Auto Insurance: Understanding Your Financial Coverage

The cost of auto insurance varies depending on factors such as age, gender, driving history, state, and the type of coverage. The national average cost of car insurance is $1,718 per year for full coverage and $488 per year for minimum coverage, according to a June 2024 analysis by NerdWallet. However, the cost of auto insurance can range from as low as $972 per year in Wyoming to as high as $3,067 per year in Florida.

The cost of auto insurance is influenced by factors such as age, gender, driving history, and state. For example, younger drivers tend to pay more for auto insurance due to their lack of experience and higher risk of accidents. Additionally, drivers with a history of accidents, speeding tickets, or DUIs will typically pay more for auto insurance. The cost of auto insurance also varies by state, with states like Florida, Louisiana, and Texas having some of the highest rates, while states like Wyoming, Vermont, and New Hampshire have lower rates.

When considering how much auto insurance to purchase, it is important to weigh the costs and benefits of different coverage options. Full coverage auto insurance typically includes liability, collision, and comprehensive insurance, which offer protection in various situations. On the other hand, minimum coverage only includes the state-mandated minimum liability insurance, which may not be sufficient in the event of a major accident. It is recommended to have at least $500,000 in liability coverage to protect yourself financially in case of an accident.

Liability insurance

When you take out a liability insurance policy, you will choose a coverage limit—the maximum amount that the policy will pay for injuries or property damage that you cause to others. It is recommended that you choose a liability coverage limit that matches or exceeds your net worth so that your assets are well-protected.

Collision insurance

• A crash you cause with another driver.
• A collision with an object such as a tree or mailbox.
• Your car rolling over.
• Another driver hitting your car if they don't have enough insurance to cover the damage costs and you don't have uninsured/underinsured motorist property damage coverage.
• Damage from potholes or hitting a curb.

It's important to note that collision insurance won't cover damage or injuries you cause to others while driving, medical costs from injuries to yourself or your passengers after an accident, personal belongings inside your car, or normal wear and tear.

Should You Get Collision Insurance?

The cost of collision insurance varies depending on factors such as the company, the type of vehicle, and your driving history. According to NerdWallet's analysis, the average cost of full coverage insurance, which typically includes collision insurance, is $1,718 per year. However, your rates may differ based on factors such as the car you drive, your driving history, and your location.

Comprehensive insurance

• Weather events, such as hail, floods, or tornadoes
• Falling objects, such as tree limbs
• Car theft and broken windows
• Vandalism or civil disobedience, such as a riot

• Damage or injuries caused to others while driving
• Your own injuries after an accident
• Damage to your car from a collision with another vehicle or object
• Personal belongings inside your car
• Damage from potholes
• Normal wear and tear

The cost of comprehensive insurance varies depending on factors such as the value of the vehicle, the location, and the driver's insurance history. The average cost of comprehensive insurance was around $134 to $160 per year in 2017, but it can be nearly double that amount depending on the state. In 2019, the average annual comprehensive insurance premium for drivers in the U.S. was $171.87, with California being the least expensive at $96.53 and South Dakota the most expensive at $347.61.

Uninsured motorist coverage

In some states, over 20% of drivers do not have auto insurance. Without uninsured motorist coverage, you could end up paying for medical bills or vehicle repairs out of your own pocket if you are injured or your vehicle is damaged in an accident with an uninsured or underinsured driver. Even if you file a claim against your own policy, you may have a large collision deductible or insufficient medical payments/personal injury protection to cover injuries to you or your passengers.

Uninsured/underinsured motorist insurance covers your injuries, your passengers' injuries, and damage to your vehicle if you are hit by a driver who does not have enough or has no auto insurance coverage. Depending on your state, uninsured/underinsured motorist insurance may be separate, combined, or consist of up to four coverages:

• Uninsured motorist bodily injury (UMBI) may pay medical bills for both you and your passengers.
• Uninsured motorist property damage (UMPD) may pay for damage to your vehicle.
• Underinsured motorist bodily injury (UIMBI) may pay medical bills for both you and your passengers if you are hit by a driver with insufficient coverage.
• Underinsured motorist property damage (UIMPD) may pay for damage to your vehicle if the at-fault driver's coverage is insufficient.

Note that some states may require a deductible for UMPD/UIMPD, but UMBI/UIMBI generally doesn't include a deductible.

While uninsured motorist bodily injury coverage may overlap with your health insurance, there are a few things to consider before forgoing this coverage:

• Your health insurance may not cover injuries sustained in an auto accident, and even if it does, it may have a high deductible.
• Your UMBI/UIMBI coverage will protect any passengers in your car who do not have their own health insurance.
• Your UMBI/UIMBI coverage may cover lost wages and other types of damages not protected under some health insurance plans.

When deciding how much uninsured motorist coverage to purchase, you can choose the insurance limits of your coverage. For the bodily injury portion, consider matching the amount of your liability coverage. For property damage, you can select a limit that closely mirrors the value of your vehicle.

Personal injury protection

PIP can help cover:

• Medical expenses for you and your injured passengers.
• Your health insurance deductible.
• Lost wages if you're out of work due to your injuries.
• Funeral, burial, or cremation expenses after a car accident.
• Loss of services, such as childcare and housecleaning, that you would normally perform.

PIP does not cover:

• The other driver's injuries in a collision.
• Any injuries from an accident that occurred while you were committing a crime, such as fleeing the police.
• Injuries sustained while you were being paid to drive.
• Intentional injuries caused by the insured person.
• The insured person if they are injured in organised racing activities.
• An insured person while they are committing a felony.
• Services that your insurance company decides are not related to the accident or incurred within three years of the accident.

The cost of PIP coverage varies with each company, and the more vehicles on your policy, the more you'll pay. In some states, PIP may include a deductible, with a range of deductible amounts to choose from.

Frequently asked questions