Am I Over-Insuring Myself? Do I Have Too Much Car Insurance Coverage?

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Rachel Bodine graduated from college with a BA in English. She works as an associate editor and writer for for over a year and enjoys creating content that offers expert advice on car insurance topics.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs...

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Reviewed byLeslie Kasperowicz
Former Farmers Insurance CSR

UPDATED: Mar 13, 2020

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Many drivers are worried about being under-insured when they have too little car insurance coverage. However, being over-insured is a problem too. Some drivers pay huge premiums every month for car insurance coverage they will never need to use.

Are you over-insuring yourself? Do you have too much car insurance coverage? Today, we’re explaining how to determine if you’re over-insured, under-insured, or adequately insured.

Why Is Being Over-Insured a Bad Thing?

First, let’s make something clear: it’s better for your car to be over-insured than under-insured. If you’re under-insured and collide with a car full of passengers who have serious injuries, then you could be forced to declare bankruptcy because you’re liable for hundreds of thousands of dollars in medical expenses.

If you’re over-insured, there’s a reduced risk of catastrophe. When you’re over-insured, you’re protected against more situations than you really need, and you have more coverage than you could ever use.

The main downside of being over-insured, of course, is that your monthly insurance premiums will be too high. You’re paying too much money for car insurance that you don’t need.

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Is Your Car Over-Insured?

over-insured too much car insuranceDetermining whether your car is over-insured or under-insured depends on your budget and lifestyle. For some people, simply having comprehensive coverage on a 10-year old vehicle is considered being over-insured.

Other drivers, meanwhile, could have $1 million or more of coverage and still be under-insured.

As with any insurance coverage questions, it depends largely on your lifestyle, your budget, and your aversion to risk. How much risk are you willing to take? If the worst happens, can you afford to pay for damages or repairs out of pocket? What is your monthly budget for car insurance?

To determine whether you’re over-insured or under-insured, consider the following:

Basic liability coverage is required in all states except New Hampshire. Some states require additional coverage – like Personal Injury Protection. By law, you must maintain at least this level of coverage to drive on the road.

Many states have surprisingly low insurance coverage requirements, and simply meeting those requirements will leave you under-insured. Some states, for example, only require you to have $10,000 of property damage liability coverage. If you collide with a high-end SUV, then it can lead to a $50,000 repair bill. Your insurance coverage will quickly be used up. Your insurance company pays up to the limits of your policy. Then, you pay the rest out of pocket.

Don’t assume that you have enough insurance just because you meet your state’s minimum insurance requirements. In Florida, for example, drivers are required to carry just $20,000 worth of bodily injury liability coverage and $10,000 of property damage liability coverage. Most insurance experts will tell you that you’re under-insured if your insurance policy meets these minimum requirements. Generally, it’s recommended that you exceed these requirements.

Once your insurance coverage is used up, you will need to pay for repairs, medical expenses, and other damages out of pocket. The other driver could also sue you for various damages. Generally, your car insurance would protect you from a lawsuit, and your insurance company would pay for any damage claims from that lawsuit. If your coverage has been used up, however, then the lawsuit could target your personal assets – like your home, your investments, and even your salary.

If you already have health insurance, life insurance, and disability insurance, then you may not need additional car insurance coverage like Personal Injury Protection. Generally, your car insurance is the first to be used up after an accident. your health insurance, life insurance, and disability insurance policies, however, may be activated after your car insurance limits are used up.

Some states require you to have Personal Injury Protection (PIP) coverage, for example. PIP coverage covers your medical expenses after an accident regardless of who is at-fault. If you already have good health insurance or life insurance, then you may be able to reduce your PIP coverage to the bare minimum. If you have high PIP coverage limits in addition to good health insurance, then you may be over-insured.

Some drivers are unaware how expensive or devastating and expensive an accident can be. Let’s say you get into an accident with a minivan driven by a surgeon with her family inside. The surgeon’s hand needs to be amputated after the accident. The surgeon’s husband and kids have significant injuries. The surgeon may sue you for loss of income and other damages. The surgeon can no longer earn $300,000 per year performing surgeries because she has lost the use of her hands. The surgeon’s family, meanwhile, all require extensive hospital stays that each cost $400,000. One mistake can leave you on the hook for millions of dollars in damages. Yes, this situation is extreme – but accidents like this occur every day in America.

Some drivers are paying higher premiums for unnecessary bonus items on their insurance policies. Your insurance company might advise you to sign up for towing and roadside assistance, for example. If you already have AAA membership or something similar, then you may already be covered. In this case, you have two roadside assistance policies and you’re paying for both: you’re over-insured.

If you have an older vehicle that isn’t worth much money, then you may be able to safely drop collision and comprehensive coverage. Collision and comprehensive coverage policies cover damage to your own vehicle. They also add a significant amount to your monthly insurance premiums. Repairing an older vehicle doesn’t always make financial sense. Having comprehensive and collision coverage on an older vehicle might mean you’re over-insured.

How Much Are You Willing to Lose?

Generally, someone with lots of assets – like a home, a large retirement account, and a large salary – would want to have the highest possible coverage limits to avoid being under-insured.

Individuals with lots of assets may be targeted in a lawsuit. Your insurance company will cover the initial costs of the lawsuit up to the limits of your policy. Beyond that amount, however, the lawsuit can target your personal assets.

Meanwhile, those with fewer assets and a modest salary may be able to get by with less coverage. You have less to lose in the event of a lawsuit.

Conclusion: Choose Insurance Based on your Lifestyle and Budget

Ultimately, there’s no specific line someone crosses from being under-insured into over-insured. Your insurance needs depend entirely on your lifestyle and budget. For some people, having more than $1 million in coverage is considered being over-insured. For others, just having comprehensive coverage on a 15-year old vehicle is considered being over-insured. Compare insurance quotes today, then choose the right policy based on your lifestyle and budget to ensure you are neither under-insured nor over-insured.

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