Question: Can this be true; can I increase my state minimum car insurance coverage 4 times for only $60 a year? If this is true, why nobody told me this before? I have been buying minimum coverage for the last couple of years. I just don’t want this to be one of those things too good to be true.
Answer: What most people don’t know is that coverage and rates are not directly correlated. In fact, they can be considered negatively correlated in that when the coverage required goes up the rate applied goes down. In simple English, the more you buy the cheaper it gets.
The logic behind it is very simple. When you have the minimum required coverage of say $50,000 this policy would pay under any circumstance if the claim is made. Any coverage you buy above this amount has a very little chance of paying because the damages must be over $50,000 for the additional coverage to be useful.
The fact is that there are many claims under $50,000 but only few that are above this amount. So, the risks of auto insurance company having to pay for bigger claims than $50,000 is low and therefore the premiums for additional coverage are cheap. I hope it makes sense.
These logic is widely used in the world of insurance underwriting. When the chances of an insurance company paying a claim low they can afford to charge pretty low premiums. That is why you may be able to get a lot more coverage if you could stretch the budget just a little bit more.
Hopefully, this highlights the need to get several quotes and experiment with different level of coverage until you find a good balance between price and cover. Try higher coverage or higher deductibles and see the difference in prices. It will be eye opening in most cases.