Choosing Coverage

Question #1: What’s your financial picture?

Consider the following financial factors before you set your coverage limits:

Spending allowance

The higher you set your coverage limits and the lower you set your deductibles, the less you’ll pay out of pocket after an accident or claim. Figure out how much you can comfortably afford when setting your coverage limits and deductibles — the key word being “comfortably.”


If you’re a homeowner with plenty of financial assets, it might be worthwhile to increase your liability coverage limits above the legal minimums. If you cause an accident and your liability limits are too low to cover the expenses, the other party might go after your assets in court. Higher limits can help you protect your assets.

And if you have a high net worth, umbrella insurance can help you protect those things you’ve worked so hard to attain.

Car payments

There are a few coverage elements to consider if you lease your car. Most importantly, your loan or finance company may require you to add comprehensive and collision to your policy. The limits of these coverages are equal to the value of the car, so the only thing you’ll need to decide on is your deductible.

Loan/lease gap coverage can also come in handy. If your car is totaled and your insurance settlement is less than what you still owe, you could be stuck paying down a car you can no longer drive.

Health insurance

If you have reliable health insurance, you may not want to add medical payments coverage to your policy. But in some cases, your health coverage may not pay for accident-related medical expenses. Or if it does, your medical payments coverage could help pay the health plan’s deductible. Check the specifics of your health insurance plan before determining how much medical coverage to add to your policy.

Question #2: What kind of driver are you?

Driving ability

Consider your driving record. If you’re a cautious driver with hardly a blip on your record, you might opt for a higher deductible and a lower rate. On the flip side, if you’re not quite as careful as you could be, you may want to consider higher limits because of the extra protection it provides.

Type of car you drive

Shiny new rides generally benefit from vehicle-protecting coverages like collision (which helps cover damage to your own car) and comprehensive (which protects against theft and a whole lot more). But older cars may benefit less, since post-accident repairs could barely exceed your deductible (meaning you’d be shouldering most of the cost anyway).

Your driving habits

If you work from home and take your car to the grocery store once a week, you might settle for minimum coverage requirements (and look into a low-mileage discount). But if you commute to work through dense, urban traffic, you may want your policy to account for that through added protection and higher coverage limits. Generally, the more time spent in the car, the more hazards you could face.

Question #3: What’s notable about where you live?

Population density

Eighty percent of minor accidents (read: non-fatal) happen in dense, urban areas. So living in a city packed with people could be good reason to up your collision limits.

And as of 2011, the National Insurance Crime Bureau’s top 4 hot spots for car theft had populations above 200,000. If you live in one of these hot spots or a major metro area, comprehensive might be worth a second look.


Judge your car’s vulnerability. A home garage provides better protection than parking on a crowded street, where it’s more open to theft or vandalism.