Is your car over-insured?

Your next appointment, your shopping list, and yard chores were all on your mind when you last visited with your auto insurance agent. So you nodded while he discussed cheap deductibles and optional roadside assistance coverage and then quickly signed the contract and left. But as you look over your paperwork to renew your policy, you start to question if your expensive monthly premiums are a result of having too much auto insurance. But how can you tell if you have too much insurance?

Before we begin, keep in mind that driving a car with excessive insurance is better than driving an uninsured vehicle. Every state, with the exception of New Hampshire, mandates that drivers have liability insurance, which covers damages to other people’s property and other vehicles as well as injuries to passengers. In some states, you need to get extra insurance to drive lawfully. Failure to maintain these minimal levels of insurance can result in penalties such as points on your driving record, fines, and even jail time. Additionally, getting into an accident without insurance can be quite expensive.

The amount of liability insurance that the law requires you to have may, however, be less than what you are already paying each month. For instance, Florida mandates that drivers carry $20,000 in bodily injury liability coverage and $10,000 in property damage liability coverage, which means that the insurance provider will cover these costs in the event that claims arise from accidents you caused [source: Florida Department of Highway Safety and Motor Vehicles]. If your insurance covers $50,000 in property damage and $300,000 in bodily injury liability, you can undoubtedly reduce your coverage and save money on your premium.

However, your financial condition will determine whether or not this is a wise decision. Your house, income, and certain investments could be the target of a lawsuit if you cause an accident and the losses exceed your insurance coverage. However, you can usually get away with less coverage if you have a modest wage and have little or no assets [source:].

What other sorts of coverage might you not require for your car? Find out by reading on.

Should I reduce my coverage in some areas?

By removing redundancy from your insurance policy, you can avoid your car from being overinsured in addition to carrying less liability coverage. For instance, only a few states require personal injury protection coverage (PIP), which pays for medical and burial expenses resulting from motor accidents regardless of who was at fault. However, if you and your passengers already have health, life, or disability insurance and you know that they will likely cover these costs, you should get the bare minimum of PIP coverage or, if your state’s laws permit it, think about eliminating it [source:]. Although towing and roadside assistance are already covered if you are a member of the American Automobile Association (AAA) or a similar organization, your insurance may pressure you to join up for these extras.

Consider eliminating collision and comprehensive coverage from your insurance plan if you drive an older vehicle. Comprehensive coverage pays for repairs resulting from vandalism, shattered windshields, and other non-collision factors; collision coverage compensates for damages to your automobile sustained in an accident, regardless of fault. For more recent models, this type of insurance may be sensible, and it may even be necessary if you’re leasing your vehicle. However, an insurer will only cover expenses up to the Kelley Blue Book value, which rapidly drops after a few years. If you choose to keep this coverage, you can reduce your premium by choosing a higher deductible, which is the amount you must pay out-of-pocket before the insurer will pay for damage. Additionally, advises against keeping this coverage if the cost is greater than 10% of the value and you have the financial means to cover damages in the event of an accident [source:].

When driving a rented car, it’s also feasible to have too much insurance. Compare the insurance policy of the rental agency with your own personal motor insurance policy. You might even be covered by your own auto insurance policy or by the credit card company you used to make the reservation and pay for the rental, so there’s little chance you need the extra protection the clerk is trying to offer you [source: Deane]. Check your insurance status in advance, and if you’re unsure, buy rental insurance nevertheless. As we’ve previously stated, having too much insurance is preferable to having none at all.

How much coverage do I require?
Different insurance requirements are imposed by each state. To find out what kinds of insurance you need to get, get in touch with your state’s insurance department.

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