Here’s how to figure out how much insurance you need

Your insurance needs change over time. The policies that work for a single, 20-something professional renting an apartment with three roommates may be completely wrong for the same person after marriage, babies, and a cozy mortgage in a good school district.

If you’re struggling to determine how your coverage should change over time, the following guidelines can help.

Auto insurance: Follow the bell curve

Basic car insurance offers liability coverage, in case you cause an accident that injures a third party or damages their property. This is the kind of insurance that nearly every state in the nation requires drivers to carry. While liability coverage protects your finances if you cause an accident, it’s legally mandated because it offers protection for accident victims.

But drivers can also purchase “full coverage” car insurance. This typically includes collision coverage, which pays for damages from a collision that doesn’t include another vehicle (such as running into a tree), and comprehensive coverage, which pays to repair or replace your car if it’s damaged by something other than an accident, such as extreme weather or theft.

Deciding how much auto insurance you need can feel overwhelming, especially considering the high cost of car insurance coverage. While all drivers must carry no less than the minimum required liability insurance—and should also consider increasing the liability limits to further protect themselves and others—it can be difficult to figure out if you need full coverage or other optional add-ons.

To help you figure out your changing need for auto insurance coverage, think of this kind of insurance as a bell curve that corresponds with age.

Young drivers

Young drivers pay the highest premiums of any age demographic—since these wet-behind-the-wheel motorists are the most likely to get into accidents. That means purchasing full coverage when you’re young is going to cost a pretty penny.

In addition, teens and 20-somethings are more likely to be driving beater cars. (No, your cousin’s 1992 Buick Le Sabre is not vintage even if it does qualify for historic plates.) These vehicles have low actual cash values, which means a minor fender bender could render it a total loss.

In other words, if your vehicle’s cash value is lower than the cost of your favorite Starbuck’s order, there’s no reason to purchase collision and comprehensive coverage.

Midlife motorists

The auto insurance calculation changes as you hit your 30s and beyond. To start, the cost of auto insurance starts to go down for most middle-age drivers, provided they have a clean driving record.

Midlife also represents your prime earning years, as well as the time you’re most likely to be starting a family. Not only does that mean the interior of your vehicle will be permanently covered in a thin layer of crushed Goldfish crackers, but you’re also more likely to be driving a car that is worth the cost of fixing.

In other words, you have more to lose financially as a midlife driver than you did while you were still rocking the Le Sabre. That means carrying higher levels of coverage makes more sense in midlife than it did in your 20s.

Seniors on the road

Since older drivers tend to have the most experience and are least likely to make impulsive driving decisions, they enjoy the least expensive auto insurance of any age group. Seniors are also more likely to have a higher net worth and easier access to cash, which means they’re in a better position to pay out of pocket for a car repair (or even replacement) after a collision.

All of which is to say that most senior drivers have a lower need for auto insurance coverage than their middle-age counterparts.

Adjust your deductibles

Your insurance deductible is the amount of money you’re responsible for paying before the insurance coverage kicks in to pay for the rest. Nearly every type of insurance has a deductible, from health insurance to auto insurance to homeowners, renters, umbrella, and business insurance. And for each type of insurance you carry, you need to be prepared to pay the deductible if you make a claim.

But insurance policyholders have some control over the size of their deductible. You can lower your deductible—meaning you’d pay less before your insurance company has to open its own wallet when you make a claim—by paying a higher premium. You can also lower your monthly premium by increasing your deductible.

Typically, most people will opt for the higher premium and lower deductible when they are young, since dealing with a monthly premium cost that’s a little higher is easier than keeping a spare $1,000 (or more) kicking around in case of an emergency.

But as you age, you are likely to become more financially settled, which includes having a more robust emergency fund. Once you’re in a place where you can afford a higher deductible, you can lower your premium–which reduces your monthly outflow.

Since we can all be victims of set-it-and-forget-it thinking, it can be easy to forget to check the deductible levels on long-standing insurance policies. But there’s no need to pay your insurance company a higher premium when you can easily afford a higher deductible.

Self-insurance

Just as your financial stability can help you outgrow the need for a low deductible, increasing wealth may also allow you to self-insure instead of relying on insurance policies.

With this strategy, which is similar to creating an emergency fund, you set money aside to use in case of an unexpected loss, rather than paying a premium to an insurance company to assume the risk for you.

If you don’t experience a loss, self-insurance saves you money, since you’re not out the cost of premiums and you still have the full pot of self-insurance money available to you. Additionally, you can potentially invest your self-insurance money—as long as it’s in an investment that you can liquidate in a hurry—and let the money grow for you.

Self-insurance can be a risky strategy for any kind of serious financial loss, such as liability, flooding, or healthcare. But depending on your financial situation and assets, you may choose to self-insure for things like long-term care or full-coverage auto insurance.

Know your insurance needs

Recognizing how your coverage needs change can help you get the insurance you need while saving money. For auto insurance, remember that your coverage level will probably look like a bell curve, with younger and senior drivers purchasing lower levels of coverage while middle-age drivers go for more comprehensive coverage.

For all of your insurance policies, remember that your ability to afford a higher deductible as you gain more financial stability means you can reduce your premium. And a higher level of wealth can open up the possibility of self-insurance for some types of hazards.

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