A Suze Orman exclusive

In my opinion, minimum coverage is not good enough when it comes to car insurance.

In auto-insurance-speak, a typical minimum coverage policy might be expressed as 30/50/20. This means you have $30,000 worth of bodily injury coverage for each person, with a $50,000 limit per accident, and then $20,000 in coverage for property damage. I don’t care if that’s good enough to meet your state’s requirements. Your goal should be to truly protect yourself in the event of a serious accident. I recommend aiming for a policy with 250/500/100 coverage. What you want to avoid is having someone sue you and come after your personal assets—such as your home—to settle an insurance claim. Putting all your finances at risk to avoid paying a more expensive premium today is not the right approach. You want to truly be insured, not just “sorta” insured.

And a special note about the medical coverage options in auto insurance. I advise you to be extra cautious about turning down or skimping on this coverage just because you have a good health insurance policy. That may be great for you, but remember that you need to insure everyone who’s in your car.

If you are buying an expensive car, I’d also recommend seeing if your insurer offers “replacement cost” coverage. Typical coverage only pays you the depreciated value of your car, not what it will cost you to go out and buy the same car again. So given that cars start depreciating the moment the two front wheels leave the dealer lot, you might want to fork over the bucks to make sure, at least for the first few years you own your car, that you won’t be caught short if your car gets totaled.

At the other extreme, if you are driving around a good ol’ beater then you might be able to shave some dollars off of your premium by dropping the collision damage coverage altogether. If you figure you won’t be able to get more than a few thousand dollars for your car, then it probably doesn’t pay to have that coverage, especially when you factor in what the actual payout would be after the deductible.

Speaking of which, just like with health insurance, I think the smart move is to opt for a higher deductible on your auto coverage. Go for $1,000 rather than $250 or $500. Keep in mind that the real reason for your car insurance is to make sure you have coverage in place if there is a serious accident involving personal injuries. You don’t need a low-deductible policy to cover fender benders. That’s the sort of expense that can be paid out-of-pocket.