How Much Car Insurance Do You Need? Here's What Dave Ramsey Thinks

Dave Ramsey says you need at least this much car insurance.

Driving without auto insurance is not only illegal, but there are serious consequences if you don’t have the coverage you need. Having the right amount of coverage will protect your financial assets. The good news is that premiums are not that expensive. Here are the types of policies that Dave Ramsey recommends as well as the recommended minimum.

Car insurance types

According to Ramsey, there are three important types of car insurance to consider: liability, comprehensive, and collision coverage. With all three, drivers will have full coverage. Liability coverage pays for property damage and medical injuries to other people as a result of an accident. Every state requires liability except for New Hampshire and parts of Alaska. According to Ramsey though, the state minimum required coverage is not enough. He recommends having at least $500,000 worth of total coverage that includes property damage liability and bodily injury liability. 

Comprehensive coverage helps pay to replace or repair your vehicle if it's stolen or damaged in an incident like a fire, storm, or other natural disaster. Collision coverage helps pay to replace or repair your vehicle if hit by another vehicle or object. Collision covers your vehicle where liability covers other people’s vehicles. Ramsey recommends that drivers get both comprehensive and collision. 

Ramsey also recommends looking into uninsured (UM) and underinsured (UIM) motorist coverage, medical payments coverage (MedPay), and personal injury protection (PIP). Some of these may be required depending on what state you live in.

Optional car insurance coverage

Here are other types of coverage that insurance companies may offer. Below is a list with what Ramsey either recommends staying away from or getting the optional coverage:

• Guaranteed Auto Protection (GAP): GAP covers the remainder of what you still owe on the loan and the market value of the car should it be totaled. Ramsey recommends skipping GAP and buying a used car or paying the new car off as quickly as possible.
• Mechanical Breakdown: Ramsey recommends skipping this coverage and using your emergency fund to pay for emergency car repairs.
• Rental Reimbursement: If your car is being fixed, this covers the cost of your rental car. Ramsey states it is a good idea to add this to your policy.
• Roadside Assistance: If you don’t have something like AAA, Ramsey says this can come in handy if you are caught in a bind.
• Umbrella Insurance: This is an extra layer of coverage that kicks in after you’ve met the limits of your liability coverage. Coverage is typically $1 million to $5 million. If your net worth is higher than $500,000, Ramsey states this policy is a must.
• Glass Coverage: This will cover the cost of replacing or fixing your windshield. Ramsey says the cost of the added coverage may outweigh the benefits. 

Should you choose a high or low deductible?

If you choose a high deductible, then your insurance company will lower your premium. On the flip side, with a lower deductible, your premiums will be higher. Ramsey recommends working with an insurance agent to make sure the higher deductible is worth it by running a break-even analysis.

For example, if you raise your deductible from $500 to $1,000 and it reduces your premium by $50 a year, it will take 10 years to break even. If it reduces your premium by $150 a year, then you will break even in three years. This makes much more sense.

Getting auto insurance is the law and the state minimums may not be enough. Ramsey recommends getting the coverage you need, especially if it can protect you from budget-breaking car accidents.