Don’t buy auto insurance without reading this advice from Ramsey.
Important Points The cost of car insurance can vary depending on the insurer and the level of coverage. Financial expert Dave Ramsey warns that buying the cheapest cover is a bad idea. Ramsey said the big problem with buying the cheapest coverage is that saving isn’t the primary goal of insurance.
Buying car insurance can be quite a complicated process. There are many different types of auto insurance, and a large number of different companies offer policies.
For drivers who are overwhelmed with their coverage options or unsure of what they need, it can be tempting to simply opt for the cheapest car insurance. But as financial expert Dave Ramsey explains, it may not be the best approach. Here’s why.
Buying the cheapest car insurance could be a big problem
According to Ramsey, there’s a very clear, very serious problem with choosing the cheapest car insurance.
“The only problem with going the cheapest route is that saving money isn’t the only part of buying auto insurance,” Ramsey warned. “You also need to think about protecting your finances from a 10-car pile-up. (Okay, that’s a little unlikely, but you get the point: car accidents can get expensive.) You need coverage that actually covers you — the kind that protects you from budget-busting car wrecks.”
In other words, the cheapest coverage could end up costing the driver an absolute fortune if it doesn’t have enough insurance to protect against anything that could go wrong.
Here’s why drivers need to heed Ramsey’s warning
Ramsey’s warning to choose the cheapest insurance coverage is important for any driver before deciding on an insurance policy.
More: Check out our picks for the best car insurance companies
See, states set minimum coverage requirements, which usually require liability insurance and sometimes personal injury (PIP) coverage. Liability insurance only pays for damage a policyholder causes to others, while PIP pays for a small amount of medical bills and lost wages in a collision, regardless of who’s at fault. Buying minimum government insurance is usually the cheapest auto insurance available.
But just meeting the minimum requirements and getting the cheapest coverage would provide very little actual financial protection against catastrophic losses. A driver with minimum coverage would not have insurance to pay for damage to their own vehicle in the event of an accident or other covered incident such as vandalism, encountering a deer, or having a car stolen. Policy limits for minimum insurance are also fairly low, so drivers may be personally sued for excessive losses they inflict on others that their insurance doesn’t cover.
A driver who buys by price alone could also be faced with an auto insurer that has a bad reputation – and that doesn’t pay out claims promptly. And since policies with higher deductibles cost less, choosing a high deductible to save on premiums could also result in a huge personal cost to a driver in the event of an accident.
Instead of buying the cheapest insurance, drivers should follow Ramsey’s suggestion and make sure they have full coverage for losses they would need help covering – including collision and comprehensive insurance. It’s worth paying more to avoid potential financial disaster, especially since auto insurance that offers comprehensive coverage can still be fairly affordable for drivers who are looking.
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