Setting coverage levels is a crucial part of buying an auto insurance policy. In most states, you'll need to choose liability coverage levels at a minimum. Each state sets its minimum coverage levels for both bodily injury liability and property liability. Depending on where you live, you may also have a minimum uninsured/underinsured coverage level.
While these legal requirements stipulate the lowest amount of coverage you can carry, they won't help you select the right amount for your situation. Sticking to the bare minimum can save you some money, but it's not the only factor to consider. If you're wondering where you should set your auto insurance policy levels, keep these three tips in mind.
1. Know What You Need to Protect
If you own a home or have assets of any kind, then liability coverage helps to protect you in the event of an at-fault accident. Don't forget to include retirement accounts in your calculation! The more assets you have, the more financial exposure you'll have following an accident that you cause. Spending too little on liability insurance can mean significant risk.
A good rule of thumb is to use your net worth to guide your total bodily injury limit. Since medical care tends to be the costliest part of an accident, this should provide you with a reasonable cushion of protection. Note, however, that there's no guarantee a lawsuit won't exceed this amount. If you have assets to protect, then more coverage will always be better.
2. Do Focused Comparison Shopping
Most people only look at the bottom line when shopping for insurance, but individual coverage rates can vary significantly between providers. One company may offer cheaper liability coverage, while another will charge more for collision or comprehensive. If you're attempting to maximize your options for liability insurance, then pay attention to line-item costs when comparing quotes.
This comparison can also be crucial if you have many assets to protect since the upper limit on liability coverage may also vary between policies. You'll want to make sure the company you choose strikes the right balance between cost and maximum coverage level.
3. Keep Your Budget and Priorities in Mind
Having assets to protect doesn't mean that you can afford to pay outrageous insurance rates, of course. Increasing your coverage limits will always mean spending more money, so it's crucial to keep both your budget and priorities in mind. If you're primarily concerned about protecting your finances, then one good option is to reduce collision or comprehensive coverage to add more liability.
Moreso than other types of coverage, your financial situation should dictate your liability policy levels. Spending a little more for a higher limit can potentially protect your finances from disaster in the future.