How Much Car Insurance Do You Really Need?

You’ll be financially vulnerable if you don’t have enough car insurance. Too much insurance can lead to overpaying. Here are some things to keep in mind.

It can be difficult to choose the right amount of auto insurance. Although your state may require some coverage, it is possible to wonder if this is enough or if you need more.

There is no easy or quick answer. You are required to have the minimum car insurance to drive in your state. However, your financial situation will dictate how much you buy.

Get sufficient liability coverage to protect your wallet

The main component of car insurance — liability coverage — doesn’t pay you if you cause a crash. It pays for any injuries, deaths, and property damage that you cause up to the policy limits. Your liability limits are usually listed in a format like “25/50/15”, which means that your insurer will pay $25,000 per individual and $50,000 per accident for injuries and property damage.

Minimum bodily injury limits in some states can be as low at $15,000; however, a serious wreck can lead to higher medical bills. According to the National Safety Council, the average cost of a crash that results in non-disabling injuries was $28,000 in 2019. If you are sued for negligence, you will have to pay the remainder out of your own pocket.

How do you know if you have enough? TJ Roberts, an owner of Farm Bureau Insurance Agency in Mission, Kansas recommends that you take into account your net worth and how often you drive when setting your policy’s liability limits. Roberts emphasizes that car insurance should have the right coverage limits to suit your financial situation.

Add up all your assets, retirement accounts and investment accounts to calculate your net worth. Next, subtract any debts. Next, ensure you have sufficient bodily injury liability insurance to cover the amount.

If your liability limits are maxed out but you want more coverage, you can purchase more coverage with an umbrella insurance policy. These policies provide additional coverage for your car and your home, often in increments of $1 million.

You can purchase minimal liability coverage if you don’t own any assets other than your car.

You can choose full coverage depending on your deductible.

Typically referred to as “full coverage” when added to a liability policy, collision and comprehensive coverage pay for damage to your own vehicle, regardless of fault. Collision coverage covers your vehicle if it collides with another car. Comprehensive coverage covers damage to your vehicle from circumstances beyond your control like vandalism or theft.

These are not required if you lease or finance a vehicle. Full coverage may be an option if you drive an expensive vehicle that is difficult to replace. You might be better off skipping collision and comprehensive if your vehicle has low cash values or you are willing to replace it.

When you purchase collision or comprehensive coverage, be aware of your deductible. This is the amount you have to pay out of your pocket before your insurance pays for a claim. Comprehensive and collision deductibles can range from $250 to $1,000. Choose a amount that you can afford.

It is highly recommended to have uninsured motorist coverage

According to the Insurance Research Council’s 2019 data, 1 out 8 drivers don’t have any car insurance. If one of these drivers hits you, you might be out of luck. These are often sold together in small amounts, similar to liability coverage.

Roberts suggests that you include it in your policy, even though many states don’t require it. Roberts asks, “Why would you want to insure the stuff of other people and not your own?”

It doesn’t take long to figure out how much you should add to your policy. Match the limits that you have selected for bodily injury or property damage liability.

It may be worthwhile to consider other optional coverage options

Insurance companies offer many other types of coverage:

  • Glass coverage covers the cost of replacing damaged windows. It’s handy to have in case a rock hits your windshield.
  • Medical payments coverage will pay for your or your passengers’ injuries after an accident and can be useful to cover health insurance deductibles.
  • You can get roadside assistance if you have a need for a tow truck or jump start. However, some companies will charge extra for these services.

Roberts recommends that you prepare for any eventualities that may occur on the road, regardless of which coverage type you choose. You don’t want the surprise of finding out what coverage you have after it’s too late.