How Much Car Insurance Do You Need? Deciding how much car insurance you need can be challenging. Your state likely requires a minimum amount of auto insurance, but you might wonder if it’s enough after an accident.
There’s no easy answer. While you must have at least the minimum insurance to drive legally, how much extra coverage you should get depends on your financial situation. So, how much car insurance do you need? And are there any additional coverages you should consider? Here’s what you need to know.
There is no one-size-fits-all answer to how much car insurance you need. Each state has its minimum requirements for liability coverage. For basic coverage, many states require at least $10,000 per person and $20,000 per accident for bodily injuries, plus $10,000 for property damage. This is often written as 10/20/10. To determine your state’s specific requirements, check with your state’s insurance department or motor vehicles.
How Much Car Insurance Do You Need?
However, experts suggest having at least $100,000 per person and $300,000 per accident for bodily injuries, along with $100,000 for property damage. This is referred to as 100/300/100.
Additionally, depending on your location and if you financed your car, you might need other types of coverage. In these cases, you don’t get to choose the coverage amount—it’s either required or not.
Types of Required Car Insurance Coverage
Depending on your location and whether your vehicle is financed, you may need different types of auto insurance coverage.
Liability Coverage
Liability insurance consists of two parts: bodily injury and property damage protection. It covers costs if you cause an accident or damage someone’s property. Every state except New Hampshire requires liability insurance. In New Hampshire, you must prove you can cover these costs yourself to waive the insurance requirement.
Most auto policies offer liability coverage up to $300,000 or $500,000. For additional protection, you can purchase a personal liability umbrella policy.
Collision and Comprehensive Coverage
Collision coverage helps pay for damage if you hit another vehicle or object, like a fence or pole. Comprehensive coverage helps pay for damage from theft, fire, hail, or vandalism. These coverages are typically required if you have an auto loan, as they protect the lender’s investment. State laws do not require these coverages.
The amount of coverage is based on your car’s value, but you can choose a deductible, usually between $250 and $1,000. A higher deductible lowers your insurance premiums.
Uninsured and Underinsured Motorist Coverage
This coverage helps pay for medical bills and vehicle repairs if an uninsured or underinsured driver causes an accident. Not all states require these coverages, and some may only require one. They provide significant protection in cases where you have no control over the other driver’s insurance status.
Medical Payments Coverage or Personal Injury Protection (PIP)
Medical payment coverage helps pay medical expenses for anyone injured in your vehicle. PIP also covers other costs like lost income and childcare expenses. Most states do not require these coverages, and you can’t have both simultaneously. Coverage is typically capped at $10,000, though limits can vary by state.
Types of Optional Car Insurance Coverage
In addition to the required coverages, you may have access to optional insurance coverages, depending on your situation and insurance carrier:
Rental Reimbursement
This coverage reimburses you for the cost of a rental car if your vehicle is being repaired after an accident where you were at fault. It usually has a daily limit and covers a specific number of days.
Towing and Labor Cost
If your car breaks down, gets a flat tyre, runs out of gas, or locks yourself out, this coverage helps pay for roadside assistance and related costs.
Mechanical Breakdown
For newer vehicles, this coverage can help with the cost of mechanical repairs and replacement parts. It typically includes a deductible.
Disappearing Deductible
Also known as vanishing or diminishing deductible coverage, this option reduces your deductible for each year or policy period you go without accidents or moving violations.
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Penalties for Driving Without Auto Insurance
Penalties for driving without auto insurance vary by state and can be severe. Common penalties include:
- Fines: Depending on the state, these can range from $100 to $5,000.
- Suspension: Your driver’s license or vehicle registration may be suspended.
- Other possible consequences include:
- Vehicle Impoundment: The Department of Motor Vehicles (DMV) may impound your vehicle.
- License Plate Confiscation: Your license plates may be taken away.
- Points on Driving Record: Points may be added to your driving record.
- SR-22 Requirement: Your insurance company may need to file an SR-22 form to prove you have coverage. This comes with a filing fee and can lead to higher insurance premiums since SR-22 drivers are considered high-risk.
How to Choose Car Insurance Coverage
Selecting the right amount of car insurance involves considering several factors. Here are steps to help you decide:
Know Your State and Lender Minimums
Check the minimum requirements for liability, collision, and comprehensive coverage in your state and from your lender. These minimums are mandatory, so ensure you meet them.
Consider the Age and Value of Your Car
For older cars that you own outright, it might not be cost-effective to purchase certain types of coverage like collision and comprehensive insurance. Evaluate if the cost of coverage outweighs the car’s value.
Look at Your Budget
Assess how much you can afford to pay in monthly premiums. You might need to opt for less coverage if you’re on a tight budget. Work with your insurance agent to balance affordability and adequate protection.
Consider Your Savings
You may not need as much insurance coverage if you have a substantial emergency fund. With enough savings, you can handle some costs out of pocket, allowing you to choose a higher deductible or skip certain optional coverages to save on premiums.
Value of Peace of Mind
Even if you can cover certain costs out of pocket, having more insurance coverage can reduce stress and provide peace of mind. Evaluate your risk tolerance and decide if the extra cost is worth the added security.
Which car insurance do I need?
You need to have at least the minimum amount of car insurance required by law in your state. The primary part of car insurance, called liability coverage, doesn’t provide compensation to you if you cause an accident. Instead, it covers others for injuries, fatalities, and property damage you cause, but only up to the limits of your policy.
