Auto insurance premiums have been on the rise, and insuring a car is getting expensive for many drivers. Those who are not happy every time they have to pay their auto insurance premiums may be looking for ways to reduce the cost of covering their vehicles.
There is one way to save a fortune on coverage — but anyone considering it should think twice, because it’s a terrible idea. Here’s why pursuing this money-saving opportunity could turn out to be a financial disaster.
Minimum coverage auto insurance is a lot cheaper than full coverage
Opting for minimum coverage auto insurance makes a dramatic impact on auto insurance premiums, so those looking to save might be tempted to opt for minimum coverage only.
According to The Motley Fool Ascent’s research on car insurance costs, the average cost of minimum auto insurance coverage was $787 annually, or around $66 a month in 2023. By contrast, the average cost of comprehensive coverage was $3,296 or around $275 a month.
Paying only around one-quarter of the price of comprehensive coverage can seem really attractive. After all, who wants to spend hundreds of dollars monthly when they could spend under $100? The problem is, while this might appear on the surface to be a good idea, it can actually be an extremely expensive mistake that could turn into a disaster for most people’s personal finances.
Read more: check out our picks for the best car insurance companies
There’s a huge risk to getting only the minimum auto insurance required
The big problem with getting only the minimum insurance coverage is that it covers almost nothing. Basically, in most states, the only coverage most people are required to buy is liability insurance. This pays for damage the policyholder causes others, but none of the policyholder’s own damages.
And states also typically set pretty low limits for the amount of liability insurance required. For example, a driver might only be required to buy $10,000 per person and $20,000 per accident in protection, depending on where they live. That’s not very much if the victims of a crash suffer even very minor injuries.
So, a driver with minimum coverage would be able to pay for pretty minor losses they cause to others. But if they seriously injure or even kill someone, their insurance wouldn’t come close to paying for all losses, so they could be sued personally. And if they damaged their own car or their own car was totaled or stolen, their insurance would not pay anything because they’d be lacking collision coverage (which pays for the policyholder’s crash losses) and comprehensive coverage (which pays for non-crash losses).
The savings aren’t worth the risk
A driver might save $2,509 per year in auto insurance premiums based on comparing the average cost of minimum insurance versus more comprehensive coverage. But if they damaged their $50,000 car, they’d have to pay entirely on their own to repair or replace that vehicle. It would require about 20 years of setting aside the premium savings in order to break even for that loss.
The bottom line is, the goal shouldn’t be to get the cheapest possible auto insurance. The coverage is too important because so much can go wrong — and problems can be so expensive with a vehicle. Just about every driver should pay up for full coverage insurance to protect their assets.
Read up on the differences between liability vs. full coverage policies to see some of the specifics of what a full coverage policy will pay for that liability insurance won’t. Then take the time to decide what types of insurance are necessary to protect your assets, and put that coverage in place today.
Our best car insurance companies for 2024
Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
Doing This Could Save You a Fortune on Auto Insurance. Too Bad It’s a Terrible Idea was originally published by The Motley Fool
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.