How Much Auto Insurance Should I Buy?


carinssHow Much Auto Insurance Should I Buy?

There are two correct answers:

First, you need enough insurance to drive legally.

Second, you need enough insurance to protect your life and your financial situation from turning into a living hell if you have a car accident or worse hit a pedestrian. This can be as easy as buying the minimum coverage mentioned above or it can be much more complicated depending on your situation.

How Much Liability Do I Need?

If you own only the clothes on your back and a car on its last legs, you’re probably what is known as “judgment proof.” You may lose if someone decides to take you to court, but you have no real assets to take.

However, if you have savings or a home or a business or multiple homes – in other words, you have a lot of assets then you are not “judgment proof”. In this case, you want to get as much insurance as you can afford.

In the options below, the first two numbers refer, in thousands, to bodily injury liability, which pays the hospital bills of anyone you injure. The first number is the per-person limit, the second is the per-accident limit. The third number is the property damage liability limit, which would repair or replace the car or property of anyone you hit.

  • State minimum: In Massachusetts, this is not enough to pay for serious injuries or to replace a newer car. It is only enough to drive legally. This is 20/40/5
  • 50/100/50: As your net worth rises, increase your coverage to match. Your net worth is the value of what you own minus what you owe. Assets would include your home’s current value, any other real estate, your car, stocks, checking and savings, retirement accounts, jewelry, household items, and the cash value of a life insurance policy. Liabilities would include the outstanding balances on mortgages, car loans, student loans, and credit cards.
  • 100/300/100: This is the level we recommend most. This would be appropriate for middle-income homeowners. The cost of liability insurance, once you have bought the basic levels, does not increase exponentially. Moving to 100/300/100 will not cost twice as much as 50/100/50. You may find the additional coverage will cost only a few dollars more a month.
  • 250/500/100: If you own an expensive home or have saved diligently, you may be worth millions even though you do not consider yourself rich. We would suggest supplementing even this high level of coverage with an umbrella liability policy that extends your protection by $1 million or more. It’s relatively cheap.

Umbrella Insurance

If you have a significant net worth then you should seriously consider an umbrella policy. This covers liability above and beyond your other insurance policies. Popular amounts range between $1 million and $5 million. The cost of this type of policy is relatively cheap compared to what it would actually payout.

Remember, how much auto insurance should I buy is a personal decision and just liability insurance will not repair your own car if you cause an accident. If you have any questions please call my office and we can go over your different options and pricing.

Indian Orchard (413) 543-3800 – Forest Park (413) 781-3800