How Much Auto Insurance Do You Need? The answer depends on a number of factors including where you live, the value of your car, and what other assets you need to protect. Here’s what you need to know.
The central theses
- Most states require that you have at least a minimum insurance policy for any personal injury or property damage you cause in an accident.
- The optional collision insurance covers damage to your own car in the event of an accident.
- The fully comprehensive insurance, which is also optional, protects against other risks such as theft or fire.
- Uninsured motorist insurance, which is mandatory in some states, will protect you if you are hit by a driver who is not insured.
This is how car insurance works
Car insurance is actually a package of different types of insurance. The most common are:
- Liability for injuries
- Property damage liability
- Medical payments or personal injury protection
- Collision protection
- Comprehensive coverage
- Uninsured / underinsured motorist protection
Depending on the state in which you live, some of these insurance policies may be mandatory and others may be optional. If you have a car loan or a lease, your lender may also have specific requirements. But beyond what your state or lender requires, you may want to get additional insurance to protect yourself. Here’s a closer look at each type of coverage and how to decide how much you really need.
Liability for injuries
What it includes: Personal Injury Liability is the part of a car insurance policy that pays for injuries you or family members on your policy are responsible for in a car accident to another person.
How much you need: Virtually every state requires drivers to take out personal injury liability insurance, although the amount varies from state to state. With car insurance, your liability insurance is usually expressed as a series of three numbers, such as: B. 25/50/20. The first number represents the maximum amount your insurer will pay per person if you injure someone in an accident – in this example, $ 25,000. The second number is the maximum amount paid per accident if more than one person is injured – in this case, $ 50,000. The third number relates to property damage liability.
You must have at least the minimum amount of personal injury coverage your state requires. For many states, that’s $ 25,000 per person and $ 50,000 per accident, although some states are lower or higher.
However, your state’s minimum requirements may not be enough, especially if you are involved in a major accident. You need to weigh your wealth and see if it would be adequately protected in the event of a legal dispute. For example, if you own your home or have a significant amount of savings, a costly accident could put you at risk. In this case, you want to buy more coverage. The non-profit Consumers’ Checkbook recommends buying cover of at least 100/300/50 just in case. The difference in cost between this coverage and your state’s minimum is unlikely to be very large.
You can buy even more coverage – say 250/500/100 – when you have more assets to protect. You can also do one Umbrella policy, which increases your auto and home contents liability insurance to $ 1 million or more.
Liability for property damage
What it includes: Property damage liability covers the costs if you or your family members damage someone else’s car or other property (e.g. a tree or fence) in an accident.
How much you need: As with personal injury liability, virtually every state requires you to have some property damage coverage. It’s listed as the third number in that order on your policy, so a 25/50/20 policy would offer $ 20,000 coverage. Some states require that you only have $ 10,000 or even $ 5,000 in property damage liability insurance, but the most common are minimums of $ 20,000 or $ 25,000.
Again, you may want to buy more coverage than your state’s minimum. But if you don’t collide with a Lamborghini or Rolls-Royce, you’re probably not running as much financial risk as you would in an accident that left people seriously injured. A generally recommended amount of coverage for property damage is $ 50,000 – or more if you need to protect significant assets.
Medical payments (MedPay) or personal injury protection (PIP)
What it includes: In contrast to liability insurance for personal injury medical payments (MedPay) or Personal Protection (PIP) covers the cost of injuries to the driver and passengers in your car. In some cases, it also covers lost wages as a result of injuries sustained in an accident.
How much you need: Whether medical payments or PIP coverage are mandatory, optional, or even available depends on your state. In states with no-fault insurance PIP coverage is required by laws such as Florida and New York. For example, in Florida, drivers must carry at least $ 10,000. In New York, the minimum is $ 50,000.
If you and your family members already have good health insurance, you may not need to get more than the minimum required PIP coverage. However, if you don’t have health insurance, you may want to buy more. This is especially true in a state like Florida, where $ 10,000 coverage could be insufficient in the event of a major accident.
What it includes: Accident insurance pays for the repair or replacement of your car if you are involved in an accident with another car or hit something else.
How much you need: States do not require drivers to have collision protection. However, if you have a car loan or lease the car, your lender may request it. Once you’ve paid off your loan or returned your leased car, you can end your insurance coverage.
Even if it isn’t required, you may want to buy collision insurance. For example, if you have trouble paying a large repair bill out of pocket after an accident, collision insurance might make sense.
You should also consider what your car is worth. The price for collision insurance is based on the value of your car and is usually with one Deductible from $ 250 to $ 1,000. So if your car cost $ 20,000 to replace, you would pay the first $ 250 to $ 1,000 depending on the deductible you chose when you took out your policy, and the insurer would be for up to 19,000 after that $ 19,750 responsible.
However, because your car will depreciate over time, consider getting rid of collision insurance. Between the cost of your year Bonuses and the excess you would have to pay out of pocket after an accident, you could pay a lot for very little coverage. Even insurance companies will tell you it makes sense to take out collision insurance if your car is worth less than a few thousand dollars.
What it includes: Comprehensive covers damage to your car from anything other than a collision. This could be a fire, a flood or a falling tree, for example. It also covers car theft.
How much you need: As with fully comprehensive insurance, states don’t require collision insurance, but if you have a car loan or a lease your lender may require it. And here too: as soon as you have paid off your loan or returned your leased car, you can give up insurance cover.
When deciding whether to buy fully comprehensive insurance when you don’t need it, you should weigh your ability to pay out of pocket if your car is stolen and you need to buy a new one or you are damaged and get stuck with the repair Bills. You should also consider how much your car is worth compared to the cost it will cover year after year.
Uninsured / underinsured motorist protection
What it includes: Just because state laws require drivers to have liability insurance doesn’t mean every driver will. In 2019, an estimated 12.6% of drivers – or about one in eight – were uninsured. Many other drivers have some insurance, but not enough to cover the cost of a major accident. This is where this type of coverage comes in. It can cover you and your family members if you are injured or your car is damaged by an uninsured, underinsured, or run over driver.
How much you need: Some states require drivers to have Uninsured Motorist Insurance (UM) with them. Some also require Underinsured Motorist Insurance (UIM).
Maryland, for example, requires drivers to purchase uninsured / underinsured motor vehicle liability insurance of at least $ 30,000 per person and $ 60,000 per accident. It also requires at least $ 15,000 in uninsured property damage coverage for motorists.
If your state requires uninsured / underinsured motorist insurance, you can choose to purchase more than what is required. You can also purchase this coverage in some states that do not require it.
If you don’t need to get insurance for uninsured / underinsured motorists, consider doing so if your existing insurance is insufficient to pay the bills if you are involved in a serious accident. For example, if you don’t have adequate health coverage or health coverage through your auto insurance, it might be worth adding.
Other types of coverage
When you buy auto insurance, you may see some other completely optional types of coverage. These can include:
- Roadside assistance, such as towing.
- Rent Refundif you need to rent a car while yours is being repaired
- Gap insurancethat covers the difference between the present value of your car and what you still owe under a lease or loan agreement if your car is totaled
Whether or not you need these depends on what other resources you have (such as being a member of a car club) and how much you could afford if you had to pay for it out of pocket.
The bottom line
Car insurance consists of several types of coverage, some of which your state or car lender may require, while others are optional. Whether or not to purchase more than the minimum required coverage and what types of optional insurance to consider depends on the assets you need to protect and how much you can afford. The website of your state’s automotive department should explain the requirements and may offer additional advice specific to your state. A independent insurance broker who is familiar with the laws in your state and can offer insurance options with various insurance companies can also be helpful.