How Much Insurance Do You Really Need?


According to a 2014 study commissioned by Quadrant Information Services, the average annual cost for car insurance in Florida was $1,830 and the average annual cost for home insurance in Florida was $1,933. Of course, that price can differ depending on the type of car, number of vehicles, number of drivers, each driver’s driving record, age of the driver, and where the driver lives.

So how do you know if you have the right amount of insurance? Well, if you are looking strictly at the price, you are missing the bigger picture. Insurance shouldn’t be based on an average cost, but your own personal situation. Your focus should be on the coverage you get.

One place where you certainly shouldn’t cut back on coverage is liability. Liability covers property damage and medical bills if you are the one found negligible—like a car accident, slip and fall, etc. It’s also one of the best deals in the entire insurance world, so make sure your policy includes at least $300,000 (or $500,000 if available) in liability coverage.

But when it comes to deductibles, this is where you can potentially lower your insurance premiums. If you raise your deductibles from $500 to $1,000, you are increasing your potential out-of-pocket expenses which reduces your annual premium. However, before you raise your deductible from $500 to $1,000 make sure that you cane first afford that $1,000 and then conduct a simple break-even analysis.

If increasing your deductible by $500 only saves you $50, then you’ll have to go 10 years without a claim to break even—which really isn’t a great deal. But, if that savings is $200, then you’ll break even after a little over 2 years, which makes more sense.

And if you drive an older car that’s paid off, you can consider dropping your collision coverage, which pays to repair your car if in an accident. A break-even analysis can help you here too. If your car is worth $3,000 and dropping the coverage would save you $600 a year, then you would have to go more than 5 years without an accident to break even. But you also want to make sure you have enough savings set aside to replace your car before you drop the coverage.

With so many variables surrounding the “right” amount of coverage for you personally, you need to consider a few basic rules of risk management:

  1. Don’t risk a lot for a little.
  2. Don’t risk more than you can afford to lose.
  3. Consider the odds of the occurrence.

As an insurance agent, will I be upset years from now for paying more in insurance premiums for higher liability coverage if I never once make a claim or have a claim filed against me? No, just like I’m not upset each day when I come home and find that my house hasn’t been struck my lightening and burned down. We don’t buy insurance with the hope that something bad is going to happen, we buy insurance in case something bad happens.



Get Covered. Live Well.