This Is Dave Ramsey’s ‘Quick-and-Dirty Answer’ to How Much Car Insurance You Need

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Dave Ramsey believes $500,000 worth of liability auto insurance is the bare minimum you need. 

Buying car insurance is required by law for drivers in most states. But motorists often shouldn’t just stick with the legally mandated coverage; they should generally purchase additional auto insurance as well. Of course, paying for added insurance means more money coming out of a bank account, so drivers don’t want too much coverage either.

To figure out how much is enough, it can be helpful to look at a suggestion from finance expert Dave Ramsey about the amount of coverage most people need. Here’s what Ramsey had to say.

Dave Ramsey suggests buying this much auto insurance coverage

Ramsey has a “quick-and-dirty answer” to the amount of liability insurance drivers should buy.

“You need $500,000 worth of liability insurance,” Ramsey said on his blog. “That’s the type of auto coverage you’re legally required to have to drive anywhere. And that’s the bare minimum amount of coverage we recommend for all drivers.”

Ramsey believes buying $500,000 of liability insurance is crucial because “state minimums aren’t nearly enough to protect you.” Many states only require you to buy around $10,000 or $25,000 in coverage per person and around $50,000 or $100,000 per accident. But since car accidents can easily have multiple victims and the cost of injuries can add up quickly, Ramsey doesn’t think the state minimums will provide enough coverage in case something goes wrong.

Ramsey is absolutely right about this. If a driver causes an accident and a few people suffer serious injuries, the cost of hospital bills and lost wages could easily exceed the minimum coverage limits. Those accident victims could pursue a claim against the at-fault driver personally to cover other costs. But if a driver has purchased $500,000 in coverage, it’s far less likely this will happen.

In fact, people with a very substantial amount of assets who face a high risk of personal losses if they cause a crash may want to think about getting even more coverage or investing in an umbrella policy that pays excess losses once their auto insurance has hit policy limits.

Ramsey also suggests buying these kinds of car insurance

In addition to making sure drivers have a sufficient amount of liability coverage, Ramsey also suggests getting other kinds of insurance in certain circumstances. This includes comprehensive coverage that would pay for losses not resulting from a collision, and collision coverage, which pays for a policyholder’s own crash-related losses no matter who was to blame.

“If you can’t replace your car with cash, you should get collision coverage,” Ramsey explained. “Without it, you’ll be on the hook to replace your car if it’s totaled.” He also said comprehensive coverage is important for the same reason — “to protect your finances from life’s flukes.”

Ultimately, drivers need to remember the point of insurance is to transfer risk. It is usually worth paying premiums for coverage for any losses that a motorist could not easily afford to pay out of their own pocket. And it’s typically better to have too much coverage rather than too little in case disaster strikes.

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