How Much Car Insurance Does Dave Ramsey Recommend?

Last Updated on November 22, 2020

A leader in money management for individuals and businesses, Dave Ramsey offers a great deal of advice on financial planning, emergency funds, and insurance. So, how much car insurance does Dave Ramsey recommend?

That depends on your needs. 

As he puts it, your insurance should protect you from a loss that would otherwise be devastating, not from something that is just inconvenient. Having to shell out a few extra hundred dollars for some new lights or a minor dent is an inconvenience. Having to sell off all your assets and take out a second mortgage on your home to pay the medical bills for someone who was injured in an accident you caused is a loss that could be devastating.

Therefore, the Dave Ramsey car insurance recommendation is to make sure you have enough money in your insurance policy to prevent devastation and enough saved in an emergency fund to help you when things are inconvenient.

Auto Insurance Coverage Minimums

At the very least, Dave Ramsey recommends all drivers meet the minimum state requirements. Having minimum coverage only, however, he says, is suitable for drivers without a lot of assets or a lot of other drivers under their policy.

Each state has minimum requirements, which, in almost every state includes liability car insurance. Liability insurance is there to cover the costs of injuries or property damage to other people if you are at fault in a car accident. It is broken down into the following components:

  1. Bodily injury liability to pay for any physical injuries to other people
  2. Property damage liability to pay for any damage to another person’s car or property

Liability coverage, however, does not cover your costs – such as damage to your car or injuries you sustain. That will still come out of pocket unless you add additional coverage (i.e. collision coverage or medical payments coverage) to your car insurance policy.

Minimum liability limits are displayed, often, as a set of 3 numbers like 20/40/10. This means $20,000 per person for bodily injury, $40,000 maximum coverage for the entire accident, and $10,000 for property damage. For example:

25/50/20 Montana, Wyoming, Nevada,
25/50/10 New Mexico, Washington, Tennessee
30/60/25 Texas
25/50/25 Rhode Island, Oklahoma, Georgia, Indiana, Alabama, Mississippi, Ohio, Arkansas
15/30/25 Louisiana
20/40/15 Iowa
25/50/15 Idaho, Colorado

Each state has minimum levels of liability requirements, except for New Hampshire, which does not require car insurance. Some states also require things like uninsured motorist coverage or personal injury protection.

Learn Auto Insurance Basics

Dave Ramsey says that knowing how much insurance to take out requires basic knowledge of insurance terminology.

  1. The first is the premium. The premium refers to the amount of money you have to pay every year in exchange for your insurance. You can pay your premium annually, biannually, quarterly, or monthly.
  2. The second is deductible. The deductible, just the same as with any insurance, is the amount of money you have to pay out-of-pocket for any claim before the insurance kicks in.

Some people automatically think that the lower the deductible, the better off they are because, after all, a lower deductible means less money paid out of pocket for an accident or claim.

However, insurance companies view people with a lower deductible as a greater risk because, even in the event of a minor accident, the insurance company is going to be on the hook for more money.

On the other end, insurance companies view people with a higher deductible as less of a risk because they will likely abstain from filing claims for minor damage worth just a few hundred dollars.

What does this mean for your insurance costs?

It means that insurance companies will likely charge you a higher premium if you go for a low deductible and vice versa.

For example: Increasing your deductible from $500 to $1000 can save you an average of 13% on your premium.

Dave Ramsey recommends setting a $1,000 deductible in exchange for a lower premium. He also explains that a $1,000 emergency fund is one of his first “baby steps” so assuming you are following his financial advice, you will have the emergency fund necessary to afford the higher premium.

Filing Auto Insurance Claims

Depending on how much insurance you take out, you have the option of filing a claim even for things that are quite small.

For example – you are stuck in traffic and get in a small fender bender which amounts to about $200 for repairs. Technically, you do have insurance to pay for this damage. That’s what insurance is for.

However, Dave Ramsey notes that filing small claims regularly can cause your premiums to increase.

Moreover, if you have set your deductible to his recommendation of $1,000, there’s really no point in filing a claim for anything less than that, and even if the damage comes in at just over $1,000, filing a claim just so that you can save $50 or $100 on the total repair cost is not necessarily worth the impact on your premium.

For smaller accidents, Dave Ramsey recommends you turn to your emergency fund and pay for repairs out of pocket. He says to only file claims when they are absolutely necessary.

More Tips on How to Save from Dave Ramsey

Dave Ramsey recommends a few additional ways to save on car insurance if you are still seeing high rates:

  • As mentioned, raise your deductible to at least $1,000 (and have that money squirreled away). The higher your deductible, the better the savings will be on your policy. This also helps in the long term because the more claims you submit (no matter how small), the more it hurts your costs. If you have a higher deductible, then you are on the hook for little things like a cracked windshield but in exchange, you aren’t filing a handful of little claims that end up hurting you.
  • There are many insurance providers who give you a discount if you take a state-approved defensive driving class. Most of these classes can be taken online for an average of $30 or in-person for $100. The discount you receive in exchange can be between 5% and 20% off of your entire policy.
  • Drive as safely as you can. Be cognizant when you are on the road and avoid situations where you are tired, reckless, or intoxicated. The fewer accidents in which you are involved and the fewer traffic violations you receive, the lower your policy costs will be. Think of every time you get behind the wheel as an opportunity to bring your costs down.

Remember, Dave Ramsey emphasizes financial steps, and preparation, as the backbone to savings and success. Part of that is saving up an emergency fund for when things go wrong, and part of that is having insurance when things go really, really wrong. So just make sure you have enough to cover both situations.

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