How to Allocate Funds for a Monthly Car Insurance Payment
Car Insurance
Auto insurance is mandatory in all states, and if you’re caught driving without car insurance, it can cost you. Auto insurance is for your benefit as well as other drivers.
It can protect you from paying much money out of your pocket for any type of damage from car accidents and storm damage.
Different Types of Auto Insurance
Auto insurance can be divided into two categories. Compulsory auto coverage is required by law.
And optional coverages are add-ons to the compulsory. To drive legally in any state, you need enough insurance to cover your state’s required minimum liability auto insurance. Mandatory auto insurance includes:
- Personal injury protection
- Bodily injury to others
- Bodily injury caused by uninsured drivers
- Damage to property
There are numerous options you can add to your auto insurance like:
- Collision
- Rental car
- Comprehensive
- Medical payments
- Towing and labor
When you choose which type of car insurance is right for you and your situation, look at all options and the deductibles.
How to Budget for Auto Insurance
If you’re buying a new or used car, you will budget not only for the monthly car payment but also the auto insurance.
Where you get your car loan will require that you carry liability insurance, comprehensive coverage, and collision insurance, commonly known as full coverage.
When you look for a new car, you will already know how much you can afford to pay monthly on the car loan.
You will also need to add the mandatory auto insurance payment required by the finance company.
This figure will tell you what you need to budget for each month. Car insurance is usually between 15% and 20% of this final figure.
If you want to only budget for car insurance, figure out what percentage of your net monthly income needs to be set aside for auto insurance.
If you’re paid monthly, on the first day of the month, for example, it is helpful to use auto pay and have the car insurance automatically deducted from your checking account a few days after payday.
More Budgeting Ideas
If you’re paid twice a month, budgeting helps. For example, if your auto insurance is 10% of your monthly net income, take 5% of each paycheck and immediately put it into a savings account.
At the beginning of the next month, when the auto insurance is due, take the money out of your savings account and pay it.
Even if you get paid weekly, immediately take out the proper percentage, in this example, 2.5% each payday, and put it in savings.
Budgeting takes discipline, but it makes paying for auto insurance much easier than scrambling for money when car insurance is due.
It pays to shop around for the best auto insurance rates.
Before you buy a new car, remember that different models and the age of a car can make a big difference in how much you pay for car insurance.
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Category: Car Insurance
