Car insurance can feel like just another bill, but Dave Ramsey, a financial expert, says it’s more than that—it’s about protecting your money and avoiding big financial problems. His advice isn’t about getting the cheapest plan but finding the right one for your situation. Here’s a simple breakdown of what he recommends, why, and how you can use his tips.
1. Three Key Coverages You Need
Ramsey says most state-required insurance isn’t enough to keep you safe financially. He suggests three main types of coverage:
- Liability Insurance: Pays for injuries or damage you cause to others in an accident (like medical bills or car repairs).
- Comprehensive Coverage: Covers non-crash issues like theft, fire, vandalism, or natural disasters.
- Collision Coverage: Pays for damage to your car if you’re in a crash, whether it’s your fault or not.
Why these?
- Liability protects you from huge costs if you cause an accident—those can add up to thousands of dollars.
- Comprehensive and collision protect your car, which you might need for work or daily life. Without them, replacing a damaged car could hurt your finances.
Bottom line: These three coverages are a must unless you’re sure you can cover losses yourself.
2. How Much Liability Coverage?
Ramsey suggests getting at least $500,000 in liability coverage (for injuries and property damage). Many people pick the state’s minimum to save money, but that’s risky.
Why so much?
- If you cause an accident, medical bills or repairs can cost way more than low coverage limits.
- If you have savings, a house, or other assets, low coverage could leave you paying out of pocket if someone sues you.
For example, if your policy covers only $50,000 and the damage is $100,000, you’d owe the extra $50,000 yourself. Higher coverage gives you better protection.
3. Deductibles and Full Coverage vs. Self-Insuring
Ramsey also talks about how to balance coverage and costs.
Deductibles
A deductible is what you pay before insurance kicks in. Ramsey suggests picking the highest deductible you can afford (like $1,000 instead of $500).
Why?
- Higher deductibles lower your monthly payments (premiums).
- It stops you from making small claims, which can raise your premiums later.
Full Coverage vs. Dropping Some Coverage
“Full coverage” means having liability, comprehensive, and collision. Ramsey’s advice:
- Keep full coverage if you owe money on your car (like a loan) or if replacing it would be hard financially.
- Drop comprehensive/collision if your car is old, paid off, and you have enough savings to replace it without stress.
For example, if your car is worth $4,000 and you can afford to replace it, you might switch to liability-only coverage to save money. But only do this if you’re financially ready to handle the loss.
4. How to Save Money on Insurance
Ramsey shares ways to lower your insurance costs without cutting corners:
- Raise your deductible: This lowers your premium if you can cover the deductible in an emergency.
- Pay yearly, not monthly: Many companies give discounts if you pay the full premium at once.
- Bundle policies: Combine car insurance with home or other insurance for discounts.
- Use safe-driving programs: Some insurers lower rates if you use apps or devices to prove you drive safely.
- Shop around: Compare prices from different companies every year or two. Don’t just renew automatically—new customers often get better deals.
These steps help you save money while keeping good coverage.
5. When to Reduce Coverage
You might not need full coverage forever, but Ramsey says to be careful. You can consider dropping comprehensive and collision if:
- You own your car (no loan or lease).
- The car’s value is low, and you can pay for a replacement without financial trouble.
- You have a solid emergency fund to cover unexpected costs.
For example, if your car is worth $3,000 and insurance costs $1,000 a year, it might not make sense to keep full coverage. But always keep strong liability coverage to protect against big claims.
6. Example: Putting It Together
Let’s say you’re 35, married, with some savings and a $12,000 loan on a 2020 car worth $20,000. You need the car for work. Here’s how Ramsey’s advice applies:
- Get full coverage (liability, comprehensive, collision) since you owe money on the car and rely on it.
- Choose at least $500,000 in liability coverage to protect your finances.
- Pick a $1,000 deductible if you have that in savings to lower your premium.
- Pay the premium yearly and bundle with home insurance for discounts.
- Check prices every 1–2 years to avoid overpaying.
- Once the loan is paid off and the car’s value drops (say, to $5,000), consider dropping comprehensive/collision if you can replace the car easily.
This approach protects you from big losses while keeping costs manageable.
7. Tips for Non-U.S. Countries
Ramsey’s advice is U.S.-focused, but it works globally (like in Pakistan, UAE, or India). Key ideas:
- State minimums aren’t enough: Even if your country requires basic coverage, it might not protect you from big costs.
- Protect your assets: If you own a home or have savings, get higher liability coverage.
- Evaluate full coverage: Drop comprehensive/collision only if your car is old and you can afford to replace it.
- Save smartly: Use higher deductibles, bundle policies, and compare prices to lower costs.
8. Final Thoughts
Car insurance isn’t exciting, but Ramsey says it’s a key part of staying financially secure. His main points:
- Get liability, comprehensive, and collision unless you can cover losses yourself.
- Aim for $500,000+ in liability to avoid huge risks.
- Save money with higher deductibles, bundling, and shopping around.
- Reassess coverage as your car ages or your finances change.
By following these steps, you’re not just buying insurance—you’re protecting your financial future.
Would you like a checklist to review your current car insurance policy based on Ramsey’s advice? Let me know.
