Orlando Harmon
How Much Auto Insurance Coverage Should I Have?
Auto insurance is a requirement in almost every state, but the amount of coverage you need depends on several factors. While the minimum liability coverage mandated by your state is a good starting point, it may not be enough to protect you financially in the event of an accident.
To determine how much auto insurance coverage you need, consider your net worth, the value of your car, your budget, and your personal preferences. The key is to strike a balance between having sufficient coverage to protect your assets and staying within your financial means.
- State Minimum Requirements: Almost every state mandates a minimum amount of liability insurance, which covers injuries and property damage caused by the policyholder in an accident. However, these minimum requirements vary by state, so be sure to check the specific requirements for your state.
- Net Worth: Consider your net worth, which includes the value of your assets (home, vehicles, savings, investments) minus any debts. You should aim to have enough liability coverage to protect your assets in the event of a lawsuit resulting from an accident.
- Value of Your Car: If you have a new or expensive car, you may want to consider full coverage insurance, which includes collision and comprehensive coverage, to protect against damages to your vehicle. On the other hand, if your car has a low cash value, you may opt for liability-only coverage.
- Budget: Auto insurance premiums can vary significantly based on factors such as the coverage level, your driving record, age, and state of residence. Evaluate your budget to determine how much coverage you can comfortably afford.
- Personal Preferences: Consider your personal circumstances and preferences. For example, if you live in an area with high traffic and an increased risk of accidents, you may want more extensive coverage.
| Characteristics | Values |
|---|---|
| Minimum amount of car insurance | State-required liability coverage |
| Most commonly required liability limits | $25,000/$50,000/$25,000 |
| $25,000 in bodily injury per person | |
| $50,000 in total bodily injury per accident | |
| $25,000 for property damage per accident | |
| Liability coverage | $500,000 worth of liability insurance |
| Full coverage | Collision and comprehensive coverage |
| Uninsured motorist coverage (UM) | Covers medical expenses for you and your passengers if you're hit by a driver without insurance |
| Underinsured motorist coverage (UIM) | Covers you when you're in an accident caused by a driver whose insurance coverage is below the state's minimum |
| Medical payments coverage (MedPay) | Covers medical expenses for you and your passengers |
| Personal injury protection (PIP) | Covers medical bills, lost wages, funeral expenses, and more |
What You'll Learn
Liability insurance
- Bodily injury liability coverage pays other people's medical costs when they are injured in a traffic accident you cause. It covers things like medical bills, pain and suffering, lost wages, and funeral costs.
- Property damage liability coverage pays for damage to other people's property after a traffic accident you cause. This can include cars, fences, buildings, and government infrastructure like guardrails and road signs.
While the minimum amount of liability insurance you need is your state's required minimum, it is recommended that you purchase as much liability insurance as you can reasonably afford to protect yourself financially. A good rule of thumb is to have liability coverage of at least 100/300/100, which means $100,000 in bodily injury liability per person, $300,000 in bodily injury liability per accident, and $100,000 in property damage liability per accident. If you have significant assets, you may want even more coverage.
If your state's minimum liability requirements are low, you may want to consider purchasing an umbrella policy, which provides additional liability coverage above and beyond your standard auto insurance limits. This is especially important if you have a lot of assets, such as property or significant savings.
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Collision insurance
Collision coverage is particularly important for vehicle owners who drive a car worth protecting. This includes vehicles that are being leased or financed, newer and more expensive vehicles, and older vehicles that still maintain good value relative to your deductible and monthly rate.
If you decide to add collision coverage to your policy, it is important to choose a deductible that you can afford to pay. Collision coverage can provide peace of mind and protect you from financial loss in the event of an accident.
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Comprehensive insurance
The cost of comprehensive coverage will depend on various factors, including your age, driving record, the age and model of your vehicle, your state, and your chosen deductible. You can typically choose a higher deductible to lower your insurance premium, but this will result in higher out-of-pocket costs if your vehicle is damaged.
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Personal injury protection
PIP covers medical bills for you and anyone covered by your policy. In some states, it also includes non-medical benefits such as coverage for lost wages, household services, and disability. PIP can also cover:
- Medical bills for you and your passengers (including when you're hit by a car while walking or riding a bike)
- Lost wages if you or your passengers are injured and can't work
- Household services such as childcare, house cleaning, or yard work
- Disability and rehab costs
- Funeral, burial, or cremation expenses
- Death benefits for your family in the event of a fatal accident
The amount of PIP coverage you need depends on your state's requirements and your personal situation. If you have good health insurance, you may need less PIP coverage. However, if you have high health insurance deductibles or no health insurance at all, you may want to consider more PIP coverage. Additionally, if you frequently transport passengers or engage in physical labour for your job, you may want higher PIP coverage to protect against lost wages.
In summary, personal injury protection is an important component of auto insurance that can provide financial protection for you and your passengers in the event of an accident, regardless of who is at fault. The amount of coverage you need depends on your state's requirements and your individual circumstances.
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Medical payments coverage
MedPay covers expenses such as hospital visits, nursing services, ambulance and EMT fees, surgeries, and dental procedures. Coverage limits typically range from $1,000 to $10,000, and it is generally a good idea to carry coverage equal to your health insurance deductible. If you don't have health insurance, you should consider carrying a higher MedPay limit to help pay your medical bills after an accident.
MedPay is similar to personal injury protection (PIP) in that it covers medical bills. However, PIP is required in some states and covers lost wages, funeral expenses, and other expenses in addition to medical bills. If you have a choice between the two, PIP is usually a better option due to its expanded coverages.
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Frequently asked questions
The minimum amount of auto insurance coverage you need is your state's required liability coverage. This allows you to pay for some, if not all, injuries and damages you're liable for in an accident. The most commonly required liability limits are $25,000 per person for bodily injury, $50,000 per accident for bodily injury, and $25,000 for property damage per accident. However, individual state requirements vary widely.
It is recommended that you carry the highest amount of liability coverage you can afford, with $100,000 per person for bodily injury, $300,000 per accident for bodily injury, and $100,000 for property damage being the best coverage level for most drivers.
Full coverage auto insurance is liability insurance plus collision and comprehensive insurance. Collision insurance pays to repair or replace your car if it's damaged in an accident with another vehicle or object. Comprehensive insurance covers damage to your car from situations outside your control, like theft, vandalism, or weather damage.
Some other types of auto insurance coverage to consider include uninsured/underinsured motorist coverage, rental reimbursement insurance, and roadside assistance.
