Auto Insurance: How Much Is Excessive?

While it's essential to have sufficient auto insurance, it's possible to have too much coverage. Drivers risk buying too much insurance in two situations: purchasing redundant coverage or coverage they don't need. Redundant coverage occurs when a driver pays for protection already provided by another source, such as roadside assistance from both their car insurance and AAA membership. On the other hand, a driver with an old, inexpensive car might not benefit from collision or comprehensive insurance, as the payout may not exceed the car's value and deductible. To avoid overpaying, motorists should regularly review their policies, compare quotes, and consider their driving habits, location, and vehicle type.

Redundant coverage

Another example of redundant coverage is uninsured motorist coverage. If you have health insurance, uninsured motorist coverage may be redundant as your health insurance should cover your medical expenses in the case of an accident caused by an uninsured motorist. However, uninsured motorist coverage can also pay for things that health insurance does not cover, such as your deductible and copays, property damage, and lost income due to serious injury. The prevalence of uninsured motorists in your area should also be considered when deciding whether to purchase this type of coverage.

To avoid redundant coverage, it is important to review your policies regularly and read the fine print carefully. By regularly reviewing your coverage and shopping around for policies, you can ensure that you are only paying for the protection you need.

State requirements

Liability Insurance

Liability insurance is required in almost all states. This coverage helps pay for any injuries or damages you cause in a car accident, including those of the other driver and their passengers. The minimum liability limits are typically expressed as a series of numbers, such as 15/30/10. This means that your insurance would cover up to $15,000 per person for bodily injuries, with a total limit of $30,000 for all bodily injuries in the incident, and $10,000 for property damage. Most experts recommend carrying more than the minimum liability insurance coverage, as you could easily be faced with costs exceeding these limits in a bad accident.

Uninsured/Underinsured Motorist Coverage

Uninsured/Underinsured Motorist (UM/UIM) coverage is required in about half of all states. UM/UIM coverage helps cover the cost of injuries to you and your passengers, as well as damage to your car and other property, if you're hit by a driver with little or no insurance. In some states, only bodily injury coverage is required.

Personal Injury Protection (PIP)

PIP is required in about 20% of states, typically those that are "no-fault" states. In no-fault states, drivers are required to file bodily injury claims with their own insurance through their PIP coverage. PIP covers medical expenses for insured drivers and their passengers, regardless of who is at fault for the accident. It can also cover lost wages or other benefits not covered by health insurance.

Medical Payments Coverage

Medical payments coverage is only required in Maine, but is available in other states. This coverage goes towards medical expenses due to injuries from a car accident and usually has a low limit. It does not cover lost wages or any additional benefits.

Comprehensive and Collision Coverage

While no state requires comprehensive and collision coverage, these types of coverage are commonly available as optional add-ons. They pay for damages to your car due to fire, theft, vandalism, animal strikes, acts of nature, glass breakage, and collisions.

State Exceptions

New Hampshire is the only state that doesn't mandate car insurance. However, drivers who choose not to buy car insurance must prove they have sufficient funds to meet the state's financial responsibility requirements in the event they cause an accident. Virginia requires car insurance but allows drivers to opt out if they pay an annual $500 uninsured motorist fee. This fee does not provide any coverage, leaving drivers financially responsible for damages in an accident.

At-fault vs No-fault States

Most states are considered at-fault states, meaning the driver who causes an accident is financially responsible for covering the other driver's injuries and damages. No-fault states include Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.

Liability insurance

There are two main types of liability insurance: bodily injury liability and property damage liability. Bodily injury liability covers the medical expenses of those involved in the accident, including emergency and ongoing medical expenses, loss of income, and funeral costs. It can also help cover legal fees if the accident results in a lawsuit. Property damage liability, on the other hand, helps cover the costs of repairing or replacing the vehicles of other drivers involved in the accident, as well as damage to other forms of property such as fencing, mailboxes, or buildings.

When purchasing liability insurance, it is important to consider the liability limits of the policy. Liability limits refer to the maximum amount that the insurance company will pay out for each category of coverage, including bodily injury per person, bodily injury per accident, and property damage per accident. For example, a common liability limit is $25,000 in bodily injury coverage per person, $50,000 in bodily injury coverage per accident, and $25,000 in property damage coverage per accident. It is important to review the minimum liability requirements in your state and choose a policy with adequate coverage to protect your assets.

While it is essential to have sufficient liability coverage, it is also possible to have too much auto insurance coverage. This can occur when you purchase redundant coverage that you already have from another source or when you buy coverage that you don't really need. To avoid this, it is recommended to regularly review your policies and compare them to your actual needs. By staying informed and shopping around for the best deals, you can ensure that you have the right amount of protection without overpaying for unnecessary coverage.

Full coverage

While it is essential to have sufficient auto insurance, it is also possible to have too much. The two main ways in which a driver can have too much insurance are by purchasing redundant coverage and by buying coverage they don't need.

Redundant Coverage

A driver might end up with redundant coverage if they buy a type of auto insurance protection they are already getting from another source. For example, if a motorist is a AAA member, they may get free roadside assistance from their AAA membership. If they pay additional premiums for roadside assistance from their car insurance company, they are paying for coverage they already have. This redundant coverage is increasing their policy premiums for no added benefit.

Coverage You Don't Need

A driver could end up purchasing coverage they don't need if they are buying insurance that wouldn't pay off in the event of a loss. For example, if a motorist has a very old, inexpensive car that's only worth around $1,000, collision insurance or comprehensive insurance with a $1,000 deductible might not be worth it. That's because the collision or comprehensive coverage would pay the market value of their car in the event of a covered loss, such as a car accident or a tree falling on the vehicle. The policy would only pay a maximum of $1,000 if that was all the car was worth. And the insured policyholder would have to cover their insurance deductible -- which is $1,000 -- before the insurer would pay anything at all. So they'd be paying premiums, and the insurer would end up paying out $0 even if a covered loss happened.

"Full coverage" typically describes an auto insurance policy with liability coverage plus collision and comprehensive coverage. These two coverage types pay for damage to your own vehicle, regardless of who is at fault. Collision coverage pays out when your car crashes with another one. Comprehensive coverage pays for damage to your car from situations outside your control, like vandalism, theft or a deer collision.

If you do opt for full coverage, pay attention to the deductible, which is how much you pay out of pocket before your insurance coverage begins paying for a claim. Collision and comprehensive deductibles tend to range from $250 to $1,000 but can go higher, so choose an amount you could afford to pay in an emergency.

Optional coverage

While it is essential to have sufficient auto insurance, it is also possible to have too much. Drivers should be careful not to purchase redundant coverage or coverage they don't need, as this will result in unnecessarily high premiums.

There are several types of optional auto insurance coverage that drivers can choose to add to their policy. These include:

• Collision insurance: This covers any damage to your car during a collision, regardless of who is at fault. It also usually covers hit-and-run incidents, although sometimes only if you also have comprehensive insurance.
• Comprehensive insurance: This covers damage or loss to your car that is not caused by a collision. This includes perils such as fire, theft, vandalism, or hail damage.
• Rental car reimbursement: This covers the cost of a rental car if your car is damaged or being repaired.
• Roadside assistance: This covers services such as towing, jump-starting, and lockout services.
• Personal property coverage: This protects your personal items from theft or damage while in your vehicle.
• Excess third-party liability: This provides coverage above the mandatory minimum if you get into an accident outside of your home state/province and injure someone or damage their vehicle or property.
• New vehicle replacement coverage: This ensures you receive a new vehicle or the cash equivalent in the event of a total loss.
• Riding gear coverage: This covers the cost of replacing riding gear, such as helmets and leathers, up to a certain limit.
• Pet injury coverage: This covers veterinary expenses for your pet if they are injured in an accident.
• Windshield and glass replacement: This covers the cost of replacing your windshield, sunroof, or other glass, with no deductible.

Frequently asked questions