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How Much Car Insurance Do I Need And How Much Insurance I Can Afford

How Much Car Insurance Do I Need And How Much Insurance I Can Afford

The minimum amount of car insurance necessary to meet your needs depends on several factors, including what state you live in, the value of your vehicle, and how much insurance you can afford. There are many types of insurance you may need to protect yourself financially, but how much car insurance is recommended?

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If you own a car, you’re going to need to show “financial responsibility,” meaning you can pay if you or someone else driving your car causes an accident.

Every state has some form of financial responsibility law and most drivers satisfy this requirement by buying car insurance. It’s typically the easiest and most affordable way. If you don’t want car insurance, your state might require you to post a bond that can run upwards of $50,000 to show financial responsibility.

Once you’ve ruled out the idea of forking over tens of thousands of dollars to your state, the next logical question is: How much car insurance do I need?

Liability Coverage vs. Car Value and Assets

When it comes to car insurance, there are two major types of coverage: liability, which covers damage you may do to someone else and their property, and everything else, which covers damage that happens to your property.

Liability-only car insurance is cheaper and is a coverage requirement in almost every state, with each state mandating its own minimum coverage levels. While choosing the minimum required levels of coverage is the cheapest option, it isn’t the smartest one. Some states have low liability minimums, with California and Pennsylvania requiring as little as $5,000 for property damage coverage.

How Much Car Insurance Do You Really Need?

At the very least, you must buy your state’s minimum car insurance requirements. But state minimums are woefully inadequate and won’t provide any coverage for your own car’s repair bills. If you want better coverage, you’re going to need to buy more than the minimum requirements.

There are several coverage types to choose from. With a basic knowledge of the main types of car insurance, you can put together a good policy that fits your specific insurance needs.

Is Car Insurance Required?

Liability insurance is a requirement in 49 out of 50 states. What states don’t require car insurance? New Hampshire is the only state that does not require insurance, but it does, however, require you to prove you can meet the New Hampshire minimum financial responsibility requirements in the event of an accident.

Each state has different laws regarding liability insurance requirements, with some requiring uninsured motorist coverage or personal injury protection, and others requiring only bodily injury and property damage liability. While the requirements are all different, they all have the same basic purpose: to prevent people from being financially harmed by someone else’s negligence on the road. It is important to stay up to date on your state’s laws and regulations to make sure you continue to meet their requirements.

Uninsured motorist insurance

Uninsured motorist (UM) and underinsured motorist (UIM) insurance pay for your medical bills if someone crashes into you and they do not have liability insurance or not enough. Uninsured motorist coverage is required in some states and optional in others. In states where UM is optional, you can typically reject the coverage in writing.

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If UM is available in your state, this is a good coverage to have. UM coverage pays for:

  • Medical expenses for you and your passengers
  • Lost wages if you cannot work because of injuries suffered in a car accident
  • Funeral expenses
  • Pain and suffering
  • Car damage (depending on your state)

How much uninsured motorist coverage should I buy? You’ll typically need to purchase UM in amounts that match your liability insurance. For example, if you have 250/500/100, you’ll need to buy the same amount of UM coverage.

How Much Car Insurance Coverage Do You Need?

How much car insurance you need and how much car insurance is required are two very different questions. It’s important to understand how car insurance works before determining how much to buy.

State requirements are often much lower than the amount necessary to protect you financially in the event of an accident. The best liability coverage for most drivers is 100/300/100, which is $100,000 per person, $300,000 per accident in bodily injury liability and $100,000 per accident in property damage liability. You want to have full protection if you cause a significant amount of damage in an at-fault accident. You will also want the highest levels of personal injury protection (PIP) coverage, uninsured motorist coverage and other coverages required by law in your state. Remember, you will be held responsible for all damage you cause in an accident, so minimum liability coverage of 100/300/100 can protect your assets and future earnings.

Comprehensive and collision coverages aren’t requirements by law, but that doesn’t mean you don’t need them. If you have a loan on your vehicle, your lender may require comprehensive and collision coverage. Deciding between liability-only insurance versus full coverage can save you hundreds of dollars per year. Other coverages, like gap coverage or windshield coverage, may also be requirements by your lender to make sure you are protecting their investment.

These coverages are also a good idea if you can’t afford to replace your car if it is totaled or could not afford a major repair out-of-pocket. There are a lot of ways your car can be damaged, so making sure you have protection against any potential loss is a smart decision.

In the table below, you can see the coverage level costs for state-minimum liability-only coverage, state-minimum comprehensive and collision coverages with a $1,000 deductible and the 100/300/100 comprehensive and collision with a $1,000 deductible. You can also use MoneyGeek’s car insurance calculator to get a more specific estimate based on your age, vehicle and driving history.

Collision and comprehensive insurance

If you want coverage for car repair bills, you need collision and comprehensive insurance. Often sold together, they cover a range of problems like car accidents, car theft, vandalism, collisions with animals, falling objects, fires, floods and hail damage.

If you have a car loan or lease, your lender or leasing company will most likely require you to carry both of them.

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How much collision and comprehensive insurance should I buy? Both coverage types will cover the cost to repair or replace your car if it is damaged by a problem covered by the policy. If you want to cut down on costs, select a higher deductible amount, which is the amount you’ll pay out of pocket if you file an insurance claim. For example, a $1,000 deductible will result in slightly cheaper premiums compared to a $500 deductible.

Personal injury protection

Personal injury protection (PIP) covers medical bills for you and your passengers no matter who caused the car accident. It also pays for other expenses like lost wages, funeral expenses and replacement services you can’t do because of injuries, like cleaning services or child care.

Some states require PIP as part of its “no-fault auto insurance” laws, while in other states you can buy PIP as an optional coverage type.

How much PIP insurance should I buy? PIP rules vary by state where it is offered. For example, for Florida car insurance, PIP options range from basic to extended:

  • Basic covers 80% of your medical bills and 60% of lost wages and replacement services
  • Extended covers 100% of medical bills and 80% of lost wages and replacement services

If PIP is optional in your state, you can choose to decline it if you have a good health insurance plan. But PIP has some perks your health insurance won’t provide, such as reimbursement for services and lost wages.

Medical payments

Medical payments coverage is often referred to as “MedPay.” It’s similar to PIP in that it pays for medical bills and other expenses for you and your passengers, no matter who caused the car accident. MedPay is required in some states. For example, MedPay is required if you buy car insurance in Pennsylvania, Maine and New Hampshire.

How much MedPay should I buy? In states where MedPay is available, it’s usually sold in small amounts of coverage that often range between $1,000 and $5,000.

What Coverage Amount Is Best and What Does 100/300/100 Mean?

It’s a good recommendation if you have coverage levels of 100/300/100, but what does that mean, exactly?

  • 100 — The first number in your liability coverage is the maximum amount your insurance company will pay for bodily injury claims for an individual person. In this instance, the 100 represents $100,000 in coverage.
  • 300 — The second number in your liability coverage is the maximum amount your insurance company will pay for bodily injury claims for a total accident. This does not supersede your per person maximum, however. So if you hit someone and they need $126,000 in medical care, you will be responsible for the extra $26,000 above your $100,000 per person limit, even though you have a per accident maximum of $300,000.
  • 100 — The third number in your liability coverage is the maximum amount your insurance company will pay for property damage claims in an at-fault accident. In this instance, the 100 represents $100,000 in coverage.

If you can’t afford a minimum of 100/300/100 in liability coverage, you might still want to choose the highest amount of coverage you can afford. If 50/100/50 is the highest you can go, you might want to choose that instead of defaulting to the state minimums. Conversely, if you can afford more than 100/300/100 and your insurance company offers it, you could take the higher levels of coverage. There are some expensive cars on the road, and the average personal injury settlement in a car accident is $52,900. Having higher levels of insurance is an important part of protecting yourself financially.

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How to Buy Car Insurance

The national average for car insurance with liability, collision and comprehensive insurance is $1,190, according to the most recent data from the National Association of Insurance Commissioners. But you shouldn’t focus strictly on cost when you’re looking for a car insurance policy.

That’s because auto insurance companies all calculate their rates differently, resulting in a wide range of prices—sometimes by thousands of dollars a year. It’s smart to compare car insurance quotes from multiple companies. You can get free quotes online or by calling an independent agent in your area.

Make sure you ask about car insurance discounts. Insurance companies offer many types of discounts to attract customers—everything from good driver discounts, car safety discounts, multi-policy discounts, and even discounts for paying in full or going paperless.

Finally, consider a company’s customer service. The best car insurance companies pair competitive prices with good customer service. If you get into a car accident, you want to be sure your insurance company will make the insurance claim process go as smoothly as possible.

Will You Need Gap Insurance?

Gap insurance typically covers the difference between the value of your car and the balance of your car loan if your vehicle is totaled. This prevents you from having to make payments on a loan for a car you can’t drive and is often a requirement by lenders if you take out a loan to purchase a car.

 

What Other Coverages Are Offered?

There are many types of car insurance coverage available, including:

  • Umbrella Policy: If you don’t think that the highest levels of bodily injury and property damage liability would be enough to protect your assets in a severe accident, you might want to purchase an umbrella policy. Umbrella policies provide a minimum of $1,000,000 in liability coverage above and beyond your standard auto insurance liability limits.
  • Rental Reimbursement: Rental reimbursement pays for your rental car while your car is in the repair shop because of an insured loss.
  • Roadside Assistance: Roadside assistance covers the cost of tow trucks, locksmith services or basic repairs on the side of the road.
  • Non-Owner Insurance: If you don’t own a car, but you still drive occasionally, you might need a non-owner insurance plan to provide liability coverage in case of an accident.
  • Usage-Based/Pay-As-You-Drive Insurance: Your car insurance company can record your driving information, such as speed and mileage, and offer you discounts on your coverage for being a better driver. This may have unintended consequences, however, so it’s good to do your research before buying.

 

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