Most states require a minimum amount of car insurance to drive a vehicle legally. But how do you know that’s enough insurance coverage to protect you financially if you get into an accident?
Choosing the right amount of auto insurance coverage is challenging. While you must have the minimum insurance to drive in your state, the amount of insurance coverage you buy should be based on your financial situation. Let’s break down how much car insurance you need.
How Much Car Insurance Do I Need?
The minimum car insurance requirement is usually just state-mandated liability coverage. This insurance coverage pays for some or all of the injuries and damages you’re responsible for in an accident. The most common minimum liability limits required by states are:
- $25,000 bodily injury liability coverage per person
- $50,000 bodily injury liability coverage per accident
- $25,000 property damage liability coverage per accident
However, each state has its own insurance requirements, which may be higher or lower and include additional types of coverage like personal injury protection (PIP).
If you lease or finance your vehicle, your lender may require insurance coverage above the state minimum requirement, including comprehensive and collision insurance.
Remember that your state’s minimum auto insurance requirements only provide basic financial protection. It’s recommended to carry higher liability coverage limits than the state minimum limits to avoid paying out of pocket in the event of any serious at-fault accidents.
How Much Auto Liability Coverage Do I Need?
To determine the right amount of liability car insurance, think about how much you could lose in a lawsuit after an auto accident. Choosing liability limits that match your financial situation is key because not having enough coverage could leave you on the hook for tens of thousands of dollars in damages.
While the concept of net worth might seem complicated or only for the rich, it’s a key factor in how much car insurance you need.
The goal is to have enough car insurance coverage to protect your existing assets, like your home, vehicle, and savings. Enough liability coverage will prevent you from selling these assets to pay for accident-related expenses.
Umbrella coverage increases your limits
Matching your insurance coverage to your net worth will prevent an accident from putting your financial security at risk. However, auto insurance policies have a maximum liability limit. If you need more coverage above that limit, umbrella policies can give you extra liability coverage, usually in $1 million increments.
If you have only one big asset, your car, you may not need umbrella insurance, and just increasing your liability limits in your auto insurance policy may be enough. But if you have other assets to protect, purchasing umbrella coverage from your insurance provider gives you extra peace of mind.
Things to Consider When Buying a Car Insurance Policy
Liability insurance coverage helps pay for another driver’s expenses if you are at fault in an accident. Still, it doesn’t help you if you are in an accident and your car is totaled and needs to be replaced. What happens if your vehicle is totaled in an accident and needs to be replaced? How much insurance will you need to replace it?
“Full coverage car insurance” means a policy that includes liability coverage plus collision and comprehensive coverages. These two auto insurance coverages help pay for damage to your car regardless of who is at fault. Collision coverage is when you are in an accident, and your vehicle is damaged; comprehensive is for damage unrelated to an accident, like vandalism, theft, or animal collisions.
Collision and comprehensive coverage are usually optional but are required if you lease or finance your car. If your vehicle isn’t worth much money or you can pay out of pocket to replace it, you may skip these coverages and pay for repairs yourself.
Do I need comprehensive & collision coverage?
Comprehensive and collision coverage are two optional types of car insurance that cover different situations.
Comprehensive insurance covers your vehicle for damage not caused by you, such as theft, vandalism, fire, weather damage, animal collisions, and glass breakage. No state requires comprehensive insurance coverage, but lenders require it if you lease or finance your vehicle.
Even if you own your vehicle outright, comprehensive insurance may be worth it if your car is worth more than a few thousand dollars or you can’t afford to repair or replace it without help from an insurance company if something unexpected happens.
On average, comprehensive coverage costs $11 per month for a 6-month policy. If you choose to add this coverage, make sure you select a deductible you can afford if you need to file a claim. A higher deductible will lower your insurance premiums but may cost more out of pocket when you make a claim.
Collision coverage, on the other hand, pays for your vehicle if it’s damaged in an accident with another car or an object like a street sign or guardrail.
Like comprehensive insurance, no state requires collision coverage, but lenders require it for leased or financed vehicles. This coverage is worth it if your car is worth more than a few thousand dollars or you can’t afford to pay out of pocket for repairs.
A six-month policy’s average collision coverage cost is $32 per month. If you choose this coverage, make sure to select a deductible you can afford. A higher deductible will lower your premium but may cost more if you need to file an insurance claim.
How Much Medical Payments Coverage Do I Need?
Medical Payments coverage helps pay medical bills for you and your passengers after a car accident, no matter who was at fault. MedPay coverage also applies if you’re a passenger in someone else’s vehicle during the accident.
MedPay is an optional coverage add-on in most states but is required in Maine and New Hampshire (if you buy car insurance). Coverage limits start at $1,000 per person and go up to $10,000 per person.
If you have health insurance, choose a limit that’s at least your health plan’s deductible. But if you or your passengers don’t have health insurance, choose a higher limit or max out your MedPay.
Also, remember personal injury protection (PIP), which covers medical expenses, lost wages, and funeral costs.
How Much Personal Injury Protection (PIP) Do I Need?
Personal injury protection (PIP) covers medical expenses for you and your passengers after a car accident, just like medical payments coverage (MedPay).
But in some states, PIP can also cover lost wages, funeral expenses, and essential services like housecleaning or child care if you cannot do daily tasks because of your injuries. While some states require PIP coverage, it’s not required or even available in most.
The amount of PIP you should carry depends on your state’s laws and financial situation. Coverage limits vary by state, with some capping benefits at less than $10,000 per person and others at $25,000 per person.
Suppose you already have health insurance or other policies that cover similar expenses. In that case, your state’s minimum PIP requirement may be enough. Increasing your PIP coverage is worth considering if your health insurance has low limits, high deductibles, or significant gaps in coverage.
It will also help if you need extra protection for lost wages, funeral expenses, child care costs, or if you frequently drive passengers who may hold you responsible for medical costs if you’re in an accident.
How Much Uninsured/Underinsured Motorist Coverage Do I Need?
Uninsured motorist coverage (UM) will pay if you are hit by a driver without auto insurance coverage.
Underinsured motorist coverage will pay if the at-fault driver’s liability limits are too low to cover your medical expenses or property damage.
These coverages are usually structured like liability insurance, with limits like $15,000 per person, $30,000 per accident, and $15,000 per accident for property damage.
Some states list UM/UIM property damage separately from bodily injury limits. Sometimes, you can waive UM/UIM property damage if you already have collision insurance, as these coverages overlap.
Some states require UM/UIM coverage, but most do not. If you lease or finance your vehicle your lender may require you to carry this coverage.
In some states, UM/UIM limits must match your liability limits. Still, even if it’s not required, it’s a good practice to have equal UM/UIM and liability limits so you are covered whether you are at fault or hit by another driver. Many drivers increase their UM limits above the minimum for extra peace of mind.
If you live in a state with a high number of uninsured drivers you should carry UM coverage even if it’s not required.
For example, in 2019, Florida had one of the highest uninsured driver rates in the country, with 20.4% of drivers uninsured, according to the Insurance Information Institute.
In those states, UM coverage can be a lifesaver, so you don’t have to pay out of pocket for expenses after an accident with an uninsured driver.
Additional Auto Insurance Coverage Options to Consider
Consider excess liability insurance to add more coverage to your car insurance policy. Excess liability insurance increases the liability limits of your current auto policy.
GAP coverage is worth considering if you are financing a new car since cars depreciate fast. In the event of a total loss, you may owe more on your loan than the car’s actual market value, and you’ll be financially responsible for the difference. Gap insurance helps bridge that gap and prevent out-of-pocket costs.
Adjusting your deductible can be a smart financial move for older cars. Choosing a higher deductible on comprehensive and collision coverage can lower your insurance rates. Make sure you weigh the potential savings against the cost of repairs or vehicle replacement. Knowing your car’s value while balancing insurance costs with out-of-pocket expenses will assist you in making a smart decision with your deductible.
New or old cars, working with a reliable insurance company, like Insurance Navy, will help you have the right coverage without overpaying. Talk to your Insurance Navy insurance agent to review your policy limits, adjust coverage or get an online car insurance quote to get the best auto insurance policy for you.
