3 Types of Car Insurance Dave Ramsey Recommends Buying

Motorists need to read this to make sure they get the right coverage.

When it comes to car insurance, it can be confusing to figure out what types of protections should be put in place. That's because most states require certain kinds of coverage, but there are many optional add-ons that could be important for drivers to have as well.

Finance expert Dave Ramsey offered some advice on the best kinds of insurance to purchase, and drivers who aren't sure what they should have on their policy may want to take a close look at his recommendations.

Here are the types of car insurance Ramsey recommends

Ramsey explained that there are three specific kinds of auto insurance everyone should have.

"The most important ones are liability, comprehensive and collision coverage," the Ramsey Solutions blog says. "We'll call them the Big Three. Think of them as the basics -- coverage you can't afford to go without. If you have all three, it means you have full coverage."

Ramsey believes liability coverage, in particular, is essential because most states require it. This type of coverage pays out compensation to injured victims of a crash if the covered driver is at fault in an accident.

While most states have certain minimum requirements to meet for liability coverage, Ramsey actually recommends buying more than this amount. "Those state minimums are not nearly enough to protect you. We recommend having at least $500,000 worth of total coverage that includes both types of liability coverage -- property damage liability and bodily injury liability."

Comprehensive coverage is also important because it pays out compensation in case of theft, vandalism, or natural disasters. And collision coverage pays for repairs or replacement of the vehicle if the covered driver is at fault for a crash.

A few other coverage recommendations

Aside from the big three, Ramsey also suggests buying uninsured and underinsured motorist coverage, which pay for losses if a crash is caused by a driver without enough insurance. And medical payments coverage could be important as well, since it pays for out-of-pocket medical expenses when an accident causes injury.

Personal injury protection, which is required by some states and optional in others, is also on his list of coverages to buy as is rental reimbursement, which pays for a rental car for drivers who need one while their vehicle is being repaired. "If you think you'll need this back-up plan in place, it's not a bad idea to add this to your policy."

On the other hand, there are some kinds of coverage Ramsey doesn't recommend, including mechanical breakdown coverage (which pays for some routine repairs), as well as GAP insurance (which pays for the difference between what the insurer pays out on the car and the outstanding amount due on the car loan).

"Our recommended auto insurance coverage? Skip GAP insurance and save yourself a financial headache by buying a used car with cash in the first place. If you already have a car loan, make it your goal to pay it off as quickly as possible so you can drop the GAP coverage and lower your premium," Ramsey said.

Is Ramsey right?

Ramsey is spot on with regards to the types of auto insurance to buy. It's always best to have more than the minimum coverage required by law, because otherwise the costs of repairing or replacing a vehicle could be more than what a driver can afford.