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Paying Less for Car Insurance Could Actually Cost You More. Here's Why

A person standing next to the open trunk door of a car and zipping up their jacket.

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Buying state minimum car insurance coverage can save drivers a boatload on monthly premiums. According to publicly available quote data obtained directly from insurance providers and insurance rate data from Quadrant Information Services, the average cost of minimum coverage is just $764 per year. That's nearly $1,900 less than the national average car insurance premium. But despite these impressive savings, sticking to the bare minimum coverage usually isn't a good idea. In fact, it could cost drivers tens or even hundreds of thousands of dollars in some situations.

Car insurance premium costs vs. accident costs

Buying higher insurance coverage limits will cost more per month, but it could actually save policyholders a ton of money in the event of an accident.

Say a driver chose minimum coverage for $764 per year instead of more comprehensive coverage, including protection for their own vehicle, for $2,646 per year. In that case, they’d save about $18,820 in monthly premiums over 10 years. That's the best option for their wallet as long as they don't need to file an auto insurance claim. But there are no guarantees.

The average bodily injury insurance claim cost $18,417 in 2019 -- the most recent year data was available -- according to the Insurance Information Institute. It's likely this is slightly higher now due to inflation. The average property damage liability claim for the same year was $4,525.

If a driver causes a car accident that injures someone else and damages their vehicle, they could easily end up facing a claim worth $23,000 or more. That might be covered by some states’ minimum coverage.

On the hook for expensive damages

But there's always the possibility for above-average expenses. If a driver causes a multi-car pileup, for example, or kills or disables another motorist, they could easily find themselves facing hundreds of thousands of dollars in damages. Their insurance company will pay up to their policy limit, but they’ll probably find themselves in court being sued for the rest if they can't come up with it on their own.

And we haven't even talked about what happens to the policyholder’s own car yet. No state requires its drivers to carry collision and comprehensive coverage, which protects a policyholder's own vehicle from damage. If a driver purchases state minimum coverage and then gets in a wreck, they’ll have to pay to fix their vehicle.

Even if the policyholder doesn’t cause the accident, they could still wind up facing a bill if they’re hit by an uninsured or underinsured motorist. It's possible to buy additional car insurance coverage that kicks in once the at-fault driver's coverage ends, but if a driver doesn't have this, they must pay for the extra on their own.

The bottom line is, it only takes one bad accident to wipe out a decade's worth of savings on premiums. Drivers could even find themselves in debt or facing a lawsuit. That's why it's a good idea for most people to pay a little more for car insurance up front.

Better ways to save on car insurance

Drivers looking to score cheap car insurance are better off trying some of these tips.

Shop around

Compare rates from several companies before purchasing a policy. Each insurer weighs the components of a driver's application a little differently. Some penalize drivers for accidents more than others, and some charge more for certain vehicles or zip codes. The only way to know which will offer the best rate is to compare several quotes side by side.

Grab all the discounts available

Insurers will automatically apply most discounts to qualifying drivers' policies, but there are some that motorists may have to opt into. Companies that offer driver monitoring programs, for example, usually require the driver to agree to participate. Those that do usually receive a discount.

Raise the deductible

A deductible is the out-of-pocket cost a policyholder pays in the event of a claim. Most insurers let drivers choose from a variety of deductible options, and going with a higher deductible usually reduces premiums. This shouldn't affect the driver’s financial security as long as they have emergency savings to cover their deductible.

Once a motorist finds a policy they like, they should buy adequate coverage. This means thinking about protections for their vehicle as well as state minimum coverage. They should also choose policy limits above the state minimum when they can afford to. And it's a good idea to shop around every policy period or two to see if they can find a better deal elsewhere. This is especially true for drivers who have an accident history. Over time, their rates should drop as long as they don't file any more claims.

It's not always easy to know what the right balance is between coverage and cost. But it's always best to err on the side of caution. That way, if an accident arises, the policyholder doesn't have to worry about how they’re going to pay for it.

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