The Insurance Mistakes Dave Ramsey Listeners Still Make (Even After Following the Baby Steps)

You finished Financial Peace University. You cut up the credit cards. You built your emergency fund, paid off the car, and started investing 15 percent of your income. You are doing the right things, and Dave Ramsey's Baby Steps gave you the roadmap to get there.

So why does your insurance still have gaps big enough to drive a truck through?

As a Ramsey Trusted Pro and an independent insurance agent who has worked with hundreds of families following the Baby Steps, I see this pattern more often than I would like. People who are disciplined, financially focused, and doing everything right with their money are still making insurance mistakes that could undo years of progress in a single afternoon. The Baby Steps are a brilliant framework for building wealth, but they were never designed to be a complete insurance plan. That is where an annual coverage check comes in, and that is exactly what this post is about.

Here are the six most common insurance mistakes I see Dave Ramsey listeners make, why each one matters, and what to do about it.

Mistake 1: Carrying Only State Minimum Liability Because It Keeps Premiums Low

This is the most common mistake, and it is the most dangerous one.

Ramsey teaches that you should choose the highest deductible you can afford, which is great advice. But some listeners take the "keep costs down" message a step further and drop their liability limits to the state minimum. In Colorado, that minimum is 25/50/15, which means $25,000 per person for bodily injury, $50,000 per accident, and just $15,000 for property damage. In Arizona, it is even lower at 25/50/15 as well. Idaho sits at 25/50/15. Kansas requires 25/50/25. Oregon requires 25/50/20. Washington requires 25/50/10. Utah recently raised its minimums to 30/65/25, which is a step in the right direction, but still nowhere near enough.

Here is why those numbers are a problem. The average transaction price for a new vehicle in the United States hit $50,326 in December 2025, according to Kelley Blue Book. That means Colorado's $15,000 property damage minimum would not even cover a third of the cost to replace an average new car. And that is just property damage. According to the National Highway Traffic Safety Administration, the average cost of medical treatment after a car accident injury is approximately $15,000, but a serious injury involving hospitalization can exceed $100,000 quickly. An inpatient hospital stay alone averages around $57,000.

Now imagine you are on Baby Step 6, paying off your house early. You have built a net worth of $300,000 or more. You cause a two-car accident on I-25 during rush hour, and two people go to the hospital. Your $25,000 per person and $50,000 per accident limits are exhausted before the first round of surgeries is over. The injured parties come after your personal assets for the rest, which means the equity in your home, your retirement savings, and the emergency fund you worked so hard to build.

That is not a scare tactic. That is math.

What to do instead: At minimum, carry 100/300/100 liability limits. If you are on Baby Step 4 or beyond and your net worth is growing, talk to your agent about 250/500/250 or higher. The difference in premium between state minimum and 100/300/100 is often surprisingly small, sometimes as little as $15 to $30 per month. That is one of the best returns on investment you will find anywhere in your financial plan.

Mistake 2: Skipping Umbrella Coverage After Building Real Wealth

Dave Ramsey recommends umbrella insurance, and his team at Ramsey Solutions has written about it. But in practice, many Baby Step followers skip it because it feels like "one more thing" or because they do not realize how affordable it is.

A personal umbrella policy provides an extra layer of liability protection that sits on top of your auto and home insurance. It kicks in when the liability limits on your base policies are exhausted. For a family with one home and two cars, a $1 million umbrella policy typically costs between $150 and $300 per year. That works out to roughly $13 to $25 per month for an additional $1 million in protection.

Here is when umbrella coverage becomes essential. If you are on Baby Step 4 and investing 15 percent of your household income, your net worth is growing every year. By the time you reach Baby Steps 6 and 7, you may have $500,000 or more in assets between your home equity, retirement accounts, and savings. Without an umbrella policy, a single serious liability claim could put all of that at risk.

Think about the scenarios that happen in everyday life. Your teenager gets their license and causes a multi-vehicle accident. Your dog gets out of the yard and bites a neighbor's child. A guest slips on your icy front steps in January (this is Colorado, after all). A social media post you wrote gets taken out of context and leads to a defamation claim. These are not far-fetched situations. They happen to families every week.

Umbrella policies also cover things that your standard auto and home policies may not, including certain legal defense costs, libel and slander claims, and liability you incur while traveling overseas.

What to do instead: If your net worth is above $300,000, talk to your agent about a $1 million umbrella policy. If your net worth exceeds $1 million, consider a $2 million policy. The incremental cost for each additional million is typically only $75 to $100 per year. For the protection it provides, umbrella insurance is one of the most underused and underpriced tools in the insurance world.

Mistake 3: Dropping Comprehensive and Collision Too Early

Ramsey's advice here is sound in principle. If your car is paid off and you could replace it out of pocket, you can consider dropping comprehensive and collision coverage. The idea is that you are "self-insuring" at that point, moving the risk onto your own balance sheet because you have the cash to absorb a loss.

The mistake happens when people drop these coverages too early, often on vehicles that are still worth $10,000, $15,000, or even $20,000. I have seen families on Baby Step 3 (building their emergency fund) drop collision coverage on a car worth $18,000 because they wanted to save $40 a month. That is a decision to self-insure a potential $18,000 loss with only $5,000 in the bank. The math does not work.

Here is a practical rule of thumb. If the value of your vehicle is more than you could comfortably replace using your emergency fund without depleting it below three months of expenses, keep comprehensive and collision in place. A $12,000 car with a $1,000 deductible means your maximum out-of-pocket cost for a covered loss is $1,000, not $12,000. That is a smart use of insurance.

Also keep in mind that comprehensive coverage is not just about accidents. It covers hail damage (a very real concern in Colorado, where spring hailstorms regularly cause billions in insured losses), theft, vandalism, falling objects, animal strikes, and flooding. Dropping comprehensive to save $15 a month and then taking a $6,000 hail hit is not financial discipline. It is a gamble that did not pay off.

What to do instead: Keep comprehensive and collision on any vehicle worth more than $5,000 to $8,000, depending on your emergency fund size. Run the numbers with your agent. Ask them to show you the annual premium for comp and collision versus the current value of your vehicle. If the premium is less than 10 percent of the car's value, it is almost always worth keeping.

Mistake 4: Not Updating Your Policy After Major Life Changes

The Baby Steps are designed to be followed in order, one at a time. That sequential focus is powerful for building financial discipline. But it can also create a blind spot when it comes to insurance, because life does not wait for you to finish a Baby Step before throwing a curveball.

Here are the life changes that should trigger an immediate insurance review:

Getting married or adding a spouse to your household. Your auto policy needs to reflect every driver in the home. Your home or renters policy needs to account for combined belongings. Your life insurance beneficiaries need updating.

Having a baby or adding a child to your family. Your life insurance coverage should be recalculated. Many financial planners, including Ramsey's team, recommend 10 to 12 times your annual income in term life coverage. A new baby often means that number needs to go up, not stay the same.

Buying a home. Your homeowners policy should reflect the full replacement cost of the structure, not just the purchase price or the mortgage balance. These are three different numbers, and getting them confused is one of the most common underinsurance mistakes I see.

Moving to a new state. Every state has different minimum requirements, different risk profiles, and different carrier options. A policy that worked perfectly in Phoenix may leave you exposed in Portland or Denver.

Adding a teen driver. This is a big one. Adding a 16-year-old to your auto policy changes your risk profile significantly. It is also the right time to increase your liability limits and consider an umbrella policy if you do not already have one.

Starting a side business or home-based business. Your homeowners policy likely excludes business-related losses. If you are running a business out of your home, even a small one, you may need a separate business policy or a home-based business endorsement.

Paying off your mortgage. Once your lender is no longer requiring a homeowners policy, some homeowners let their coverage lapse. This is a serious mistake. Your home is likely your largest asset. Protect it.

I recommend reviewing your insurance at least once a year, ideally at the same time you do your annual budget review. Think of it as a coverage check, just like a wellness visit with your doctor. You are not waiting until something goes wrong. You are making sure everything is in order before it needs to be.

What to do instead: Schedule an annual insurance review with your agent. Bring a list of any life changes from the past year. Ask your agent to run a replacement cost estimate on your home and compare your current coverage limits against your current net worth.

Mistake 5: Assuming the Baby Steps Replace the Need for an Insurance Strategy

This is the subtlest mistake on the list, but it may be the most important.

The Baby Steps are a debt elimination and wealth-building plan. They are not an insurance plan. Ramsey himself would agree with this. His team recommends specific insurance products at various stages (term life insurance, auto and home coverage, identity theft protection, long-term disability, long-term care insurance, and umbrella policies). But many listeners hear the core message of "get out of debt, build wealth, live like no one else" and assume that financial strength alone will protect them.

It will not. Insurance exists specifically for the risks that are too large to absorb, even with a fully funded emergency fund and a healthy net worth. A house fire does not care how much money you have in your 401(k). A lawsuit from a serious car accident does not care that you are debt-free. A tornado does not check whether you are on Baby Step 7 before it takes your roof.

The Baby Steps and a solid insurance strategy are not competing priorities. They are complementary. Your emergency fund handles the small, predictable surprises (a broken furnace, a fender bender, an unexpected medical bill). Your insurance handles the large, unpredictable events that could otherwise wipe out years of progress.

Think of it this way. If the Baby Steps are the offense (building wealth), insurance is the defense (protecting it). You need both to win.

What to do instead: Sit down with your agent and map your insurance coverage to your current Baby Step. Here is a quick guide:

Baby Steps 1 and 2 (starter emergency fund and paying off debt): Make sure you have adequate auto liability (at least 100/300/100), a solid homeowners or renters policy, and term life insurance if anyone depends on your income. Keep deductibles at a level your emergency fund can cover.

Baby Step 3 (fully funded emergency fund): You can now consider raising deductibles to $1,000 or higher, which is exactly what Ramsey recommends. This is the right time to optimize premiums without reducing coverage.

Baby Steps 4 through 6 (investing, saving for college, paying off the house): Your net worth is growing. This is when umbrella coverage becomes important. Review your liability limits on auto and home to make sure they match your growing asset base. Update life insurance if your family situation has changed.

Baby Step 7 (build wealth and give): You have significant assets to protect. Your umbrella policy should match or exceed your net worth. Consider whether your homeowners policy includes guaranteed replacement cost. Review your overall coverage annually.

Mistake 6: Forgetting That "Shop Around" Does Not Mean "Set It and Forget It"

Ramsey is a strong advocate for shopping your insurance regularly, and he specifically recommends working with an independent agent who can compare options across multiple carriers. That is exactly what Trailstone does. We work with more than 40 insurance companies across seven states, and we shop the market on your behalf.

But here is the mistake I see. A family follows Ramsey's advice, works with an independent agent, gets a great policy, and then never looks at it again. Three years later, their home has appreciated by $80,000, they have added a second car, their oldest child is about to turn 16, and they are still carrying the same coverage limits they had when they first signed up.

Insurance is not a one-time purchase. It is a living part of your financial plan. Carriers change their pricing, their appetite for certain risks, and their coverage options every year. A carrier that was the best fit for you three years ago might not be the best fit today, and the only way to know is to review your options.

This does not mean you need to switch carriers every year. Loyalty can have real value, including claims handling relationships and renewal stability. But it does mean you should review your coverage annually and confirm that your limits, deductibles, and endorsements still match your life.

What to do instead: Set an annual reminder to review your insurance. Your agent should be reaching out to you proactively, but do not wait for them. Call or email and say, "I would like to do an annual review." Any good agent will welcome that conversation.

Frequently Asked Questions

Q: Does Dave Ramsey recommend umbrella insurance? A: Yes. Ramsey's team recommends umbrella insurance, particularly for families with a net worth above $500,000. However, many financial professionals, including our team at Trailstone, believe it makes sense to add an umbrella policy once your net worth exceeds $300,000, given how affordable the coverage is.

Q: How much liability coverage does Dave Ramsey recommend for auto insurance? A: Ramsey recommends at least $500,000 in liability coverage for both bodily injury and property damage. He also recommends carrying uninsured and underinsured motorist coverage. We agree and recommend 100/300/100 as a starting point, with higher limits as your net worth grows.

Q: Should I drop collision and comprehensive coverage on my paid-off car? A: Only if you can afford to replace the vehicle out of pocket without depleting your emergency fund. If your car is worth $5,000 or less and you have a fully funded emergency fund, it may make sense. If your car is worth $10,000 or more, keep the coverage.

Q: How often should I review my insurance? A: At least once a year, and any time you experience a major life change (marriage, baby, new home, new state, new driver in the household, new business). An annual review takes about 30 minutes and can save you thousands in coverage gaps.

Q: What is the difference between a captive agent and an independent agent? A: A captive agent works for one insurance company and can only offer that company's products. An independent agent, like Trailstone, works with multiple carriers (we work with more than 40) and can shop the market to find the best coverage and price for your specific situation. This is what Ramsey recommends.

Q: I am on Baby Step 2 and trying to pay off debt. Can I afford to increase my insurance coverage? A: This is a conversation to have with your agent. In many cases, increasing your liability limits from state minimum to 100/300/100 costs only $15 to $30 more per month. Compare that to the risk of a liability claim wiping out your emergency fund and putting you deeper in debt. The small increase in premium is almost always worth the protection.

Q: Does Trailstone work with Dave Ramsey listeners specifically? A: Absolutely. We are a Ramsey Trusted Pro, which means we have been vetted by the Ramsey team and we follow the principles Dave teaches. We understand the Baby Steps framework and we build insurance plans that complement your financial goals at every stage.

What to Do Next

If you have been following the Baby Steps and it has been more than a year since you reviewed your insurance, now is the time. Here is your action checklist:

Review your auto liability limits. If you are carrying state minimums, ask your agent to quote 100/300/100 and compare the cost difference. It is usually smaller than you expect.

Check your homeowners policy for replacement cost accuracy. Make sure it reflects what it would actually cost to rebuild your home today, not what you paid for it.

Ask about umbrella coverage. If your net worth is above $300,000, a $1 million umbrella policy is one of the smartest insurance purchases you can make.

Verify your life insurance amount. Multiply your annual income by 10 to 12 and compare that number to your current term life coverage.

Run the comprehensive and collision math. Compare the annual premium to the current value of each vehicle. If the coverage costs less than 10 percent of the vehicle's value, keep it.

Schedule your annual review. Put it on the calendar. Treat it like an oil change for your financial plan.

Reach out to Trailstone via our website at www.trailstoneinsurance.com or give us a call. Trailstone will provide a complimentary review of your insurance and teach not sell.

We are fans of Dave Ramsey. We follow the Baby Steps in our own lives, and we recommend them to our clients. But we also know that no financial plan is complete without the right insurance behind it. The Baby Steps build your wealth. The right coverage protects it. Let us make sure both sides are working together.

Written by Mark Rodgers, President and Founder, Trailstone Insurance Group