Dave Ramsey's Car Insurance Advice: Coverage Limits, Deductibles & Recommendations

Dave Ramsey's Core Car Insurance Philosophy

Ramsey's approach to auto insurance sits on top of his broader money philosophy: stay out of debt, build a real emergency fund, and use insurance only to transfer the risks you truly cannot afford to absorb yourself. On a car policy, that translates into three big moves.

• Buy heavy liability coverage. It is the cheapest part of the policy for the amount of protection it delivers, and it is what protects your net worth after a serious at-fault accident.
• Raise your deductibles. If you have savings, paying more out of pocket in a claim in exchange for a lower premium is almost always a winning trade.
• Drop coverage you no longer need. As your car ages and its value drops, comprehensive and collision stop being a good deal. Self-insure and pocket the savings.

The rest of his advice, from picking an agent to shopping every year, is designed to make those three moves as easy and cheap to execute as possible. Since his framework hinges on knowing what each coverage actually does, it helps to review the main types of car insurance coverage before applying his rules.

Liability Limits: 100/300/100 Is the Floor, $500,000 Is the Goal

Ramsey is emphatic that liability is not the place to save money. His written guidance sets a clear tiered target.

• Absolute minimum recommended: 100/300/100 split limits ($100,000 bodily injury per person, $300,000 per accident, $100,000 property damage).
• Ideal for most households: at least $500,000 in total liability, often written as 250/500/250.
• High net worth: enough liability to at least match your net worth, plus a $1 million to $5 million personal umbrella policy sitting on top of your auto and home coverage.

His reasoning is simple: liability is the cheapest coverage per dollar of protection on the entire policy, so cutting it to save a few dollars a month is a terrible trade when a serious injury lawsuit can wipe out everything you own. Because property damage liability alone often needs to cover a totaled late-model vehicle, state minimums well below $50,000 leave a dangerous gap.

Umbrella Coverage Once Your Assets Grow

Once your net worth crosses roughly the mid-six-figures, Ramsey recommends layering a personal umbrella policy on top. For most households, $1 million of umbrella coverage runs $200 to $400 a year, which is one of the cheapest ways to protect a growing balance sheet.

The $1,000 Deductible Rule

Ramsey tells listeners to "take the highest deductible you can afford." In practice, that almost always means a $1,000 deductible on both collision and comprehensive. The tradeoff:

• You save a meaningful amount every renewal for as long as you don't file a claim.
• If you do file a claim, you pay the first $1,000 out of your emergency fund.

Since he already insists on a fully funded emergency fund (Baby Step 3), a $1,000 hit is uncomfortable but not catastrophic. The math tends to favor the higher deductible for anyone who is not filing claims every couple of years.

Dropping Comprehensive and Collision on Older Cars

This is where Ramsey's advice gets specific and practical. His rule of thumb for when to drop physical damage coverage on a paid-off car:

1. Add the collision and comprehensive premiums together.
2. If you have a six-month policy, double it to get the annual cost.
3. Compare that annual cost to the car's current actual cash value.
4. If the annual premium exceeds 10% of the car's value, seriously consider dropping both coverages.

Put another way, keep comp and collision only while the car is worth more than roughly 10 times what you pay each year for that protection.

A Practical Example

The catch, and where his critics push back, is that "drop it" only works if you could actually pay cash to replace the car tomorrow without draining your emergency fund below three months of expenses. On the right car, following the most useful car insurance terms around actual cash value and total loss thresholds will help you sanity-check the math.

Gap Insurance: Yes If You Financed, No From the Dealer

Ramsey's stance on gap insurance surprises people. He does recommend it, but only in a narrow situation and never from the finance office.

• Buy gap insurance if: you financed with less than 20% down, took a loan of 60 months or longer, are leasing, or otherwise owe more than the car is worth.
• Skip gap insurance if: you paid cash, you're no longer upside down on the loan, or you have enough savings to cover the shortfall yourself.
• Never buy gap from the dealer. Dealer gap is typically a $500 to $700 one-time charge rolled into the loan (and then accruing interest for years). A regular auto insurer usually adds gap to your policy for around 5% to 6% of your collision and comprehensive premium, often under $30 a year.

Add-Ons Ramsey Says You Can Usually Skip

Ramsey is skeptical of most policy add-ons, especially those that duplicate benefits you already have.

His overall test: if you would file a claim under this add-on maybe once in a decade, and you can absorb the loss yourself, skip it and put the savings toward paying off your car or building wealth.

The Endorsed Local Provider (ELP) Program

The ELP program (now branded RamseyTrusted Providers) is Ramsey's referral network of local insurance agents, tax pros, and real estate agents who have been vetted and who agree to work with clients according to his financial principles.

Here is how it works on the insurance side:

1. You fill out a short form on a Ramsey-affiliated page with your zip code and coverage needs.
2. You're matched with a local endorsed insurance agent, almost always an independent broker who represents multiple carriers.
3. That agent contacts you, reviews your situation, and quotes coverage across several companies.
4. You pay standard premiums directly to whichever carrier you choose. You do not pay Ramsey Solutions a separate fee.
5. Ramsey's team collects customer feedback afterward and drops agents who consistently underperform.

Behind the scenes, agents pay to be in the program (roughly $400 to $900 per month plus 28% to 30% referral fees on business closed through Ramsey leads, according to independent reporting). Ramsey markets endorsement as "earned, not bought," but the financial arrangement is a real incentive to remember.

Why Ramsey Prefers Independent Agents

Whether or not you use an ELP, Ramsey consistently steers listeners toward independent agents rather than captive agents who represent a single company such as Geico, State Farm, or Allstate.

His reasoning:

• Independents can quote your risk to a dozen or more A-rated carriers and pick the best combination of price and coverage.
• When your current carrier raises rates at renewal, an independent can move you without you starting over.
• Because they aren't employees of one insurer, their incentive to push a specific company's product is weaker.
• Shopping your policy every one to two years is his standard advice, and independents make that shopping frictionless.

Where Ramsey Aligns With and Departs From Mainstream Advice

Most of Ramsey's specific numbers line up with what mainstream financial planners recommend. Where he differs is mostly in tone and rigidity.

Common Criticisms of Ramsey's Car Insurance Advice

Even insurance agents inside Ramsey's own ELP network flag recurring problems with how listeners actually apply his advice.

• Cutting liability to save money. Ramsey never told listeners to buy state minimums, but the "save on premiums" message gets over-applied and some end up with 25/50/25 policies that leave assets exposed.
• Dropping comp and collision too early. Some followers drop physical damage coverage on cars worth $10,000 to $20,000 simply because the loan is paid off, ignoring whether they could actually replace the vehicle with cash today.
• Skipping umbrella coverage. As net worth grows past Baby Step 4, many listeners forget to add the $1 million umbrella that Ramsey himself recommends.
• Assuming Baby Steps replace an insurance strategy. Life changes (marriage, kids, new home, higher income) all warrant a policy review, and long-time listeners often don't do one.
• Chasing the cheapest quote. Ramsey has said the "cheapest route" is a bad idea because saving money is not the primary goal of insurance. Some listeners hear only the "shop around" half of that message.

Practical Scenarios: Applying Ramsey's Rules

Scenario 1: A paid-off 2013 Honda Civic worth $6,000. Comp and collision cost $520 a year. That's 8.7% of the car's value, so Ramsey would say keep them if your emergency fund is tight. If the premium creeps to $650 (10.8%), he'd say drop and self-insure.

Scenario 2: A financed 2024 SUV with 5% down and 72-month term. Keep full coverage, add gap through your insurer (not the dealer), and set a $1,000 deductible if you have savings. Bump liability to 250/500/250.

Scenario 3: A dual-income household with $750,000 net worth. Carry 250/500/250 on the auto policy, a $1 million umbrella, and $1,000 deductibles across the board. Review with an independent agent every year at renewal.

Frequently Asked Questions

How much car insurance does Dave Ramsey say I need? Ramsey's baseline is at least 100/300/100 split limits, and his ideal target is at least $500,000 in total liability (commonly 250/500/250). Once your net worth grows past the mid-six-figures, he wants you to add a $1 million to $5 million personal umbrella policy on top. Uninsured/underinsured motorist coverage should generally match your liability limits.

What deductible does Dave Ramsey recommend on car insurance? He recommends the highest deductible you can comfortably afford out of your emergency fund, and he specifically calls out $1,000 on both collision and comprehensive as the right target for most people. The premium savings from raising the deductible typically pay for themselves within a few claim-free years. Just make sure you actually have the cash on hand before choosing a high deductible.

When should I drop comprehensive and collision according to Ramsey? His rule of thumb is to drop both when the annual premium for comp plus collision exceeds 10% of the car's actual cash value, and when you could replace the car in cash without dropping your emergency fund below three months of expenses. On a $4,000 car with a $500 annual comp/collision premium (12.5%), dropping makes sense. On an $18,000 car with a $700 premium (3.9%), keep the coverage.

Does Dave Ramsey recommend gap insurance? Yes, but only if you financed with less than 20% down, took a long loan, or are leasing and are upside down on the vehicle. He also strongly recommends buying gap from a regular auto insurer (often under $30 a year) rather than the dealer, where it's typically a $500 to $700 one-time charge rolled into the loan. If you paid cash or you're no longer upside down, you don't need it.

What insurance companies does Dave Ramsey recommend? Ramsey doesn't officially endorse specific carriers. Instead, he directs listeners to his Endorsed Local Provider (RamseyTrusted) network of independent insurance agents, who then shop multiple A-rated carriers on your behalf. His preference is any independent broker over a captive agent tied to a single company, because independents can compare pricing across many insurers and move you if your rates spike at renewal.