How Much Auto Insurance Do I Need?
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“How much car insurance do I need?” is a tricky question because the right answer is different for everyone. There’s the amount the law tells you that you need – your state minimum coverage requirements – and then there’s the amount that’s right for your lifestyle, your budget, and the type of car you drive.
It’s easy to get pressured into coverage options that you may not actually need. Still, it’s just as easy to choose a cheap car insurance policy with insufficient coverage in the event of a natural disaster or at-fault car accident.
So we’re here to give you the facts so you can answer the question, “How much car insurance do I need?” once and for all.
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- Besides your state’s minimum insurance requirements, there is no formula to determine how much car insurance you should carry. The amount you choose is based on your specific needs and the risk you’re willing to take.
- When choosing your auto insurance coverage, you should consider how much personal liability you’re willing to take if you’re involved in an accident that causes damages or injury.
- You may need to purchase more than full coverage insurance, which includes comprehensive and collision to provide the level of protection you need. Consider optional coverage such as roadside assistance, MedPay, income reimbursement, towing, and rental car reimbursement.
Why You Need Car Insurance
Accidents are expensive. If you factor in vehicle repair or replacement costs, property damage, and medical bills, you could be looking at tens of thousands of dollars (or more) of damages from one accident. When you don’t have insurance, those expenses fall in your lap, because you don’t have an insurance policy to help cover costs.
Keep in mind that car insurance doesn’t just protect you after a car accident. Depending on the coverage you choose, your insurance may cover the cost of repairing or replacing your vehicle if it’s vandalized, stolen, or damaged by a natural disaster or fallen tree.
Chances are you’re also required to have car insurance. Most states will only allow you to drive legally if you meet the state minimum for car insurance. If you’re leasing your vehicle or financing it with an auto loan, your lender will likely also require you to have a certain amount of coverage. Knowing that the vehicle is insured protects the lender in case the vehicle is damaged before you’ve repaid the loan.
How Much Car Insurance Do I Need to Drive Legally?
Let’s start by answering the easy part of the question: how much car insurance do you need to abide by the driving laws of your state? Only two states – New Hampshire and Virginia – allow you to drive without insurance. In Virginia, you’ll have to pay a $500 uninsured motorist fee if you don’t have car insurance coverage.
In the rest of the country, you’ll need to meet the minimum auto insurance requirements, which tell you how much your insurance policy needs to cover (not how much you’ll pay).
To take one example, Florida state law has the following coverage requirements:
- $10,000 property damage liability coverage per person and per accident
- $10,000 personal injury protection (PIP) coverage
That’s pretty straightforward, right? Now, let’s consider Delaware, which has a longer list of coverage requirements and higher coverage limits:
- $25,000 bodily injury liability coverage per person
- $50,000 bodily injury liability coverage per accident
- $10,000 property damage liability insurance per accident
- $25,000 bodily injury underinsured/uninsured motorist coverage per person
- $50,000 bodily injury underinsured/uninsured motorist coverage per accident
- $10,000 property damage underinsured/uninsured motorist coverage per accident
- $15,000 personal injury protection per person
- $30,000 personal injury protection per accident
What Type of Coverage Do I Need?
Before comparing insurance quotes, it’s important to understand each type of car insurance coverage so you know which policy limits apply.
- Liability Insurance: Liability insurance covers expenses another driver might incur after an accident. These include their medical bills and property damage.
- Personal Injury Protection: Personal injury protection covers any medical expenses you or your passengers might experience after an accident. This coverage is effective whether or not you were at fault for the accident. There are 12 states that require personal injury protection coverage.
- Medical Expenses: Medical expense coverage, also called MedPay, covers medical expenses for you and your passengers. It’s a relatively inexpensive policy and is effective whether or not you’re at fault for an accident. It’s required in Maine and New Hampshire.
- Uninsured or Underinsured Motorist: If you’re in an accident when an uninsured or underinsured motorist is at fault, this type of coverage helps to ensure you’re not left with unpaid expenses. It’s also effective if you’re ever in a hit-and-run. This coverage tends to be affordable, and is required in many states. Keep in mind that not all states offer uninsured property damage coverage. For example, in Connecticut, the uninsured/underinsured motorist coverage applies to liability only. The damage to the insured vehicle, though caused by someone else, would have to go through the collision portion, not the uninsured motorist portion.
- Collision Insurance: Collision insurance helps to cover your expenses if your vehicle is damaged in an accident. If your vehicle is financed or leased you will be required to have this coverage.
- Comprehensive Insurance: Comprehensive coverage helps to pay for expenses that result if your car is damaged by something other than a collision, like by weather or vandalism. Similar to collision insurance, you will need this coverage if you’ve leased or financed your car.
- Guaranteed Auto Protection (GAP): Gap insurance helps to protect you if your car is totaled, but you owe more on the loan than the car is worth. Your gap insurance will step in and pay the difference between what your insurance company pays out and what you owe on your vehicle loan.
There are also several add-on options, like full glass coverage, emergency roadside assistance, rental car reimbursement, and tow truck coverage. None of these add-ons are required, and they won’t protect you from lawsuits or major financial liabilities like other types of car insurance will. However, if you’re looking for extra peace of mind and potential savings if your vehicle breaks down or is damaged, you might want to consider them.
If you’re concerned about how much it will cost to equip your vehicle with the level of insurance you desire, the best thing you can do is get quotes from different insurance providers.
Compare.com’s comparison tool makes this easy. Just spend five minutes completing the quote request form, and we’ll compare rates from over 65 top insurance companies before presenting you with the best options for your budget.
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State Insurance Minimums
As you shop for insurance, you’ll need to choose a policy that satisfies at least your state’s minimum insurance requirements. States set these minimum requirements to help protect all drivers on the road. But keep in mind, this is typically just liability coverage which will only cover the costs of the other driver’s injuries and damages, not yours. You’ll be responsible for paying your damages out of pocket if you caused the accident and you have not opted to carry collision coverage on your policy.
Most states require you to carry a certain amount of bodily injury liability coverage per person and per accident. States also often specify a minimum amount of property damage liability. Some will also require you have personal injury protection or uninsured motorist protection as well.
For example, Arizona requires you to carry at least $25,000 in bodily injury liability per person, $50,000 in bodily injury liability per accident, and $15,000 in property damage liability. Keep in mind that these are the minimum amounts of required insurance, and you may want additional coverage.
Learn More: What auto insurance coverage is required in your state
Why You Need More Car Insurance Than the State Minimum
Just because your state specifies a minimum amount of insurance coverage doesn’t mean that those limits are enough coverage for you. You need to consider other factors to make sure you’re prepared and protected just in case you’re ever in an accident.
For example, Arizona’s $50,000 bodily liability coverage may not be enough to fully protect you in an accident. If you were at fault in an accident that caused $80,000 in bodily liability, you would still personally be responsible for $30,000 out of pocket. The driver or passengers in that accident could sue you for the remaining expenses along with your (and possibly their) legal expenses.
If you are liable for expenses resulting from an accident and you don’t have the cash to pay for them, your assets could be seized. Consider your net worth and the assets that could be taken if you’re in this situation. These assets could include your car, your home, your savings, and other items, including art, jewelry, and personal property. It’s also possible that a judge might order that your wages be garnished until your debts are paid.
However, if your net worth is lower, it’s less likely you’ll be sued. If your net worth is $100,000, it’s a good idea to have at least $100,000 worth of property damage liability coverage to protect you. You’ll need to carefully think about how much risk you’re comfortable with when deciding how much insurance you need.
Deciding How Much Car Insurance You Need
While the amount of risk that you’re comfortable with will affect how much coverage you decide you need, there are some general tips that can help you get a sense of what coverage levels are recommended.
- Bodily injury liability: A 100/300 split liability limit policy offers $100,000 per person and $300,000 per accident to the other parties involved in the accident when the incident is deemed your fault. This is recommended for any driver who can afford it, since medical bills can quickly add up and this policy offers you much more protection than state minimums. While 100/300 insurance isn’t the highest level of coverage available, it is a good mid-range coverage limit to go with.
- Property damage liability: It’s a good idea to get as much property damage liability as you can afford. Your property damage limit is the total amount your auto insurance will pay for ALL of the damages in an at-fault accident. It isn’t per vehicle damaged. Keep in mind that new vehicles can often cost $50,000 or more. That’s why, the more you can afford to get, the better.
- Personal injury protection: Take out as much coverage as you can afford, since this policy pays for basic medical expenses and some lost wages. It could help to protect you if you’re ever seriously injured in an accident and can’t work.
You will also need to consider your personal situation. If your vehicle is old and has a low value, then you might want less overall insurance than you would take out if you had a brand new car. But, if your car has a higher value, you can opt for additional coverage like GAP insurance. Ultimately, all drivers can consider additional add-ons available at a nominal fee such as roadside assistance, rental car reimbursement and full glass coverage.
How Much Car Insurance Do I Need for a New or Used Car?
Now that you know what type of auto insurance coverage you need in your state, it’s time to take the make and model of your vehicle into account. Do you want to pay for car insurance coverage above and beyond the minimum requirements? Usually, that means adding collision or comprehensive coverage to your policy.
Collision insurance pays for repairs to your own vehicle if you get into an accident. If you have comprehensive insurance, your car insurance company will cover loss or damage due to vandalism, theft, or natural disaster.
You may still have to pay some out-of-pocket costs until you reach your deductible amount, but it spares you from being on the hook for all of it.
So, should you add this type of coverage to your policy, or should you stick with the minimum amount of coverage required by your state?
Let’s say you’ve just bought a brand-new car and live in a neighborhood where car theft is common. Sure, taking out a full coverage auto insurance policy will result in a higher premium, but would you really want to do without it?
On the other hand, if you’ve just bought a used car, then the amount of insurance you need to sleep easy at night will be lower than if you bought a brand-new vehicle. You may not need additional coverage beyond your state’s minimum coverage requirements if you’re comfortable paying for any repairs (or even buying a replacement vehicle) out of pocket.
Most cars will fall somewhere on the spectrum: As your vehicle gets older, you can choose to remove collision and comprehensive coverage from your policy.
Once the actual cash value of your car is lower than your annual insurance premium, it’s time to reconsider the amount of car insurance coverage you need.
How Much Car Insurance Do I Need for My Lifestyle?
A few other things determine how much car insurance you need, such as your budget and your lifestyle. Ultimately, car insurance protects you from liability for damages in an at-fault accident, so the more assets you have to lose, the more coverage you should have.
If you’re involved in a serious accident, then the cost of medical bills could exceed your liability limits. The injured party could come after your home or savings. That’s why high-net-worth individuals may want to consider an umbrella policy.
If you’re leasing or financing a vehicle, your lender may require you to have collision coverage, even if your state doesn’t. You may also want to take out gap insurance, which protects you if the cost of your loan exceeds the value of your vehicle.
Another thing to consider is how often you drive. Pay-per-mile car insurance can be a great option for low-mileage drivers who don’t use their car frequently, while roadside assistance is a good idea if you take long-distance road trips.
Other optional add-ons include rental reimbursement coverage, which pays for the cost of a rental car while your car is being repaired.
How Can I Lower My Car Insurance Costs?
We’ve mostly been looking at factors within your control, such as the type of car you drive and how much coverage you want to carry.
But most factors that affect your insurance rates are outside your control, like your age, location, and marital status.
If you want to lower your car insurance premiums without sacrificing coverage, consider choosing a higher deductible. This will increase your out-of-pocket costs if you get into an accident but can keep your monthly premiums within your budget.
Drivers who rent or own a home, or have multiple drivers on the same policy, may want to consider a car insurance bundle or look for other car insurance discounts.
Find the Best Car Insurance Policy for You
The amount of car insurance you need comes down to your budget and your threshold for risk. If you want to play it safe and don’t mind paying higher auto insurance rates, consider choosing a policy that exceeds your state’s minimum requirements.
On the other hand, if your car’s value is lower than your annual premiums, consider removing collision and comprehensive coverage to lower your insurance costs.
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