What Dave Ramsey Recommends for Essential Car Insurance Coverage

Financial expert Dave Ramsey has long advocated for a strategic approach to car insurance that goes beyond what your state legally requires. His recommendations focus on building a comprehensive protective layer that shields drivers from catastrophic financial losses. Understanding these suggestions can help you make more informed decisions about your policy.

The Big Three: Dave Ramsey’s Foundation for Full Coverage

Dave Ramsey recommends viewing car insurance through the lens of three fundamental categories that form the backbone of adequate protection. These are liability, comprehensive, and collision coverage—what Ramsey Solutions terms “the Big Three.” Rather than treating insurance as a checklist of minimums, these coverages represent the baseline protection that responsible drivers should prioritize.

When you have all three types in place, you achieve what insurers call “full coverage.” This distinction matters because full coverage actually means you’re safeguarded against the most common and financially devastating scenarios on the road.

Why Liability Coverage Deserves Your Attention

Liability coverage stands out as particularly critical in Dave Ramsey’s framework, mainly because most states legally mandate it. This coverage pays compensation to other parties when you’re at fault in an accident—covering their medical bills if they’re injured or property damage repairs if their vehicle or belongings are damaged.

Here’s where Ramsey’s advice diverges from conventional wisdom: state-mandated minimum liability limits are insufficient to protect your personal assets. His recommendation is to carry at least $500,000 in total liability coverage, combining both property damage liability and bodily injury liability components. This higher threshold ensures that a serious accident won’t wipe out your savings or lead to wage garnishment.

Comprehensive and Collision: Protecting Your Vehicle

Comprehensive coverage rounds out the Big Three by addressing non-collision scenarios. This coverage activates when your vehicle suffers damage from theft, vandalism, weather events, or other circumstances beyond your control. It’s the safety net for situations you can’t predict or prevent.

Collision coverage, by contrast, handles the financial aftermath when you’re responsible for an accident. It covers repair costs or the vehicle’s replacement value if damage is deemed total loss. For most drivers, especially those still paying off a car loan, this coverage prevents the gap between what insurance pays and what you still owe on your vehicle.

Additional Coverage Dave Ramsey Suggests

Beyond the Big Three, Ramsey points to several supplemental protections worth considering. Uninsured and underinsured motorist coverage becomes crucial in states where many drivers lack adequate insurance—it protects you if you’re hit by someone without sufficient coverage to pay for damages.

Medical payments coverage addresses immediate out-of-pocket medical expenses resulting from accidents, while personal injury protection (required in some states, optional in others) provides similar benefits with broader scope. Rental reimbursement coverage offers temporary transportation while your vehicle undergoes repairs—a practical consideration if you can’t afford ride-sharing costs during downtime.

What to Skip: Insurance Costs You Don’t Need

Interestingly, Dave Ramsey is equally vocal about what drivers should avoid. Mechanical breakdown coverage, which pays for routine repairs and maintenance, typically duplicates coverage you’ll handle through regular maintenance and emergency funds. The cost-to-benefit ratio rarely justifies the premium.

GAP insurance presents another coverage Ramsey advises against for most drivers. This insurance covers the difference between what your insurer pays out on a total loss claim and any remaining balance on your car loan. Ramsey’s practical solution: purchase used vehicles with cash when possible, or accelerate your goal to pay off any existing auto loan, allowing you to eliminate both the GAP coverage need and the associated premium costs.

Making the Right Choice

Dave Ramsey’s recommendations represent a philosophy that extends beyond minimum compliance toward genuine financial security. By prioritizing the Big Three and supplementing strategically, drivers can navigate the road with confidence, knowing they’re protected against scenarios that could otherwise trigger financial hardship.