. It actually is a big difference because it costs me $53 more. The change raises my premium from $380 every six months to $433. That’s a difference of about $8 and 83 cents additional per month or $106 per year. A great way to save even just $100 per year in my case, is just raising my deductible. Now, let’s see how changing the collision deductible from $1000 to $100 changes things.

This is insane, but when I changed it from a $1000 deductible for collision coverage which was $105 for a six-month premium rate, dropping it to $100, increased my premium to $290. That’s insane. This by far is the biggest swing impacting my premium by lowering my car deductible from $1000 to $100, I effectively increased my premium, basically the money that you pay towards the car insurance company just to keep your car protected. I went from $380 for a six-month period to $565. That’s a difference of $370 per year. If you do anything, if you take away anything from this video, I highly suggest that you increase your deductible on your collision insurance to $1000.

You’re probably wondering, why is that such a big difference in a lower collision deductible than a higher one? Well, what you are basically telling the insurance company is that you are willing to take on less risk if somebody hits you to pay for that out-of-pocket repair costs, then the insurance company. The insurance man be like, “Oh, you don’t want to pay more for the collision coverage? Then we’re going to charge you more because you are a more risky risky customer to us and we’re afraid that somebody’s going to hit you and you’re not willing to pay more upfront out-of-pocket costs.”

That’s why it’s so important to have at least $1,000 in your emergency fund. This is the oh shit fund that I keep talking about, because if you have at least that much money, you have the opportunity to save yourself some mega bucks on your insurance premium.

Step three is to get multiple quotes from multiple car insurance companies. You’re going to have to do a bit of legwork to shop around, but now you know what to look for, right? Liability, you are going to max out. In my case, it was 250, 500, 100. You’re also going to opt for comprehensive and collision coverage with a $1,000 deductible in each. Got it? Then, you’re going to request and put that out there to different insurance companies.

Now, I recently used a tool called GaBi. That’s G-A-B-I.com. What I did was I downloaded my coverage policy from Progressive. I uploaded it into GaBi system and I said, “Keep my coverage the same.” For you, you might opt to change your coverage to what I listed out. Then, they’re going to email you and say, “Hey, these are all the car-insurance-company quotes that we selected for you that could be a good fit. Then, you can opt to choose to switch through GaBi. It’s really simple. I’m going to drop my link below so that you can sign up and see how it goes.

Because I had already maxed out my liability and my deductibles for comprehensive and collision, I actually was told by GaBi that I was getting a good deal, so I didn’t make any changes. Then, they’re just going to keep that on record so that, if there was a new quote from another insurance company, they would be able to notify me and then I can make a switch. You do not have to be brand-loyal to these auto insurance companies. They don’t care. They want your money. What I really like about this is I’m okay switching so that I can get the best deal and the best coverage.

Once you get the multiple car insurance quotes and you’re able to make some adjustments, step four is optimize your car insurance to get the best rate. Now, one thing that I really liked about Progressive and I know a lot of other car insurance companies do this is you can bundle other insurance policies with car insurance. With Progressive, I bundled my renter’s insurance and auto insurance into one and we get a slight bundle discount.

My other trick to saving money on car insurance is opt to pay the six-month premium rate instead of the monthly rate. When you pay the monthly rate, you’re actually paying slightly more than if you were to pay the six-month rate. In my case, my monthly rate was $72 and my six-month rate was $380. Well, when you divide the $380 out by six months, it only ends up being $63. That’s a difference of $9 that I’m saving, or $108 per year. I don’t know about you, but I’d rather save that $108 for something really nice.

A really quick trick to do this is simply add in that six-month premium to your budget and budget out for it monthly. It still feels like I am paying my car insurance monthly but instead of giving it to an insurance company, I’m just setting it aside in my account and when that six months is due, I will go back in, pull that money out of my account and pay for it, because I’ve already saved up for it monthly.

I want to mention a side note here. Your car insurance premium is impacted by your driving history. If you’ve been involved in accidents in the past and recently, that could impact your premium rate, so take that as a caveat. Fortunately, knock on wood, my husband and I have not been involved in an accident I think since we were married. We’re really safe drivers, I have to say.

Also, if you have an older vehicle, your car insurance premium might be a bit higher. That’s because insurance companies seem to think that older cars are less safe. I don’t know about you, but I drove a 2002 Ford Escort ZX2 for 11, 12 years and it was really safe. Kyle had driven a 2003 Jeep Grand Cherokee. What was really interesting about that is when we moved to California, the insurance premium was $492 for our six-month premium, and then when we bought our 2015 Subaru Forester in cash, our insurance premium dropped from $492 to $380 because it was a newer vehicle.

All right, so to recap all this, I know I unpacked a lot of stuff for you, but in order to know exactly what car insurance you need is remember the three types of car insurance types; liability, collision, comprehensive. Your liability, you are going to max out 250, 500, 100. Your comprehensive and collision raise your deductible to $1,000 each. You’re going to get multiple quotes from multiple companies and make the switch. You’re going to optimize. Pay the six-month premium as opposed to the monthly premium and see how you can bundle other existing insurance policies.

Drop me a comment below. Was this video helpful? Was it more confusing? I’m going to also link my blog post so that you can see the written steps, so that you can pull that up side by side as you’re working on changing your car insurance so that you can save money. I’d love to learn how you’re saving money with this strategy and these instructions. I’ll catch you in another video.