How Much Should I Spend On Car Insurance?

We all know car insurance is a legal requirement of driving. What we don’t all know is how much insurance we need, or how much it should cost. It’s a tricky question – but there’s no single answer for everyone. It all depends on your vehicle, driving habits and coverage requirements. If you believe you’re spending too much, think about where you stand in each of the following areas:

Are You Financing?

Are you driving a financed vehicle? If so, you are generally required to have full coverage until the loan is paid off. Lenders know that if you damage a financed car, you’ll probably spend your money fixing it instead of making loan payments. A damaged car is also difficult or impossible to resell. By requiring full coverage, lenders ensure that your vehicle can be repossessed to satisfy your debt to them.

However, if you own your car outright, full coverage is not required at all. In fact, if you truly don’t need full coverage, dropping it is the quickest way to lower your insurance costs. At the extreme end of the spectrum, liability insurance – the bare minimum amount required by law – can cost 20%-50% less than full coverage. Liability insurance covers only damage you cause to other drivers (not damage to your vehicle.)

Your Age

Many drivers believe they are being charged too much by their current insurer. Are they right? Perhaps – but examine why insurance companies charge so much before jumping to conclusions. Insurance companies set their prices according to risk – the likelihood that you’ll get into an accident or put in a claim. One major risk factor all car insurers take into account is age. Young drivers are considered especially risky. This explains why a frustrated 16 year old is unlikely to find vastly lower rates by switching companies – the problem, unfortunately, is his current age group.

Value Of Your Car

Another risk factor car insurers look at is the value of your car. To an insurance agent, a brand new Mercedes isn’t an impressive luxury car – it’s a massive potential liability. If your Mercedes gets smashed up or stolen, your insurance company will pay through the nose to fix or replace it. Insurers would go bankrupt charging Mercedes drivers the same rates as Toyota drivers. That’s why people who buy expensive cars are often cautioned about the higher insurance rates they’ll pay.

If lowering your insurance costs is important to you, consider driving a less expensive car. This alone will cause an insurance company to offer you rates much lower than what you pay now.

Your Deductibles

Every insurance policy specifies a deductible, or an amount you agree to pay before insurance coverage kicks in. When you get into an accident or have your car stolen or vandalized, you are liable to pay that amount first. Only then will your insurer chip in the rest. Having read this far about insurance companies and risk, you can probably imagine where this is headed.

The higher your deductible is, the less risky you are to the insurer. Again: look at it from their perspective. Would you charge lower rates to someone who pays a $1,000 deductible or someone who pays only $500? Clearly, the first person is a safer bet – more of his own money is at stake. To spend less on car insurance, tell your agent to raise your deductibles and recalculate your premiums.


Many drivers are unaware of the discounts available to them. While each car insurance company offers different discounts, you should inquire about:

  • Car safety system discounts
  • Discounts for keeping your car in the garage
  • Discounts for driving a car only for pleasure (or on weekends)
  • Good student discounts (usually tied to a certain GPA or full-time student status)
  • Bundling discounts (for buying homeowners insurance from the same company)

These discounts won’t always be offered to you. Rather, you’ll need to inform your agent when your behavior or lifestyle changes warrant one of the discounts above.

Expected Needs

You should also take your expected coverage needs into account. For example, many policies (though not all) include stipends for you to rent a car if you lose yours. This protection adds to your insurance premiums, and if you don’t anticipate ever needing a rental car, it’s probably a waste of money.

On the other hand, if the sudden loss of your car would be devastating and you absolutely would need a rental, paying for this protection makes all the sense in the world. Obtain a copy of your policy and examine each item with this mindset. Do you really need it? Is it worth paying for? Circle any provisions or protections you feel are unnecessary and then instruct your agent to get rid of them.

About the Author: Keith West is a freelance writer for Napleton’s, a Chicagoland Chrysler dealer.