How Old Is Your Car?

• The answer to this question determines the type and amount of insurance coverage you will need. If you are still making payments on your car, the lien holder will require collision coverage, which pays for damage to your car if you or someone else is at fault. The coverage is normally limited to the value of the car. Many people drop this coverage after paying off the loan or when the car is older because if the car is completely totaled, the insurance only pays book value.
  
  

Where Do You Live?

• Most states require that you at least have liability insurance. Liability insurance covers damages to other people or property when you are at fault. Liability insurance comes with varying levels of coverage. You should check your state laws to find out the minimum requirements in your state. Carrying a larger limit will protect your assets in the event of a lawsuit. If you can afford it, look into an umbrella policy, which will cover you up to the value of your assets. Another reason why area is important is crime levels. If you reside in a high crime area, prepare for higher premiums. You may want to invest in an alarm system or make sure to park in a garage, which will help lower your premium.
  
  

How Much Can You Afford to Pay?

• The more options you choose to add to your insurance policy, the higher your premiums. Most options carry deductibles that can start at $500 and go up to over $1,000. Generally the higher the deductible, the lower the premium, so it is important to consider how much you can pay out-of-pocket should an accident occur. It is also important to check your other insurance policies to see if extra coverage for items such as medical coverage is needed or already covered. Insurance companies also offer policy riders for towing coverage and rental coverage when your car is unavailable after an accident. These options will increase your premium so consider if these items are needed before purchasing.
  
  

Recommendations

• Before purchasing auto insurance, carefully review your budget to determine what premiums you can afford and how much of a deductible are you willing to pay. It is advisable to purchase liability insurance of at least $100,000 per person or $300,000 per accident or higher if you can afford it. In addition, collision and comprehensive coverage is recommended for more complete coverage. If you can afford it, add uninsured motorist coverage to your policy as additional protection, in case you are in an accident and the driver at fault does not have insurance or enough coverage to pay for your damages.