Want to Save Money on Car Insurance? Make Sure You Keep These 3 Essentials

After the big car insurance price surges of 2023, you might be in the market for cheaper premiums on your auto insurance policy. But don't cut your car insurance budget too far. If you have a skimpy amount of car insurance coverage, you risk massive financial losses and legal liabilities. 

Let's look at a few types of car insurance that should be essential.  

1. Liability insurance: Must-have (and required by law)

Liability insurance is a must-have, because it protects you in case of an accident that is your fault. It helps pay for the car repair, property damage, and medical care for other people affected by a crash. Liability coverage can also pay for your legal defense in case of a lawsuit. 

Most states require every driver to have liability insurance, and driving without insurance can be prosecuted as a crime. When shopping for car insurance, make sure you have at least the minimum amount of liability insurance required by law. This minimum liability insurance amount is different from state to state. Check with your state's Department of Insurance, or other state insurance regulator to see your local minimum liability coverage laws.

For example, in my home state of Iowa, drivers are required to have liability auto insurance of at least: $20,000 of coverage for injuries per person, up to a total of $40,000 per accident, and $15,000 of coverage for property damage in any one accident. Another example: Texas requires drivers to have at least $30,000 of coverage for injuries per person, up to a total of $60,000 per accident, and $25,000 of coverage for property damage. 

Keep in mind that liability insurance does not protect you or your car; it protects other people from you. You might be tempted to get the bare minimum amount of liability insurance to save money on premiums. But it's often a better financial move to make sure you have plenty of liability coverage to pay other people's bills and protect yourself from a lawsuit. 

As someone who gets in a lot of car crashes, I have the maximum amount of liability coverage that my car insurance company offers: $500,000 of bodily injury coverage per person, $500,000 per occurrence, and $100,000 of property damage. Ideally, I will never need to use anywhere near these full amounts. But in case of a terrible crash that causes serious harm to others, having plenty of liability insurance makes sure that everyone's bills are paid -- and your bank account is protected. 

2. Collision coverage: Must-have (unless your car is very old) 

Another form of must-have car insurance coverage, for most people, is collision coverage. This type of auto insurance is not required by law, but it can help save you money on car repairs and medical bills. With collision coverage, in case you get in an accident, whether it's a one-vehicle crash or getting hit by another driver, your car insurance company helps pay for repairing the collision damage. 

You can choose collision coverage that pays for all damages above a certain dollar amount: this is called your deductible. For example, my car insurance collision coverage has a $1,000 deductible. If I get in a crash that causes $5,000 of damage to my vehicle and I'm found to be at fault (or if I get hit by an uninsured or a hit-and-run driver), I will pay for the first $1,000 of damages, and then the insurance covers the remaining $4,000. 

If your car is so badly damaged that it would cost more to repair than the total value of the car is worth, this is called a "total loss" or having your car "totaled." For example, if your car has a fair market value of $15,000 and you suffer a head-on collision that wrecks the engine, the car insurance company might give you a check for $15,000 minus your deductible.  

If you've taken out an auto loan on your vehicle, your lender will probably require you to have collision coverage. The lender wants to make sure to get its money back, in case your car gets totaled. 

When should you skip collision coverage? Only if you have a very old car that's not worth much money. If your car is only worth $1,000, it's probably not worth paying hundreds of dollars per year on collision coverage. 

3. Comprehensive coverage: Must-have (unless you're willing to live dangerously) 

Another type of must-have car insurance is called comprehensive coverage. This protects you from other types of damage to your vehicle, like colliding with an animal, having your car vandalized or stolen, or your car getting damaged by fire or weather events. If you hit a deer, if a tree falls on your parked car during a storm, or if your garage burns down with your car parked inside it while you're out of town, comprehensive coverage can foot the bill. 

Just like with collision coverage, if you have an auto loan, your lender probably will require you to get comprehensive coverage so the lender doesn't get stuck holding the bag. Consider skipping comprehensive coverage only if your car is old, fully paid-for, and low-value. 

Bottom line: Unless your car loan was paid off long ago, and your car is old and not worth insuring so heavily, you should consider keeping your collision and comprehensive coverage. There are so many ways that your vehicle can get damaged, and worst-case scenarios where you can get sued. Getting only the minimum liability coverage can leave you exposed to devastating financial losses.