Auto Insurance: Understanding The Right Amounts To Carry

Car insurance is a necessity, but how much is enough? The answer depends on several factors, including your state's requirements, your budget, and the value of your car. While carrying the minimum amount of car insurance mandated by your state is necessary to drive legally, it may not be sufficient to protect you financially in the event of an accident.

Most states require liability insurance, which covers injuries and property damage caused by the policyholder to others in an accident. The minimum coverage limits vary by state, with some states requiring as little as $15,000 in bodily injury liability coverage per person and $5,000 for property damage. However, these amounts may not be adequate, and it is recommended to purchase higher coverage limits if possible. Collision and comprehensive insurance are also important considerations, especially if you have a lease or loan on your vehicle. These coverages pay for damage to your own car in different scenarios and are usually required by lenders.

When determining how much car insurance you need, consider your state's minimum requirements, your vehicle's value, your budget, and your personal preferences. Additionally, it is crucial to review the different types of coverage available, such as personal injury protection (PIP), medical payments (MedPay), and uninsured/underinsured motorist coverage, to ensure you have the protection you need. While it may be tempting to skimp on car insurance to save money, remember that adequate coverage can provide financial peace of mind and protect you from significant expenses in the event of an accident.

Liability insurance

The minimum amount of liability insurance you are required to have varies by state. The most common minimum limits are $25,000 per person and $50,000 per accident for bodily injury and $25,000 for property damage. However, some states have higher or lower requirements. For example, California requires minimum coverage of $15,000 for bodily injury to one person, $30,000 for bodily injury to multiple people in a single car accident, and $5,000 for property damage.

It is recommended that you purchase as much liability insurance as you can comfortably afford to ensure you are covered in the event of an accident. If you cause an accident and the damages exceed your liability coverage limits, you could be sued and held personally responsible for the remaining amount.

Collision insurance

The cost of collision insurance varies depending on factors such as the car you drive, how many miles you drive, and where you live. According to the National Association of Insurance Commissioners (NAIC), the average annual cost for collision insurance in the US is $381.

When deciding whether to purchase collision insurance, consider the age and value of your car, as well as your ability to pay for repairs or a replacement in the event of an accident. Collision insurance may not be worth it if you drive an old car, as it will never pay out more than the car's value. However, if you have an expensive car or would have difficulty paying for repairs or a replacement, collision insurance can provide peace of mind.

Comprehensive insurance

While comprehensive insurance is optional in some cases, it can provide valuable protection against unforeseen events. If you are leasing or financing your vehicle, comprehensive insurance is likely required. Even if it is not required, comprehensive insurance can offer peace of mind and protect you from unexpected costs.

When deciding whether to purchase comprehensive insurance, consider the value of your vehicle, the likelihood of unforeseen events occurring, and your ability to cover potential repair or replacement costs. Comprehensive insurance can provide valuable protection, but it is important to weigh the costs and benefits to make the best decision for your situation.

Uninsured motorist coverage

According to the Insurance Information Institute, nearly 13% of drivers countrywide don't have auto insurance. In some states, the number of uninsured drivers is over 20%. Without uninsured motorist coverage, you could be held responsible for paying your own medical expenses and vehicle repairs if you're in an accident with an uninsured or underinsured driver. Even if you have health insurance, it may not cover all your medical expenses, and you may be responsible for paying a deductible.

There are two types of uninsured motorist coverage: Uninsured Motorist Bodily Injury (UMBI) and Uninsured Motorist Property Damage (UMPD). UMBI covers medical bills for both you and your passengers if you're injured by an uninsured driver. It may also help cover non-medical expenses, such as pain and suffering. UMPD covers repairs to your vehicle if it is damaged by an uninsured motorist. If your auto policy doesn't include UMPD or Collision coverage, you would have to pay for the car repairs or file a claim against the at-fault driver in court.

In some states, Underinsured Motorist (UIM) coverage is also available. UIM coverage protects you if you're in an accident with a driver whose insurance policy limits won't cover your vehicle damages or bodily injury expenses. Like UM coverage, UIM is divided into bodily injury and property damage categories.

The amount of uninsured motorist protection required varies by state. In New York, for example, the minimum required is the same as the minimum bodily injury limits for liability insurance. In Nevada, drivers can purchase UM/UIM coverage, but it is not mandated by law. However, insurance companies are required to offer it at a level no less than the minimum liability limits.

It is important to note that uninsured motorist coverage may not cover all expenses, and there may be deductibles or limits to the coverage. It is recommended to review your auto insurance policy and consult with your insurance agent or company to determine the appropriate coverages and limits for your specific needs.

Personal injury protection

PIP coverage can help pay for medical expenses for both the policyholder and their passengers. It can also cover health insurance deductibles and lost wages if the policyholder is unable to work due to their injuries. Additionally, PIP can provide financial support for funeral expenses and replacement services, such as childcare and house cleaning, if the policyholder is unable to perform these tasks due to their injuries.

The amount of PIP coverage required or available varies by state. In Texas, for example, the minimum PIP coverage is $2,500, but drivers can increase their coverage to $5,000 or $10,000 if desired. While PIP is not mandatory in Texas, drivers must sign a waiver if they choose to decline the coverage.

When considering how much personal injury protection to carry on auto insurance, it is essential to review your state's requirements and regulations. Additionally, evaluating your personal financial situation and the level of coverage you feel comfortable with is crucial in determining the appropriate amount of PIP coverage for your needs.

Frequently asked questions