How Much Car Insurance Do I Need?
The amount of car insurance you need depends on multiple factors, like your financial situation, the value of your vehicle, your driving habits, and geographic location. Almost every state has minimum car insurance requirements, and drivers still have to pay for any damage they cause in the two states where liability insurance is not required: New Hampshire and Virginia.
Liability insurance covers the other driver’s property damage or injuries if you cause an accident. It is the only coverage required in 31 states. Another 17 states expect drivers to carry other types of car insurance in addition to liability coverage, such as uninsured motorist coverage or personal injury protection. In the remaining two states, you are required to either carry liability coverage or keep a certain amount of money in reserve with the state to drive legally. If you lease or finance your car, your lender can require that you carry collision and comprehensive insurance, too.
Most drivers need more than the state-mandated minimum coverage, but exactly how much more varies from person to person.
How to Decide How Much Car Insurance You Need:
- Where do you live? Your state’s minimum car insurance requirements are your starting point. You need at least that much coverage to drive legally.
- What car do you drive? If your annual collision premium is 10% of your car’s value, you might want to consider scaling back coverage. Insurance only covers up to the cash value of your car.
- What assets do you have? The more assets you have, the more coverage you need. You should have enough liability insurance to cover the total value of your net worth.
To confidently decide how much auto insurance you need, it’s important to understand how different coverage types work together to protect you.
How Much Liability Insurance Do I Need for My Car?
State laws usually set minimum liability coverage amounts. Legally, you have what you need if you meet these minimum requirements, but you probably need more coverage than that. If you cause an accident, insurance only pays up to your coverage limits. You have to pay for any damage in excess of those limits. And if the other driver sues, you could have assets seized or wages garnished to cover the remainder. As a result, you should have enough liability insurance to cover your assets.
Liability coverage is usually abbreviated as three numbers separated by slashes. For example, Texas requires 30/60/25—or up to $30,000 for one person’s injuries, $60,000 for all injured parties in an accident, and $25,000 for property damage.
Since bodily injury claims tend to be the most expensive, you’ll want to choose at least as much coverage as your net worth for the middle number in the description. If your total assets are worth $185,000, a 100/200/50 liability policy might be a good fit. Property damage is usually less expensive than injuries after an accident, so the third number will probably be the lowest.
What Other Car Insurance Coverage Do I Need?
In addition to liability coverage, many states require other forms of car insurance.
Personal Injury Protection (PIP). PIP covers medical costs for you and your passengers after an accident. It is usually required in the 12 no-fault states, and you probably don’t need more than the legal minimum as long as you have health insurance to cover medical expenses.
Medical Expenses (MedPay). MedPay works like PIP and can be used for a claim no matter who is at-fault for an accident, but it doesn’t cover lost wages and usually has lower policy limits than PIP. Again, you probably don’t need more than what’s required if you have healthcare.
Uninsured/Underinsured Motorist (UM/UIM). Uninsured/underinsured motorist coverage can help if you’re hit by an uninsured driver, experience a hit-and-run, or collide with someone who doesn’t have enough coverage to pay for all the damage they caused. Since it’s pretty affordable and can really come in handy, it’s worth adding to your policy even if it’s not required by law in your state.
Car Insurance Requirements by State
What Optional Car Insurance Coverage Is Available?
Since liability insurance won’t pay for your property damage, you should also consider coverage that protects your vehicle. If you leased or financed your car, you may be required by the lender to get any or all of the following coverage types:
- Collision. Collision insurance covers damage to your vehicle after an accident. Like liability coverage, it has policy limits. Collision insurance also comes with a deductible, which is the amount you have to pay out of pocket before insurance pays the rest of the bill. You get to pick your deductible, but lower ones come with higher premiums.
- Comprehensive. If your car is damaged by something other than a collision, you’ll need comprehensive coverage for a claim. This includes damage caused by vandalism, theft, weather, and wildlife. Like collision insurance, you’ll have to choose a deductible.
- Guaranteed Auto Protection (GAP). Cars depreciate quickly, and you could easily end up owing more on your loan than the vehicle is worth if your car is totaled. GAP insurance bridges that gap and pays the difference if your car is a total loss.
What Happens If You Get Caught Driving Without Insurance?
Driving without minimum car insurance coverage is very risky. It could even have potentially life-changing consequences. If you’re pulled over and don’t have insurance, you could be hit with fines, license and registration suspensions, and costly insurance premium surcharges. If you’re uninsured or underinsured and get into an accident, you could end up paying thousands out of your own pocket to cover the costs of property damage and medical bills. And if you can’t pay, your wages could be garnished and your assets seized.
Even going with the bare minimum could be a risky choice, since you’ll still be held responsible if something disastrous happens. Remember, insurance only pays up to your coverage limits.
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