3 Car Insurance Extras I'll Happily Pay For

The average annual auto insurance premium for minimum coverage in the U.S. is $787, and residents of some states pay a lot more just to drive legally. Add extra protections and premiums can easily rise to thousands of dollars per year.

You might be wondering why anyone would want to fork over more money than they have to. Below, we'll look at some of the most common car insurance policy additions and how they could actually save you money in the long run.

1. More liability coverage

State minimum car insurance typically consists of two parts: bodily insurance liability and property damage liability. Neither of those things protect the policyholder. They're designed to pay for damages to people and property if the policyholder causes an accident.

Each state sets its own rules for how much liability insurance drivers need to operate legally, but many require $25,000 of bodily injury coverage per person and $50,000 per accident, along with $25,000 of property damage coverage. This is sometimes known as 25/50/25 coverage. But this isn't always adequate.

Let's say the policyholder plows into a stranger's Lamborghini and totals it. A $25,000 property damage claim won't be enough to cover the costs, and the Lamborghini's owner might sue the policyholder to try to recoup the rest. Similarly, if the policyholder severely injures or kills someone in a crash, $25,000 won't come close to covering their debts.

Opting for higher liability coverage limits may mean paying higher premiums, but it gives drivers a lot more protection if they are at fault in an accident. Though many drivers go years without ever filing an auto insurance claim, it's impossible to know when an accident will occur, so it's always better to be prepared.

2. Collision coverage

Collision coverage is an optional protection that pays to repair the policyholder's vehicle if it's damaged in a crash, regardless of who was at fault. It protects drivers in single-car and multi-car accidents. This coverage isn't required by law, though lenders typically require it of borrowers who have a lease or loan on their vehicles to protect their investment.

If a driver doesn't have collision coverage and then they find themselves in an accident, they'll have to pay for all the repairs to their vehicle on their own. The average car repair, according to Kelley Blue Book, is now about $548, and some things, like a fuel pump replacement can easily cost thousands of dollars. But with collision coverage, the driver just has to pay their deductible and the insurance company will take care of the rest.

3. Comprehensive coverage

Comprehensive coverage goes hand in hand with collision coverage. It protects the vehicle from a variety of hazards other than crashes with another vehicle, including theft, vandalism, severe weather, and animal-vehicle collisions. This is another coverage that lenders often require, but it's worth investing in even if this isn't the case.

Any one of the issues mentioned above could cost a driver their vehicle in an instant. In some cases, like theft, repairs may not even be possible if police can't locate the vehicle. If this happens, the driver has to either purchase another vehicle or go without transportation. That could be a lot more costly than just adding comprehensive coverage to an auto insurance policy.

What to do when money is tight

The cost to add these extra protections depends on where the driver lives, their driving record, and their vehicle's make and model. But most drivers can expect to spend a few thousand dollars annually on their auto insurance policy with these added coverages. That's not always easy to do when on a tight budget.

Shopping around can be a big help. Each car insurance company has its own algorithm for assessing risk, and that's why the same driver gets different rates from each one. Sometimes one company might see a particular driver or vehicle as less risky than the others and may offer them a more competitive premium. But the only way to know which company will be the most affordable is to get several quotes and compare them.

Opting for a higher deductible is another wise move for drivers trying to lower their premiums. This will lead to higher out-of-pocket costs in the event of an accident. But if the driver is able to save for the deductible in an emergency fund, this may be a better fit for them.

Finally, if you aren't able to purchase all the protections you want, get what you can. Drivers need state minimum coverage in order to avoid trouble with the law. That's better than nothing. But if they have just a little extra cash, it's best spent on more liability coverage. At most, policyholders will have to pay for a new car if they're lacking in collision and comprehensive coverage. But there's virtually no upper limit to how much they can get sued for if they injure someone else in a crash.

Re-evaluate options every policy period to see if there's a better deal somewhere else. It might be possible for drivers to secure the additional insurance coverage they want in the future, even if they can't afford it now.