Insurance: What coverage and how much do you really need?

Insurance plays a central roll in the privilege to drive a vehicle. It can be a costly affair, especially for those of us who have poor driving habits or insure expensive vehicles...

Currently there is an observable trend of people purchasing ever decreasing amounts of insurance. This is primarily because people have less and less money available to spend upon insurance. This indicates that we are gambling ever more with our financial security against the short term savings of purchasing less insurance. What does this mean in real terms and what can be the consequences of this trend?

Most people, myself included until recently, tend to purchase only the bare minimum of insurance coverage that is required by law. Bare minimum insurance is liability insurance, just so you understand, liability insurance insures
not you, but instead the person or object that you damage in an accident. Financially you are only covering the other person in an accident. Your vehicle and body is not insured, anything you loose as a result of the accident (if it is your fault) is gone forever. Minimum coverage is never really recommended, unless your vehicle is such a Junker that there really is no benefit in insuring it as an asset.

Always make sure that you have some form of injury insurance. As I live in Canada I don’t really understand how the system works down there in the United States so you Americans are on your own here, I don’t have to worry about it. My understanding is that you should be looking at things such as personal injury coverage and Medical payments insurance. (How confusing)

Collision and Comprehensive insurance coverage are the types of insurance that are there to protect your property in the event of an accident. These are optional but highly recommended especially if your vehicle is even somewhat valuable, or if you require it on a daily basis. Collision coverage will pay for your vehicles repair following an accident. Since repairs tend to be quite expensive, especially as vehicles are built with crumple zones nowadays. Make sure that if your car is expensive to fix you have insurance coverage! Comprehensive coverage comes into play in other situations, such as vandalism, fire, theft. Comprehensive insurance is there to help out generally when there is damage to your vehicle, but not as a result of an accident. Even my Junker has comprehensive… since I am legitimately worried that it is going to erupt in flames any moment.

So take stock of your situation, are you a high risk driver or not? Are you able to financially survive a serious accident or not? Can you make due without a vehicle for a while or can you replace it out of pocket? It is always going to be a gamble, be smart about it and try and cover yourself as best as you can.