Jeffrey Wade
The amount of auto insurance you need depends on your financial situation, the value of your car, and your state's minimum requirements. While your state will mandate a minimum amount of auto insurance coverage, you might wonder if it's enough after an accident.
Liability coverage is required to drive in almost every state, but the amount you need may vary depending on where you live. It's recommended that you purchase coverage equal to your net worth. You can calculate your net worth by adding up your assets (including investments and retirement accounts) and subtracting any debt. This will ensure that your policy can cover the full cost of an accident without putting your home and other assets at risk.
In addition to liability coverage, you may want to consider full coverage, which includes collision and comprehensive insurance. Collision coverage pays for damage to your car in an accident with another vehicle or object, while comprehensive coverage protects your vehicle from things like theft, vandalism, and weather damage. If you're leasing or financing your car, your lender may require you to carry full coverage.
Other types of optional coverage include uninsured/underinsured motorist coverage, personal injury protection, medical payments coverage, and roadside assistance. By law, you must meet your state's minimum requirements, but it's important to assess your financial situation to determine if you need additional coverage.
| Characteristics | Values |
|---|---|
| Liability insurance | Mandatory in most states. The most common minimum limits are $25,000 per person and $50,000 per accident for bodily injury and $25,000 for property damage. |
| Collision and comprehensive coverage | Not mandatory but strongly recommended. Collision coverage helps pay for the repairs or replacement of your car if it's damaged in an accident. Comprehensive coverage helps pay for the repairs of damage to your vehicle caused by events outside of your control, such as vandalism, theft, flood, hail, fire, and animal damage. |
| Uninsured and underinsured motorist coverage | Required in many states. It pays for your and your passengers' medical bills and property damage if the at-fault driver doesn't have insurance or doesn't have enough coverage. |
| Personal injury protection (PIP) | Required in states with a no-fault insurance system. It covers medical bills and lost wages if you or your passengers are injured in a crash, regardless of who is at fault. |
| Medical payments (MedPay) coverage | Optional in most states. It covers your medical bills, no matter who is at fault in a crash. |
What You'll Learn
Liability insurance
The amount of liability insurance you need may vary depending on where you live, but it's important to have enough coverage to protect your financial security. A good rule of thumb is to choose a liability limit that matches or exceeds your total net worth. This way, your assets are well-protected in the event of a costly accident.
When determining how much liability coverage to purchase, consider your state's minimum requirements, your net worth, and how much you drive. You can also look into optional coverage types, such as uninsured motorist coverage, medical payments coverage, and roadside assistance, to ensure you're covered in any specific scenarios you might be concerned about.
It's important to note that liability insurance does not cover damage to your own vehicle or personal injuries. For that, you would need additional coverage such as collision and comprehensive insurance.
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Collision insurance
If you decide to purchase collision insurance, you will need to select a deductible, which is the amount you pay out of pocket before your insurance coverage begins paying for a claim. Collision deductibles tend to range from $250 to $1,000 but can go higher.
When deciding how much collision insurance to purchase, it is important to consider your net worth and how much you drive. Purchasing coverage equal to your net worth can help protect your financial security in the event of an accident.
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Comprehensive insurance
Comprehensive coverage is strongly recommended, especially if you lease or finance your vehicle, as lenders will usually require it. If you own your vehicle outright, you can decide whether to add it to your existing car insurance plan.
The cost of comprehensive coverage will depend on your deductible, which is the amount you must pay out of pocket before your insurance kicks in. Deductibles typically range from $250 to $1,000. A higher deductible will result in lower premiums, but you'll pay more out of pocket if you need to make a claim.
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Personal injury protection (PIP)
PIP covers medical expenses, lost income, and other necessary expenses such as household help and transportation to medical providers. It also provides payments for lost income, child care, and funeral expenses related to the accident. In some states, PIP is required as part of "no-fault auto insurance" laws, while in others it is offered as an optional add-on.
The minimum and maximum coverage limits for PIP vary by state. For example, in Florida, the minimum PIP coverage required is $10,000, while in New York, the basic No-Fault coverage provides up to $50,000 per person. The maximum coverage limits are usually set by insurance companies and are typically no more than $25,000.
If you live in a state that requires PIP, it is important to include it in your car insurance policy to ensure you are compliant with the law. Even if PIP is optional in your state, it may still be a worthwhile addition to your policy, especially if you don't have comprehensive health insurance.
When deciding on the amount of PIP coverage to purchase, consider your financial situation, the value of your assets, and the likelihood of needing this type of coverage. Keep in mind that if you are underinsured, you may be responsible for covering any expenses that exceed your policy limits.
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Medical payments (MedPay)
Medical payments coverage, or MedPay, is an optional add-on to your car insurance policy in most states, but it is required in some. MedPay helps pay for medical expenses and funeral costs after a car accident, regardless of who is at fault. It also covers medical bills if you or a family member is hit by a car while on foot, riding a bike, or travelling as a passenger in someone else's vehicle. MedPay can also cover medical expenses for pedestrians you may injure in an accident.
The types of services that MedPay can cover include:
- Treatment of injuries, including medical, dental, surgical, and chiropractic care
- Ambulance fees and emergency room services
- X-rays, prostheses, and nursing
- Funeral costs following a fatal crash
- Health insurance deductibles or copays
MedPay coverage limits vary by policy. You can generally buy MedPay in set dollar amounts such as $1,000, $2,500, or $5,000. The limit you choose will determine how much your insurance will pay out after a car accident. The higher your coverage limit, the higher your monthly premium will be.
When deciding whether you need MedPay, keep in mind that it can cover part of your health insurance deductible or copays. Once your MedPay limit is reached, your health insurance will cover the rest. You might also want MedPay if you frequently drive passengers who aren't part of your family, as MedPay typically applies to anyone riding in the car at the time of the accident.
MedPay is supplemental to your regular health insurance, and rules and regulations vary by jurisdiction about which is the primary payer for various treatments and medical expenses. Check your health insurance policy to see if MedPay would be useful for you.
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Frequently asked questions
If you're still financing your car, your lender will likely require you to carry full coverage insurance. But if you're driving a high-value vehicle, you may want to consider retaining full coverage to get maximum financial protection even after paying off your car.
The minimum amount of car insurance you need is your state's required liability coverage. However, this is just the bare minimum and you should consider purchasing additional coverage to protect yourself financially.
A good rule of thumb is to buy enough liability insurance to cover what you could lose in a lawsuit against you if you cause a car accident.
Full coverage car insurance includes liability, collision and comprehensive insurance. Liability pays if you hurt someone or damage something in a crash you cause. Collision fixes your car after a crash. Comprehensive pays for other issues like theft or weather damage.
