Wednesday, January 20, 2021

How much car insurance does Clark Howard recommend?

 Clark Howard, of the Clark Howard Show, offers a litany of advice on insurance related topics. Clark Howard car insurance advice helps you decide things like which companies are known for their customer service, how to save money on your costs, and which policy to choose. But what about how much insurance to take out once you’ve chosen the company known for customer service? 

Exactly how much car insurance does Clark Howard recommend?

First of all, there is no one-size-fits-all solution. Clark Howard does not recommend a single figure for the amount of car insurance every single person should take out. What he does recommend is evaluating other financial aspects like home ownership and assets as an influencer on the total dollar amount. 

Assets matter 

Perhaps the biggest, overall impact to how much car insurance Clark Howard recommends for you is the state of your assets, like whether you rent your house or own it, what investments you have, and how many other assets are under your name. 

Why does this matter?

Because car insurance does not stop at merely fixing a dent when you miss the parking space, or replacing the windshield after a rock came bouncing off the highway. 

It’s about the car repairs, the damage to the cars in the event of an accident, possible bodily harm to yourself or others, medical bills, and unexpected costs which could eat away at your assets. 

If a business owner goes under, they might have to sell all their business assets to cover the debt, even if that debt was unrelated to the core business. Similarly, if you are at fault in a major car accident and other people or property is damaged, you might have to sell all of your personal assets to cover the debt. 

Insurance is there to prevent this from happening. Choosing how much car insurance to take out is contingent upon the following:

Whether you own or rent

Do you own your home or do you rent? If you are a homeowner, you need to consider how many assets you have in addition to the vehicle that you need to protect (and ensure you insure your home). 

If you rent…

.... And your assets are limited, you can get away with whatever minimum requirements are in effect in your state. With little to no assets, as a renter, even if you are at fault in a major accident, there isn’t really anything the other party can take from you. 

If, given limited assets, you could not possibly cover the cost of losing your vehicle completely, be sure to maintain comprehensive and collision coverage regardless of cost.

Minimum Requirements

Let's take a look at those minimum requirements. 

In almost every state you need to carry liability car insurance which is the type of insurance that takes over if you are found at fault for a car accident, if you injure someone, or if you damage their property. 

Liability is further divided into two sections:

  1. Bodily injury liability which, as the name suggests, pay for any physical injuries to other people
  2. Property damage liability, again another straightforward name, which pays for any damage to another person's car or property 

Each state has minimum levels of liability requirements usually displayed as a set of 3 figures such as: 25/50/10. 

The first figure refers to the amount of coverage for each person who sustains bodily injury which in this example will be $25,000. 

The second figure is the maximum coverage for the entire accident which in this example is $50,000. 

The third figure is the amount of coverage for property damage with using this example is $10,000.

Note: Liability coverage does not provide you with any insurance for your injuries or damage to your property.

If you own…

.... And you have some assets (under 1 million dollars) then your coverage should be a minimum of $250,000 for bodily injury and $500,000 per accident, or 250/500. 

This level of protection will go a long way for most homeowners in protecting them from having to sell their home and use the money to pay off the debt from a car accident. 

Remember, the injured party will try and come after whatever you have to cover their medical bills or property damage--unless you have insurance enough to pay them. 

One important note though is that your insurance requirements are going to change, over time, as your situation changes. 

People often forget to increase coverage when they increase assets, but that’s exactly what has to happen. 

  • Get a raise at work and buy a new car? Scale up your coverage. 
  • Sell your first home and buy a second, slightly bigger home? Scale up your coverage. 
  • Promoted at work and given stock options? Scale up your coverage. 

If you own…

.... And you have assets over 1 million dollars, the same 250/500 policy will be an effective minimum, supplemented by an umbrella policy. 

An umbrella policy works like an umbrella, hanging over your other insurance, there for a seriously rainy day. Should you get involved in a major accident, the umbrella policy steps in where your other policies end. These are for homeowners with more serious assets though, as they are only sold in multiples of $1 million. 

How to Save

If the costs of state minimums, or the 250/500 requirement, seems too high for you, there are ways Clark Howard recommends ways to save on your policy:

  • Raise your deductible to at least $1,000.
  • Avoid filing small claims.
  • Take a state approved defensive driver class. 
  • Add anti-theft devices to your car if you don’t already have them. 
  • Drive as safely as you can. 
  • Combine policies, for multiple cars or house and car.

Remember, the goal is insurance is to be there when you need it, protect your assets, and prevent you from losing everything because of an accident. Make sure you have the right amount of coverage based on your situation, and that you scale up or down accordingly.

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