How Much Car Insurance Do You Need?

Almost every state requires drivers to carry a minimum amount of car insurance. If you recently purchased a new car, you’re probably wondering, “how much auto insurance do I need?” You may also need to figure out what type of auto insurance coverage you need to legally hit the road. In this article. In this article we’ll take a look at the different kinds of car insurance to help you determine the best car insurance coverage for you at a price that won’t break the bank.

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    In this article

      Types of car insurance coverage

      Your car insurance policy is broken down into six major parts, and there are also optional coverages that you can add to your policy. Here’s a summary of what a basic car insurance policy looks like.

      Liability insurance

      Liability coverage is mandatory for most U.S. states. It’s broken down into two sub-categories. Bodily injury liability will pay for the medical costs incurred by anyone else involved in your accident. Property damage liability, which covers the costs of reimbursing anyone else for damage. That could be to repair a vehicle or another person’s property if you go off the road.

      Personal injury protection

      PIP coverage reimburses for any medical costs for injuries that you or the passengers in your car sustain during an accident. It may also cover costs if you lose income because of an accident or incur extra child care costs. It’s not available in every state.

      Uninsured motorist/underinsured motorist coverage

      This insurance protects you if you are involved in an accident with another car whose driver has no insurance or doesn’t have enough to cover the costs of the accident. Uninsured motorist coverage also covers you if you are hurt in a hit-and-run accident. It’s not usually mandatory, but it is worth considering even if it’s not required because it can be a lifesaver in some circumstances.

      Read: [What Is Uninsured Motorist Coverage (and Do I Need It)?]

      Collision insurance

      Collision is optional insurance that covers the damage to your car in an accident you’re responsible for, like if you hit another car or incur damage from a pothole. It’s not mandatory, but if you have a car loan, your lender may require you to carry a collision policy.

      Read: [What Is Collision Insurance and When Is It Worth It?]

      Comprehensive insurance

      Comprehensive insurance isn’t about accidents. It covers damage from all sorts of other covered perils, ranging from falling trees to theft and storm damage. It’s not required, but again, if you have a car loan, your lender may want you to have it.

      Gap insurance

      This optional coverage can be a great help if your car is totaled and you have a car loan that is worth more than the car’s value. Your car starts to depreciate the minute you drive it off the lot. If you lease your car, gap coverage is usually part of your leasing payment.

      Read: [What Is Gap Insurance and Do I Need It?]

      Additional options

      Glass coverage: This is becoming fairly common, and many policies include a no-deductible option for glass repair, which makes sense because the repairs are often smaller than the deductible amount.

      Medical payments coverage — also known as medical expense coverage, this covers you and your passengers’ medical expenses no matter who caused the accident. It’s different from PIP in a couple of ways: it won’t cover child care or lost wages; it’s offered in states that are not “no-fault (PIP is available in no-fault states); and it’s always optional, unlike PIP.

      Ride-sharing coverage: With the popularity of companies like Lyft and Uber, insurers have developed a new type of insurance that covers you if you use your car for business purposes, which regular car insurance doesn’t. Your ridesharing company may offer insurance, but these policies generally feature high deductibles and may leave you on the hook if someone is injured or your car was damaged while providing drive services. You’re better off getting coverage from your own insurance company.

      Transportation reimbursement coverage: If your car is in the shop for any amount of time being fixed after an accident, this coverage will help you pay for car rental or public transportation costs. It’s also called rental reimbursement coverage or rental car coverage.

      New car replacement coverage: You could be out by several thousand dollars or more if your relatively new car is totaled because depreciation happens fast. This option is becoming increasingly popular, though not all insurers offer it. Generally, it will pay to buy you a new car instead of giving you the depreciated value if you total a car that’s two years old or newer.

      Classic car insurance: This coverage takes the intrinsic value of a collectible car into consideration when paying a claim. You’ll need to talk to your agent to determine if your car fits in that category; requirements vary from company to company.

      Towing and labor coverage: This coverage isn’t very different from what auto clubs like AAA offer. If your car breaks down, you can get free or low cost towing to a service station, and it may pay for things like gas delivery, a jump start or getting access to your locked car. This isn’t intended for use after an accident, but for those painfully common experiences where your “check engine” light comes on or you’re stuck by the side of the road with a dead battery.

      What is the minimum car insurance I need

      Before purchasing car insurance, it’s important to know what is the minimum amount of coverage your state requires. Most states require bodily injury liability and property damage liability coverage, but the specific amount of coverage varies by state. If you live in one of the 12 no-fault states, you’ll also need to carry personal injury protection (PIP) insurance. 

      When you’re shopping for car insurance, remember that most coverages are optional, like collision and comprehensive insurance. Although these coverages are very common, they aren’t actually required by states. Collision and comprehensive coverage are included in full coverage car insurance, which includes more coverage than the state minimum.

      What to consider getting car insurance coverage?

      Car insurance isn’t a one-size-fits-all. Every driver needs a different type of car insurance, and a different amount of car insurance based on some personal factors. Here are a few things you should consider when purchasing car insurance:

      • The car you drive: First, consider the car you drive. New cars and high-end cars need significantly more insurance coverage than old used cars, or cars that are on their last leg. If you were to get into an accident, it would cost more money to fix a brand new car with lots of bells and whistles than it would to fix a 20 year old car with 150,000 miles. 
      • Where you live: Your state will require you to carry a minimum amount of insurance. However, it’s a good idea to increase your coverage limits beyond the minimum amount. If you got into an accident, there’s no guarantee that the minimum amount of coverage would be enough to cover the damages after the crash. In that case, you would have to pay the difference out-of-pocket.
      • Your financial situation: Car insurance premiums can be expensive, but it’s cheaper to pay for insurance than it is to use your savings to pay for vehicle damages or legal expenses after a crash. If you couldn’t afford to repair or replace your car out-of-pocket, you need to get enough car insurance to cover potential damages. Otherwise, you could find yourself in debt after a loss.

      Compare Affordable Auto Insurance Rates

      Save money on auto coverage with our simple comparison tool.

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        Deciding how much car insurance do you need

        How much car insurance is required in your state

        Your first responsibility when choosing car insurance is to find out what the minimums are in your state. These minimums are written in a shorthand that’s easy to decipher. New York, for example, has a minimum of 25/50/10. That means the minimum insurance you can have in this state is $25,000 per person for bodily injury; $50,000 per accident for bodily injury; and $10,000 per accident for property damage. You cannot legally drive with less insurance than this.

        How much liability insurance do you need for your car 

        Liability insurance helps pay for another driver’s medical bills or property damage if you cause an accident that results in losses. Drivers are legally required to carry bodily injury and property damage liability coverage in almost every state. When you purchase car insurance, the minimum liability requirements are represented in this format: Bodily injury liability coverage per person/bodily injury liability coverage per accident/personal property liability coverage per accident.

        New York, for example, has a minimum of 25/50/10. That means the minimum insurance you can have in this state is $25,000 per person for bodily injury; $50,000 per accident for bodily injury; and $10,000 per accident for property damage. You cannot legally drive with less insurance than this.

        The biggest benefit of liability insurance is that it protects your personal assets in the event of a lawsuit. Liability insurance will cover your legal fees, court costs, and settlements if another driver takes you to court. Without liability insurance, the other driver could take you to court and seize your assets if you didn’t have enough money to repay them for the damage you caused.

        Lender requirements

        If you purchased your car with cash, the legal minimums are the basics that your state requires. But if you have a car loan, your lender may have additional insurance requirements, such as collision or comprehensive insurance. Talk to your banker to find out more.

        Financial protection

        Car insurance is extremely important because it offers financial protection. Without insurance, you’re responsible for compensating another driver for their losses if you cause an accident. Between vehicle damages, medical bills and property damage, a serious accident can cost thousands of dollars and even more, which would come directly out of your pocket.

        When you’re choosing how much insurance to buy, it helps to have a good insurance agent you can discuss the available coverages with. If you can afford it, consider carrying more than the minimum required.

        Carrying too little insurance is a risk. If you’ve been in an accident, you may know how quickly the medical bills can mount up and how it feels to receive a repair bill that is more than your insurance will pay. Do your research before you choose your car insurance company to make sure you’re not paying more than you need to. Most companies allow you to get a free online quote, and that’s great info to start with. Also, most companies offer discounts that can save you significantly on premium costs.You can also save money by not buying collision insurance, or by downgrading your insurance. Drivers with older cars sometimes pass on this insurance because the car isn’t worth as much as a newer car would be and isn’t worth much more than the deductible would be.

        What if I don’t have car insurance

        We don’t recommend that you get behind the wheel of a car without insurance. In most states, this is illegal and it could cost you your driver’s license or other penalties or even result in jail time if you are a repeat offender. The penalties vary from state to state, but they are generally severe.

        If you cause an accident and don’t have car insurance, the consequences depend on what state you’re in. If you live in one of 12 no-fault states, you are required to submit your claim to your insurance company no matter who is at fault. If you caused the accident, the other driver, except for limited circumstances, cannot name you as a defendant but, at the same time, you are responsible for all your medical and other costs. The other driver will receive a payout for their own costs from their own uninsured motorist coverage.

        If you live in one of ten “no pay, no play” states, you are limited in the compensation you can ask for if you are injured in an accident but have no insurance, even if the other driver is at fault. You may be able to collect on economic damages, such as lost wages or medical bills, but you cannot sue for pain and suffering or other punitive damages.

        If you have an accident and do not live in one of the states we’ve mentioned, you live in a “tort” state. If this is the case, when you cause an accident you are liable for all costs from car repair to medical bills to pain and suffering, which can be more than the other costs combined.

        The exceptions to these rules include Virginia, which does not require car insurance but does mandate that you pay $500 a year to drive uninsured, and New Hampshire, which notes that you will be held responsible by law for bodily injuries or property damage.

        How much car insurance you need is both a legal and personal decision. Evaluate these things to make sure you’ll feel comfortable with your coverage.

        Mary Keuren

        Contributing Writer