How Much Car Insurance Do I Need?

Virtually every state mandates motorists have bodily injury liability coverage – typically represented on policies by three numbers like 25/50/20 – but you may want to consider adding uninsured/underinsured motorist coverage as well.

Collision coverage, which pays to repair or replace a vehicle involved in an accident, is not mandated by any state. However, your lender might require this protection for financing or leasing arrangements.

State Requirements

Most states mandate car insurance, and drivers are typically required to purchase at least the state minimums in liability coverage. Many drivers also purchase optional comprehensive and collision coverage; their costs may differ; insurance professionals recommend purchasing more coverage than necessary in case of an accident.

Liability coverage pays those injured by your actions to cover injuries, deaths and property damage that you cause in an accident. Your policy’s limit determines how much will be covered: often 25/50/15 means up to $25,000 per person injured per incident as well as up to $50K total per accident for injuries sustained while another $15,000 could go toward damages to property caused.

In some states, you must purchase additional uninsured motorist and personal injury protection (PIP or MedPay) policies to cover medical expenses and a portion of lost wages in case an accident you caused occurs. While these may offer lower limits than liability coverage and often include separate deductibles.

Only New Hampshire and Virginia do not mandate car insurance; even so, it would still be financially prudent to purchase it considering the high costs associated with paying for an accident with only minimum coverage. Furthermore, driving without car insurance in either of these states could result in your license being suspended immediately.

If you don’t purchase full coverage, your insurer will typically only cover up to the cash value of your car. Therefore, it is wise to buy enough comprehensive and collision coverage to match its worth. It is also wise to conduct extensive research on its current market value and repair costs prior to setting an acceptable coverage limit; for more accurate estimation of value contact a trusted mechanic who can give an estimate.

Liability Coverage

An auto accident can be costly no matter the vehicle involved. While minor fender-benders may be covered by minimum state and lender minimum requirements, major crashes often go beyond these minimum coverage levels and cost much more than anticipated. Experts advise selecting liability coverage that aligns with your net worth; whether that means adding umbrella insurance coverage for both homes and cars or increasing minimum required liability limits as well as optional physical damage policies like comprehensive and collision.

Liability coverage requirements vary by state, but in general aiming for half-million dollars will provide sufficient money to cover medical bills, legal fees and lost wages associated with any accidents you cause if found responsible. It will also cover repair costs should someone be hit by you while driving their vehicle.

Insurance professionals frequently write liability limits as three numbers, for instance 25/50/10. Each number represents your bodily injury liability limit per person, property damage liability per accident and minimum required uninsured motorist coverage limits; New York mandates $25,000 per person in bodily injury liability limits per accident plus $50,000 for property damage liability limits plus $10,000 as uninsured motorist coverage minimum requirements.

Other types of coverage to consider are Personal Injury Protection (PIP), medical payments coverage and collision and comprehensive coverage. PIP will cover your medical bills as well as those of your passengers regardless of who’s at fault in an accident, while collision and comprehensive can help cover repair or replacement if your car is damaged in another event besides collision. Usually these optional policies don’t significantly raise premiums; but to find out which are appropriate for you speak to an insurance expert about them directly so they can advise accordingly.

Comprehensive Coverage

Comprehensive car coverage protects against damage to your car that’s not related to an accident, such as theft, hail damage, fire or vandalism. Typically this coverage provides up to its actual cash value less your deductible; some insurers also provide “replacement coverage”, which pays for the replacement of damaged vehicles with new ones of similar make and model. Although comprehensive coverage can be costly, it could be worth investing in it if your vehicle is valuable enough or living in an area with high rates of extreme weather events or auto theft.

Comprehensive car coverage should be purchased regardless of its value; however, leasing or financing your car may require it in order to protect their investment if an accident or other form of damage occur during its loan or lease agreement period.

Comprehensive insurance typically offers you a selection of deductible amounts ranging from $100 (standard) to $500 or $1,000; choosing higher deductibles may help lower premiums; just be sure that if a claim needs to be filed, your finances allow for this expense.

While state minimum liability coverage requirements should serve as a starting point, you should aim to exceed them and meet or surpass the 100/300/100 rule for bodily injury liability coverage, with at least $100,000 per person and $300,000.00 in aggregate per accident for bodily injuries sustained and $100,000 coverage on property damages. Failing to set an adequate minimum limit leaves you vulnerable to incurring massive medical bills and debts if an accident causes serious harm to yourself or another. Even the most careful drivers never know when someone else may crash into them at a stoplight, back into your parked vehicle or roll over while driving on a highway. Liability coverage can help safeguard against such financial catastrophe. NerdWallet’s car insurance calculator can assist in calculating how much coverage is appropriate based on state minimum requirements and actual cash value of your vehicle.