Auto Insurance: How Much Coverage Do You Need?

The amount of auto insurance you should carry depends on your state's minimum liability requirements, your budget, and your personal needs. While liability insurance is mandatory in most states, collision and comprehensive coverage is not, although it is strongly recommended. It's important to purchase the maximum coverage you can comfortably afford to ensure you and your vehicle are covered in most scenarios.

When buying auto insurance, consider your premium payment, deductible, and coverage limits to ensure optimal protection. The amount of insurance you need will depend on factors such as your car's value, driving history, age, location, and coverage limits, among others.

It's recommended that drivers have at least $100,000 per person and $300,000 per accident in bodily injury liability, and $100,000 per accident in property damage liability. This is often referred to as full coverage and provides robust protection against accidents, theft, and unforeseen events.

Additionally, consider adding optional coverage types such as uninsured/underinsured motorist coverage, personal injury protection, and roadside assistance to ensure you're covered in specific scenarios.

Liability insurance

The amount of liability coverage you need may vary depending on your state and personal situation. Most states have minimum liability coverage requirements, but these can vary, and it is important to check the specific requirements for your state. Even if your state has low minimum requirements, you may want to consider a policy with higher limits to ensure you have sufficient coverage in the event of a serious accident. Additionally, if you have a lot of financial assets that you want to protect, you may want to consider a combined single-limit policy, which provides a single liability limit instead of separate limits for each category.

When determining how much liability insurance to purchase, it is important to consider your net worth and how much you can afford to pay out of pocket in the event of an accident. In general, it is recommended to have enough liability insurance to cover the full cost of an accident without putting your home and other assets at risk.

Collision insurance

If you own your vehicle outright and choose not to carry collision coverage, you will have to pay for repairs or a replacement vehicle out of pocket if you're in a single-vehicle accident or are found at fault in an accident. If the other driver is at fault, their liability coverage will typically pay for the damage.

• Single-vehicle accidents, like hitting a guardrail or a telephone pole
• Collisions with other vehicles
• Collisions while your vehicle is parked (including hit-and-runs)

It's important to note that collision insurance does not cover collisions with animals, injuries or damage caused to another driver and their vehicle, or damage to your vehicle caused by events outside of your control (such as a tree falling on it). These scenarios would be covered under comprehensive coverage.

When deciding whether to opt for collision coverage, consider the following factors:

• The value of your vehicle: If your vehicle is brand new or still worth a considerable amount, collision coverage may be worthwhile as it can help cover expensive repairs or a replacement if it's damaged.
• Your ability to pay out of pocket: If you couldn't afford to pay for repairs or a replacement vehicle without insurance, collision coverage may be worth the peace of mind.
• Whether your vehicle is in storage: If your vehicle won't be driven for a long period, such as a boat or RV, collision coverage may not be necessary while it's in storage.

If you decide to purchase collision insurance, you will need to choose a deductible, which is the amount you'll pay out of pocket before your insurance coverage begins paying for a claim. A higher deductible, such as $1,000, will result in slightly cheaper premiums compared to a lower deductible. However, choosing a deductible amount that you can comfortably afford to pay in case of an accident is essential.

Comprehensive insurance

Most lenders require you to have comprehensive coverage if you finance or lease your car. However, comprehensive insurance is typically not required by state law. Comprehensive insurance could be worth it if you would have a hard time coming up with cash to repair or replace your car on your own if misfortune strikes.

The cost of comprehensive insurance varies depending on factors such as your age, driving record, vehicle, state, and deductible amount. The deductible is the amount you pay out of pocket after a claim is approved, and choosing a higher deductible can lower your insurance premium. According to the National Association of Insurance Commissioners, the average annual comprehensive insurance premium for drivers in the U.S. in 2019 was $171.87, with California having the lowest average of $96.53 and South Dakota the highest at $347.61.

When deciding whether to get comprehensive insurance, consider factors such as the value of your car, your financial situation, the theft rate in your area, and whether you frequently drive in areas with high accident or animal collision rates. If your car is old or has a low value, or you can afford to pay for repairs or a new vehicle out of pocket, you may not need comprehensive insurance.

Uninsured motorist insurance

If you are in an accident with an uninsured or underinsured driver, you could end up paying for medical bills or vehicle repairs out of pocket. Even if you have health insurance, it may not cover all the costs associated with an accident, and you may have a high deductible. Uninsured motorist coverage can help fill these gaps and protect you financially.

Uninsured motorist coverage typically includes two parts: uninsured motorist bodily injury (UMBI) and uninsured motorist property damage (UMPD). UMBI will pay medical bills for you and your passengers if you are in an accident with an uninsured driver. UMPD will cover damage to your vehicle. If you are hit by a driver with insurance but not enough to cover the damages, underinsured motorist bodily injury (UIMBI) and underinsured motorist property damage (UIMPD) will kick in to cover your medical bills and vehicle repairs, respectively.

When deciding how much uninsured motorist coverage to purchase, consider matching the amount to your liability coverage limits. For UMPD, you can select a limit that mirrors the value of your vehicle. For example, if your car is worth $20,000 and you don't have collision coverage, consider getting that much in UMPD coverage.

Uninsured motorist coverage is a valuable addition to your auto insurance policy, providing financial protection in the event of an accident with an uninsured or underinsured driver. By understanding the risks and your coverage options, you can make an informed decision about how much uninsured motorist insurance to carry.

Personal injury protection

PIP insurance covers reasonable medical costs, including surgeries, X-rays, dental or eye treatments, medical procedures, prosthetic devices, and professional nursing. It also covers rehabilitation therapy, lost income resulting from the accident, and replacement of necessary services provided by the injured party, such as family care or household maintenance.

In some states, PIP is mandatory, while in others, it is optional. The amount of PIP coverage required or available varies by state. For example, in Texas, insurance companies are required to offer a minimum of $2,500 of PIP insurance, with the option to increase coverage to $5,000 or $10,000. In Florida, basic PIP covers 80% of medical bills and 60% of lost wages and replacement services, while extended PIP covers 100% of medical bills and 80% of lost wages and replacement services.

If you live in a state where PIP is optional, you may want to consider purchasing it if you don't have health insurance or if your health insurance doesn't provide adequate coverage for injuries sustained in a car accident. Even if you have good health insurance, you may want to consider purchasing the minimum amount of PIP coverage to take advantage of the additional benefits it provides, such as reimbursement for lost wages and replacement services.

Overall, PIP can provide valuable financial protection in the event of a car accident, helping to cover medical expenses, lost income, and other related costs. It is important to review your state's requirements and your own financial situation to determine if PIP is right for you.

Frequently asked questions