How Much Car Insurance Coverage Do You Really Need?
No matter how well you think life is going, tragedy or misfortune is always bound to strike. Call me a pessimist if you want, but it’s that pessimistic attitude that can help you stay on top of something like a car accident.
Car accidents happen a lot, every day, actually. According to the Association for Safe International Road Travel, over 38,000 people die every year in car crashes, with an additional 4.4 million needing serious medical assistance after an auto accident. It has become one of the leading causes of death in America. So, needless to say, it can happen anywhere, anytime.
Of course, steps can and should be taken to prevent such tragedies from happening, but you cannot control the world and sometimes find yourself in a wreck. What you can plan for is how you will be able to handle the wreck both medically and financially, leading to the question: how much car insurance do you really need?
It’s best to take a look at exactly what your options are and what may be the minimum car insurance requirements in the state you live in. From there, it’s about looking at yourself as a driver, the status of your car, and, ultimately, what you would be comfortable affording. It can be a winding road, so it’s best to try to lay it all out before you find yourself in the middle of an accident with no auto policy protection.
The Purpose of Car Insurance
In the simplest of explanations, car insurance is like a sort of security blanket if you find yourself in a car crash or other unfortunate situation. Any sort of car damage or bodily injury post-accident can get very pricey very quickly, and cheap car insurance policies are able to swoop in to relieve some of the financial burdens, such as medical bills and cost of repairs.
But how much car insurance do you actually need, and what types of situations can you be protected in? There’s a whole catalog when it comes to types of coverage available, some required and some optional. It’s important to look at what types of coverage are on the market and determine what you may need should you ever find yourself injured or your car damaged after an accident.
Do You Need Car Insurance?
Yes, you do need car insurance. This will be explored deeper later on in the piece, but nearly every single state in America requires you to carry some form of minimum liability insurance coverage, in general.
However, liability car insurance is only one type of insurance. As explained below, there is a variety of other add-ons available for your car insurance coverage that protect you from more specific types of damages with additional coverage. Most of these are optional and how much you need is up to you depending on your car situation.
How Many Types of Car Insurance are there?
As previously mentioned, car insurance is comprised of many different coverage types. Understanding and analyzing each coverage can help determine which type you need, how much you should have, and their potential requirements are also explored.
The standard types of car insurance available are as followed:
- Bodily Injury Coverage & Property Damage Liability Insurance
- Personal Injury Protection (PIP)
- Collision Insurance Coverage
- Comprehensive Insurance Coverage
- Uninsured/Underinsured Motorist Insurance Coverage
Many major car insurance companies offer other policies that can be added onto those listed above, which make up what is considered “full coverage.” Some of those add-ons could potentially offer you extra benefits you may not have thought of prior. It’s important to consider when you get an online car insurance quote from insurance agents.
Auto Liability Insurance Coverage
Liability car insurance is a type of coverage you will find required in nearly every state. Their minimum insurance requirement varies, but their purpose does not. Liability insurance covers costs should you cause an at-fault accident, damage someone else’s property, or injure a person with your vehicle. These requirements are known as bodily injury per person, bodily injury coverage per accident, and property damage per accident.
It is most commonly written out just by the maximum amount which it covers. For example, if you see “25/50/25”, that means that plan covers $25,000 in bodily injury liability limits per person, $50,000 for bodily injury liability limits per accident, and $25,000 liability coverage limits for property damage.
Bodily Injury Liability Coverage
Bodily injury liability is part of car insurance that pays for injuries you or others listed under your policy sustain during a car accident caused by another driver.
You typically will need to purchase at least the required minimum coverage of this for your state. That can range and, generally speaking, is usually not enough to fully cover you in the event of an accident.
Property Damage Liability Coverage
Property damage liability covers the cost when you or someone else on your policy damages someone else’s car or another piece of their property (ex. A fence, tree) during an accident.
Much like with bodily injury liability insurance, there is usually a mandatory minimum for your state. This minimum also is usually not enough coverage depending on the damage caused. It may be useful to buy more when hunting for liability insurance.
Personal Injury Protection (PIP)
Personal injury protection (PIP) is coverage that pays for the medical bills and costs of injuries to any passenger in the accident regardless of fault.
This differs from bodily injury liability insurance, which just focuses on medical expenses of people under your policy. It sometimes can even go beyond paying for medical coverage and could include lost wages if you are out of work due to your injuries.
This type of coverage may be mandatory or optional, depending on what state you live in. If you have insurance in Florida or New York, PIP will be mandatory. But this still begs the question: how much of it do you need?
Well, quite frankly, if you live in a state where it is optional, it’s best to look at your health insurance status. If you and your family have strong healthcare insurance, it may not be necessary to purchase beyond the minimum limits if mandatory.
It could even be disregarded altogether in some states. But if you have poor or no health insurance, it would be best to consider purchasing more than the minimum, according to insurance experts.
Collision Insurance Coverage
Collision insurance coverage is pretty much exactly how it sounds. This insurance covers the cost to repair or replace your car after an accident, no matter whose fault it is.
This type of coverage is not required by states for driving. However, it does make up “full coverage” for auto insurance. It may also be required by your lender if you have a car loan or are leasing the car. Generally being optional, it’s best to now take a look at what this could cost in terms of insurance premiums and if it serves any purpose for you.
While this may seem obvious, it is a good idea to keep your financial situation in mind. If you believe you would have a hard time paying a huge repair bill out of pocket, collision coverage could be economical.
But there is another side to the coin -collision coverage requires you to pay a deductible. The deductibles can range from as little as $250 to as high as $1,000. As time goes on and your car begins to depreciate, you may hit a point where you’re paying a high deductible for a car that is not running its best anymore.
When your car hits a certain value, it could be smart to drop collision coverage if you would like to save some money. Collision coverage would probably be best if you have a newer car.
Comprehensive Insurance Coverage
Comprehensive insurance coverage is insurance that does not actually relate to traditional car crash accidents. Comprehensive insurance covers damage that happens when your car isn’t in use.
This can include a variety of situations, such as extreme weather, fire, falling objects, animals, vandalism, and even theft. This coverage is also not required by states, but you could need it if you have an auto loan or are leasing your car. Your lender may then make it required.
Like collision coverage, comprehensive coverage has its pros and cons. As it is not required, it is best to really look at what your area is like and how much your car is worth.
If you believe you could be able to financially cover your car being stolen, the insurance may not be worth it. You should know your car’s value as you could get in a position where you are paying for more coverage than is actually worth the trouble for your car.
Uninsured and Underinsured Motorist Coverage
Despite that car insurance is mandatory, it is still very possible to encounter uninsured or underinsured drivers. Sometimes you even have the misfortune of getting into an accident with them. In these cases, auto insurance companies offer policies that protect you.
Underinsured motorist coverage (UIM) covers damages if you get into an accident caused by someone whose insurance cannot fully pay for the damages they caused.
Uninsured motorist coverage (UM) covers damages if you are in an accident caused by someone who has no insurance.
In terms of if this coverage is worth it, it is helpful to look at state laws. Some states make these coverages mandatory on top of typical liability insurance. Maryland is one of those states and requires drivers to have $15,000 in UM property damage coverage. If it is not required, it may still be worth it to add the coverage to your auto insurance policy.
Other Available Auto Coverage
As mentioned previously, auto insurance coverage can go beyond what has been outlined. Many major car insurance companies offer a variety of options outside of the standard policies. Some of these can include:
- Roadside assistance
- Rental reimbursement
- Gap insurance
- Personal item coverage
- Rideshare coverage
- Non-Owner insurance
These are more specific, tailored types of insurance coverage that can be beneficial depending on your driving circumstances.
Roadside Assistance Insurance Coverage
Roadside assistance helps if you encounter a dead car battery, flat tire, or any other reason for towing.
Rental Reimbursement Coverage
If, after an accident, you find yourself with a damaged car that needs to spend a couple of days in the repair shop, rental reimbursement coverage could come in handy. This coverage pays for a rental car while you wait for yours to get up and running again.
Should your car be completely totaled after an accident, gap insurance may come in handy, depending on your financial situation. Gap insurance coverage pays off the remainder of your lease or loan if you owe more money than your car is worth.
Personal Item Insurance Coverage
Some auto insurance companies offer personal item coverage which covers your personal items if they are damaged or are in your car when it is stolen.
Rideshare Insurance Coverage
This one could be useful if you are a full-time or part rideshare driver. Rideshare coverage protects you when you are working but not picking up anyone. This comes in useful should any sort of damage or accident occurs in between rides.
Non-Owner Insurance Coverage
One thing that many people, especially newer drivers, may forget is that even if you do not own any cars, you have to be carrying some amount of insurance. For instance, when you drive someone else’s car, some non-owner drivers may need a non-owner insurance policy plan for liability coverage in the event of an accident.
How Much Car Insurance do You Need?
After analyzing the options out there, the daunting questions still stand: what car insurance do I need? How much car insurance do I need, realistically?
A general good rule of thumb is to always get as much as you can, given your own personal financial situation. You must at least obtain the mandatory minimum liability insurance outlined by your state, assuming your state has any laws on it, but it can be worth it to go beyond the minimum.
At the very least, make sure you have something to fall back on. The mandatory minimum liability coverage is an okay place to start. Analysis of your financial situation and health care insurance may determine how much further you go.
Taking a step back to look at the value of your car can also be a determining factor. As we have covered, collision and comprehensive insurance coverage may not be worth it as the value of your car depreciates.
The costs of it may not be justified if your car has more issues. In the case of you possessing an auto loan or lease, something like gap coverage could be worth looking into. If your car is totaled, depending on the state of your car value and loan, it could be some good protection.
Is Car Insurance Required in Every State?
Actually, no. There are two states that do not require drivers to carry car insurance at all, let alone minimum liability coverage: New Hampshire and Virginia.
In New Hampshire, there is no law stating drivers must carry insurance, but that does not let them off the hook. The at-fault driver in an accident is still responsible for up to $50,000 for liability and $25,000 in property damage. Failure to pay may result in the driver getting their license suspended.
For the state of Virginia, drivers can choose to be uninsured, but they must pay the state $500 per year. But do not be fooled -this payment does not go towards any kind of accident coverage. The at-fault driver is still very much responsible for the damage.
If you live in any of the 48 other states, you have at the very least a mandatory minimum liability insurance coverage to maintain. Some other states may have you carry extras such as UM/UIM or PIP.
How Much Does Car Insurance Cost?
With every state having its own minimums comes a variety of car insurance prices. Not only that but there’s a difference between the average annual cost of minimum coverage and the price for full coverage. Outlined below are a couple of examples of what car insurance costs may look like in different states.
Michigan has some of the highest prices for both minimum and full coverage. The average for minimum coverage comes out to be $1,855 per year. The average of full coverage for Michigan is around $3,141 per year. In comparison, the average full coverage for Maine is $1,080 per year, while its average cost for the mandatory minimum is $355 per year.
Illinois ranks around the lower middle of the list, with reported average full coverage cost coming out to be $1,538 per year and the average minimum coverage being around $493 per year.
If you are opting for extra coverage such as UM or UIM, it may come at a lower cost depending on the state you’re in. Some states have a lower number of uninsured drivers meaning costs can be cheaper because you may not use it as much.
Some policies for UM/UIM may range from $30-$150 per year, but it is all dependent on your state. If that is the price, it may be worth the extra few dollars seeing as getting into an accident with someone without insurance can get costly and stressful fast.
As we have discussed, collision and comprehensive coverage have deductibles that can get as high as $1,000 so before considering them, look at how your car is running. You don’t want to hit a point where you’re paying more to upkeep a car than it is actually worth.
What’s The Best Insurance Coverage For You?
All of this can certainly be a lot, so it may be helpful to look at specific examples to see if you would find yourself in need of such insurance. As a general baseline, let’s say you’re from Illinois, and you opt to go above the minimum requirements and purchase a 100/300/100 plan. Since you are in Illinois, you must also carry UM coverage.
If your car is not on a loan or lease, you may be thinking about collision and comprehensive coverage. Maybe your health insurance isn’t the greatest, so you want to also tact on PIP. Would these all really be worth it?
In Illinois, it is no secret the weather can become unpredictable and extreme. Over the summer, a number of thunderstorms can hit the area, sending tree branches and other unsecured items flying around.
In a worst-case scenario, your car may take a beating in these instances. That is where comprehensive coverage may come in handy. But keep in mind as there is a deductible strapped on to it, meaning the damage has to exceed the policy’s limits.
Making a case for PIP insurance, while it is not required in Illinois, does come with some benefits. Let’s say maybe your healthcare is not as broad as you would like. Tacting on PIP to your car insurance allows for you and anyone else in the car to be covered.
If you are driving with others and get into a wreck, your medical needs can be covered by PIP as opposed to the bodily injury liability coverage, which focuses on others in the accident. This protection can often also help with lost wages if your injuries prevent you from working.
But this is just one example for one state. At the end of the day, it is best to look at what is the law on mandatory minimum liability coverage for where you live and go from there. The general idea is that it is best to be overprotected, meaning go beyond the minimums if that is something financially reasonable for you, but never go below or uninsured.
If you fear damage when not using the car, comprehensive coverage could be something to look into. UM/UIM may be an affordable addition as well. There are even a variety of further add-ons, such as rideshare insurance, for whatever your car is used for.