Auto insurance coverage levels are typically expressed in a three number format, that looks like XX/XX/XX.
Each of the three numbers has a specific meaning:
XX/XX/XX – The bodily injury liability maximum for one person injured in an accident,
XX/XX/XX – The bodily injury liability maximum for all injuries in one accident (which is why it’s almost always higher than the first number), and
XX/XX/XX – Property damage liability maximum for one accident.
The primary consideration regarding how much auto insurance you need is usually determined by your state’s minimum auto insurance coverage requirements.
For example, in New York, the minimum requirement is 30/60/25, meaning that the requirements are $30,000 for bodily injury liability for one person, $60,000 for bodily injury liability for all injuries from one accident, and $25,000 for property damage liability per accident.
This number varies from one state to the next. In California, the required minimum coverage is 15/30/5; in Illinois it’s 25/50/20; Florida 10/20/10; Texas 30/60/25.
Many people carry nothing more than the state-mandated minimum. This can be a problem, however, particularly if you have a significant amount of assets. While the primary purpose of insurance is to cover car damage and personal injuries, it has an equally important purpose of protecting your financial assets.
The less coverage that you have – down to the state required minimum – the more exposed your financial assets will be to claim or legal action by an injured party. If you have a substantial amount of net worth, you want to carry considerably more than the state-mandated minimums.
How much does the deductible effect your premium?
Your car insurance deductible is the amount you have to pay out-of-pocket in the event of claim before insurance kicks in.
Your premium is the amount you pay annually for car insurance.
A favorite way to lower car insurance premiums is to increase your deductible. Sometimes it makes sense, other times…it could be a disaster waiting to happen.
Roughly speaking, if you increase your deductible from $500 to $1,000, you might up to 20 percent on your auto insurance premium. At the extreme, increasing the deductible from $250 to $2,500 could even save you 50 percent.
That’s a big savings, but that doesn’t mean that you should raise your deductible. Before doing so, make sure that you can cover the deductible.
For example, let’s say you have a $500 deductible on a policy that costs $1,500 per year, and you can save $300 — or 20 percent — by increasing the deductible to $1,000. Understand that the $300 you’re saving will more than be offset by the additional $500 you’ll need to put out of pocket to pay the deductible on just one accident.
Here’s something else to consider…increasing your deductible only makes sense if you have the savings to cover it. If you normally have several thousand dollars in savings, increasing the deductible won’t be painful, since you’ll have the cash to cover it. But if you normally have an empty bank account, you’ll be better off with the lower deductible.
Never forget that protection — and not state requirements — are the primary purpose of having auto insurance, and be sure to get the coverage level that you need.