Car Insurance- How Much Should I Get?
Are you trying to figure out how much car insurance you need? Frustratingly, the answer is different depending on whom you ask. Most states require minimum coverage for auto insurance, but your insurance company usually advises the entire range.
Can you have too much car insurance? While it’s undoubtedly true you can run — sometimes literally — into severe financial trouble with too little insurance coverage, your wallet would also argue that there’s such a thing as too much car insurance.
Ideally, the answer to “How much car insurance do I need?" strikes a balance between affordability and covering all the costs associated with an auto accident, including medical bills, property damage, and car repairs.
Just how much car insurance is required in your state?
Looking at minimum requirements for basic car insurance in your state is an excellent place to start when you’re building an auto insurance policy. Most states require proof of car insurance coverage, specifically liability insurance, once you hit any public road.
Minimum liability insurance requirements vary from state to state, but the most common usually looks like this:
$25,000 bodily injury per person
$50,000 bodily injury per car accident
$25,000 property damage per car accident
Some states also require uninsured motorist coverage, personal injury protection, or medical payments coverage.
Which states don't require car insurance?
There are two states where car insurance isn’t required for all drivers. In New Hampshire, you still have to prove you have financial resources to cover an at-fault accident, and the state does require drivers with certain convictions like DUI or reckless driving to carry car insurance.
You can waive car insurance requirements in Virginia by paying a $500 uninsured motorist fee.
How much liability coverage do I need?
You might wonder if the state’s minimum requirements for liability car insurance are enough to protect you in an at-fault accident. And the answer depends on your net worth.
Your net worth is a relatively simple calculation of the value of your assets (home, cars) plus any savings or investments minus your debts. Your bodily injury liability coverage and property damage liability limits should exceed your net worth. If they don’t, you’ll want to increase them
to bridge the gap.
What would your financial responsibility look like if you didn’t increase your liability limits?
Suppose you’re at fault in a car accident where multiple people are injured and their medical expenses top $100,000. If you only have minimum bodily injury insurance coverage, the insurance company would cover medical bills up to $50,000, and you’d be personally responsible for the remaining $50,000.
Five types of recommended car insurance coverage
While additional insurance is not required, most motorists carry extra coverage for a reason. Car accidents can be incredibly costly, and a little insurance goes a long way toward deferring unexpected accident costs like lost wages or a rental car. Here are the main types of auto insurance coverage you should consider and when it might make
sense to pay a little more for protection on and off the road.
1. Collision coverage
Best for leased, financed, and new cars
Collision insurance covers damage to your car during a motor vehicle accident. Collision coverage costs are affordable, so you should add them to your policy if you can’t repair or replace your vehicle.
2. Comprehensive coverage
Best for leased, financed, and new cars
Comprehensive insurance covers damage to your vehicle from weather, theft, vandalism, fire, and even animal strikes. Glass coverage is usually included in comprehensive and collision coverage. Comprehensive coverage is best for more expensive vehicles that you can’t afford to repair or replace out-of-pocket.
3. Personal injury protection (PIP) Best for no-fault states
Personal injury protection is required in some states as part of no-fault accident insurance. PIP coverage pays for medical expenses not covered by health insurance, childcare, lost wages, funeral expenses, and rehabilitation from injuries incurred in a car accident, regardless of fault.
4. Medical payments (MedPay) coverage
Best for those without health insurance
Medpay is an optional coverage available in some states that pays for medical bills. It can be a good idea even if you have good health insurance but are worried about being able to pay your
out-of-pocket medical expenses or meeting your deductible after a car accident.
5. Uninsured/underinsured motorist coverage
Best for everyone
Some states require drivers to protect themselves from damages and injuries caused by a hit-and-run from uninsured or underinsured motorists. According to the Insurance Research Council, one in eight drivers is uninsured or underinsured. In some states like Mississippi, the percentage can climb to nearly 30% of motorists driving without insurance.
Uninsured motorist insurance, or UIM, protects you, your passengers, and your vehicle if you are the victim of an accident caused by a driver without car insurance.
Five kinds of additional coverage
Here are five other less common types of car insurance coverage available from auto insurance
companies that you may want to consider.
1. Gap insurance
If you bought a new or used car or are leasing a vehicle, you may need or be required by your lender to get gap coverage. This type of insurance protects you (or the leasing company) if your vehicle is a total loss and the actual cash value the insurance pays doesn’t meet your car loan obligations.
2. Rental reimbursement
Rental reimbursement coverage is insurance that will pay the costs of a rental car if your vehicle is damaged in a covered claim. It’s relatively inexpensive and can cover other costs besides a rental vehicle, including rideshare services or public transportation costs.
3. Roadside assistance
Getting roadside assistance coverage as part of your insurance premium can pay off for drivers who own an older car, have long commutes, or just don’t want the hassle of emergency roadside repairs or the agonizing wait for a jump start.
4. Classic car insurance
Classic car insurance policies recognize the intangibles that make older or collector vehicles valuable — typically far more valuable than the day they rolled off the showroom floor. For the insurance to remain affordable, however, classic car insurance provides less coverage than standard auto insurance. For example, it won’t cover the car if used for regular transportation or is not securely stored.
5. Rideshare insurance
Personal car insurance doesn’t usually cover driving for business use, which is where rideshare
insurance comes in, helping close coverage gaps when you drive for a rideshare company in your spare time.
This type of insurance is typically sold as an add-on to your car insurance policy, meaning you don’t need a separate rideshare insurance policy.
What coverage limits should I have on my car insurance policy?
Determining your coverage limits boils down to your net worth and how comfortable you are with paying out-of-pocket expenses in the event of an accident. However, here are some commonly recommended coverage limits to consult when buying car insurance.
The cost of having these coverage limits will vary depending on several factors, including your driving history, vehicle, and deductible. Remember that some of these types of insurance aren’t
available everywhere and have maximum and minimum coverage limits mandated by each state.
Five steps to determining how much car insurance you need
Before buying car insurance, it pays to do your research. Here’s a step-by-step guide to knowing
what you’ll need before gathering car insurance quotes.
1. Know your net worth
Because you’ll need liability coverage limits that protect your assets, you should have at least a ballpark estimate of your net worth before you talk to an insurance agent.
2. Know your state’s minimum requirements
Don’t get ambushed by surprise state requirements. Research whether you live in an at-fault or no-fault state and the minimum requirements for liability and uninsured motorist coverage. For instance, New York, Oregon, and Florida are all no-fault states, while Alaska and Maine are at-fault states.
3. Determine your specific financial risk
Part of determining how much car insurance you need is how comfortable you are with the risk of significant out-of-pocket expenses. For instance, Progressive indicates that a basic auto insurance policy starts at $81 monthly. Still, you may be willing to pay an extra $25-$50 more per month to get better coverage or a lower deductible.
4. Consider using an insurance coverage calculator
Quite a few insurance companies offer coverage calculators to determine the car insurance you
need and your car insurance rates depending on your state of residence, the vehicles you own, your driving record, and how much your home costs.
5. Get at least two car insurance quotes
The Insurance Information Institute recommends putting yourself in the driver’s seat by getting at least two different auto insurance quotes to better understand your coverage options and car insurance costs.