How much auto insurance does a financial expert like Dave Ramsey recommend? Today, we’re looking at Dave Ramsey’s car insurance advice, including the types of car insurance policies Dave Ramsey recommends and how much coverage you should have.
Dave Ramsey and Car Insurance
Dave Ramsey has published several detailed guides on car insurance. You can view those guides on DaveRamsey.com, where Dave covers topics like, “How Much Car Insurance Do You Really Need” and “Basic Insurance Policies Everyone Needs”.
Here are some of the most important beliefs, opinions, and tenets Dave Ramsey has about car insurance.
“The Primary Purpose of Insurance is to Transfer the Risk of Financial Loss from You to Your Insurance Company”
Dave Ramsey is famously cautious. Most of his financial advice revolves around the idea of avoiding debt. He introduces most of his car insurance advice with the following sentiment:
“The primary purpose of insurance is to transfer the risk of financial loss from you to the insurance company.”
Car insurance covers unexpected circumstances – like an accident where you roll your brand new $50,000 SUV. Most of us cannot afford to cover the cost of replacing a $50,000 SUV out of pocket, which is why we buy car insurance (obviously, car insurance is also legally required in most states).
Dave Ramsey Recommends a $1,000 Deductible
In multiple discussions on car insurance, Dave Ramsey has specifically recommended a $1,000 car insurance deductible:
“We recommend a $1,000 deductible because that usually means you’ll pay a lower premium.”
When you have a lower deductible, your car insurance company views you as a higher risk. You are more likely to make a claim.
However, Dave Ramsey cautions that higher deductibles are not a great deal with every insurance company. Some companies only reduce your annual premiums by $50 when you increase your deductible by $500, which means you need to go ten years without an accident to break even.
“Before you sign up for a $1,000 deductible, however, work with your insurance agent to make sure it’s worth the extra risk by conducting a break-even analysis as you compare rates.”
Dave Ramsey Recommends Having At Least $500,000 Worth of Coverage
When asked how much liability insurance drivers should have, Dave Ramsey typically recommends at least $500,000 worth of coverage:
“So how much liability insurance should you have? That can be answered in two words—a lot! Even if your state doesn’t require liability insurance, it’s a good idea to have at least $500,000 worth of coverage that encompasses both types of liability coverage—property damage liability and bodily injury liability. That way you’re covered for costs related to getting the other driver’s car fixed (property damage) as well as costs related to their lost wages or medical bills (bodily injury) that resulted from an accident where you’re at fault.”
An ideal Dave Ramsey-approved insurance policy might be expressed like 250/500/250, indicating you have $250,000 of bodily injury coverage per person, $500,000 of bodily injury coverage per accident, and $250,000 of property damage coverage per accident.
Upgrade Liability Coverage As Your Net Worth Increases
Dave Ramsey claims that everyone should have $500,000 of liability coverage regardless of their net worth. However, he also believes you should increase your liability coverage as you build more wealth:
“The more wealth you build, the more you also want to get a liability umbrella policy that attaches to the top of that policy and keeps going for another million dollars. And that’s only a couple hundred dollars a year.”
Umbrella policies can extend your coverage to $1 million, $2 million, and higher.
Dave Ramsey Recommends Comprehensive Coverage on New and Old Vehicles
“Like liability insurance, comprehensive coverage is inexpensive—so you’ll want to have it whether you’re driving a beater or a brand-new car.”
“Insure For What Could Financially Devastate You, Rather Than What Inconveniences You”
Some people buy too much insurance. They purchase insurance to cover unexpected $1,000 or $2,000 expenses, for example, when in reality, a self-insured emergency fund might work better in this situation.
Here’s how Dave Ramsey explains the idea in one of his articles on car insurance:
“A good rule of thumb is to insure for what could financially devastate you, rather than what inconveniences you.”
Dave Ramsey mentions this advice specifically when talking about a disappearing deductible, where you pay extra money today in exchange for having your deductible drop by $50 or $100 every year you go accident-free. In Dave Ramsey’s opinion, disappearing deductibles are rarely a good deal.
Dave Ramsey Does Not Recommend Uninsured and Underinsured Motorist Coverage
Interestingly, Dave Ramsey does not recommend uninsured or underinsured motorist coverage (unless your state requires them). He acknowledges that 1 in 8 Americans drives without car insurance. However, he claims most drivers don’t need it:
“If UM, UIM and UMPD coverages aren’t required by your state, they’re likely not something you need to add to your auto insurance policy if you already have health insurance and collision coverage in place.”
Take Advantage of Insurance Discounts
Dave Ramsey recommends telling your insurance agent about every possible feature on your vehicle, including safety features and security devices. He also suggests telling your insurance agent about your family situation, including any teen drivers you have at home. When you tell your insurance agent all of this information, you get the most accurate insurance policy while also taking advantage of all available discounts.
“Countless factors affect the type of insurance you need and the premium you’ll pay. …your insurance agent needs to know [certain information] to not only pick the right policies for you but to also save you some hard-earned money in the long run!”
Dave Ramsey’s Endorsed Local Providers (ELPs) List for Car Insurance Agents
Dave Ramsey has an Endorsed Local Providers (ELP) list for car insurance agents. Dave recommends only working with insurance agents on his ELP list.
These agents, according to Ramsey, shop hundreds of companies to find the best deal. They also find customized auto insurance that works for your needs.
Of course, each insurance agent pays Dave Ramsey a membership fee to be on the ELP list – so it makes sense why he recommends using the list.
Dave Ramsey has helped millions of Americans improve their finances. If you trust Dave Ramsey’s advice, then you might appreciate his car insurance advice. Maintain at least $500,000 of liability coverage, skip unnecessary optional policies, and get comprehensive coverage on new or old vehicles.