Overinsured: How to Know if You Have Too Much Car Insurance Coverage

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Are you wasting money on auto insurance? 

Auto insurance rates recently hit an all-time high, with a nearly 14% increase (13.72%) in cost from 2022 to 2023. With the average annual premium of a full coverage auto policy now over $2,000, many are looking for ways to lower their car insurance premiums. Having the right car insurance coverage is essential to protecting yourself and your vehicle. But you may be paying more than you need to. Here’s how you can determine if you’re overinsured and make sure you have the right amount of protection for your needs.

How much car insurance is enough?

The amount of car insurance necessary depends on several factors, including where you live, what type of vehicle you drive, and how often you use it. If you live in a state that requires liability insurance, then that should be your minimum coverage requirement. The most commonly required liability limits are 25/50/25, which means:

$25,000 in bodily injury per person$50,000 in total bodily injury per accident$25,000 for property damage per accident

In some states, additional insurance such as medical payments or uninsured motorist coverage may also be required. Beyond these requirements, additional coverages like collision and comprehensive are optional, but may be necessary depending on your circumstances.

How much auto liability should you have?

Liability insurance covers damage caused by accidents in which the insured person is determined to be at fault or liable. Your net worth is a key indicator of your financial health, and an important factor in determining the ideal liability coverage for you. Calculating it is easy. Add up all valuable assets like homes, cars, and investments; then subtract any debts owed to get your total. Having enough protection can offer the peace of mind that comes with knowing your possessions won’t be at risk due to an accident — so make sure you have sufficient coverage!

How much bodily injury liability coverage should you have?

Medical bills and injuries can cost more than property damage, so it’s important to ensure your total bodily injury limit is higher. That way you’ll never be left paying out-of-pocket costs, even if damage costs exceed what you’re worth.

How much property damage coverage should you have?

Your property damage coverage should be enough to protect your assets and what you have to lose. How much is your car worth? Depending on your vehicle’s value, you might need physical damage coverage even if your car is paid for in full.

Ultimately, you should carry the highest amount of liability coverage that fits your budget and your net worth, and is above your state minimum. Many drivers, however, may need more coverage than the minimum their state mandates, and 100/300/100 is an ideal coverage level. You may need to consider other types of coverage such as comprehensive, collision, and gap coverage. There are other extras you can add on, such as rental car reimbursement, rideshare coverage, and more.

How can you tell if you have too much coverage?

Overinsurance happens when the amount of insurance coverage you have is more than what you actually need. Your auto insurance premiums are “use or lose.” This means you will not get the premiums back regardless of use, so overinsuring a vehicle can lead to unnecessary costs. To determine if you’re overinsured, review your current auto coverage. Look at policy amounts, premiums, and covered risks to decide if your coverage is adequate or if you have more than you need.

For example, if the value of your vehicle has decreased since the last time you purchased coverage, then it may no longer make sense to pay for higher levels of collision or comprehensive coverage. These coverages are based on the value of your vehicle. Similarly, if there have been changes in your lifestyle or personal circumstances (such as getting married or having children), then those changes should also be reflected in your policy accordingly. You should also look into any discounts offered by insurers, such as safe driver discounts or student discounts. Qualifying for these can help you further reduce your costs.

Consider factors such as how often you drive and where you drive when deciding on a policy that best suits your needs. Many people are working from home, are in school, or do not drive as much as they used to. In this case, getting a pay-per-mile auto insurance policy may save more than $1,000 per year. You can also choose a lower premium in exchange for a higher deductible. That means you’ll pay more out of pocket if you have a policy claim. Consider opting out of certain add-ons or extras, such as roadside assistance or rental car reimbursement.

Research different companies and compare their policy options before making a decision. This way, you can find one with adequate coverage at an affordable price point. In an ideal situation, you have enough coverage to cover your assets. It’s important to find a balance between being properly protected and not spending more money than necessary on car insurance premiums each month. By understanding exactly how much protection is enough, you’ll be able to avoid paying for services that aren’t necessary for your current situation.

Our best car insurance companies for 2022

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More