Dave Ramsey Says These Are the 3 Most Important Types of Auto Insurance

Getting the right car insurance coverage is important. Here's what Dave Ramsey says drivers need.

Every motorist needs to have the right auto insurance coverage so an accident or incident with a vehicle won't lead to financial devastation. Figuring out the right coverage can be complicated because most insurers offer many different kinds of protection for drivers. For those confused about exactly what car insurance they need, personal finance expert Dave Ramsey provides some tips on what he believes are the most important types of auto insurance.

1. Liability insurance

Liability insurance pays for the losses other accident victims experience if the covered driver causes a crash. For example, if a policyholder causes an accident that injures others and damages another vehicle, the liability insurer pays the victim to repair or replace the car and get medical care.

As Ramsey explains, there are laws in almost every U.S. state requiring liability insurance. But, he says, buying the minimum required coverage isn't nearly enough. Ramsey's blog suggests getting a minimum of $500,000 worth of bodily injury and property damage protection.

Drivers who listen to this advice can ensure their assets are protected even in the most serious of accidents. With minimum coverage alone, there's a very real possibility that a motorist could find themselves facing out of pocket losses.

2. Comprehensive insurance

Comprehensive insurance provides protection from financial loss, paying the policyholder when certain things go wrong. For example, this type of insurance would provide coverage if the insured's car is stolen, or damaged by fire or a falling tree branch. Ramsey recommends comprehensive coverage "to protect yourself from life's flukes."

3. Collision insurance

Finally, Ramsey says collision insurance is crucial. This kind of auto insurance pays to repair or replace the policyholder's vehicle. Without this type of coverage, if a driver is at fault for a crash, no other motorist's liability coverage would pay the bills, leaving the driver to pay for repairs.

While collision insurance can help spare a driver from paying to replace their car, Ramsey recommends it only in certain situations. He says drivers don't need this type of coverage if they could easily pay cash to replace their car. If the car is paid off and the driver could replace it with saved money, this kind of protection may not be needed.

While Ramsey also says it can be a good idea to buy other insurance coverage, such as uninsured or underinsured coverage and rental car reimbursement, he says liability, comprehensive, and collision coverage are the "Big Three," and the most important types of protection to buy.