How Much Car Insurance Do I Need?

How Much Car Insurance Do I Need?

There's no clear answer to how much car insurance you absolutely need. Most states have a minimum requirement for liability coverage, but you'll likely want much more to give you some peace of mind.

You may also need to have other types of coverage depending on where you live and whether you've financed your vehicle with a lender. Read on to get more details about minimum requirements by state and other types of necessary and optional coverages.

Minimum Car Insurance Coverage Requirements by State

Types of Required Auto Insurance Coverage

Depending on where you live and whether or not your vehicle is financed, the following coverages may or may not be required.

Liability Coverage

What it covers: Liability protection has two elements: bodily injury protection and property damage protection. In other words, if you cause an accident or damage someone's property while driving, this helps cover the cost of the injuries or damage.

When it's required: Most states require a minimum amount of liability coverage.

Typical coverage amounts: Insurance experts recommend at least $100,000 per person and $300,000 per accident for bodily injuries, and $100,000 for property damage.

Collision and Comprehensive Coverage

What it covers: If you're involved in an accident with another vehicle or hit an object, such as a fence or pole, collision coverage can help cover some or all of the damage. And if your car (or property inside it) is stolen or damaged by hail, fire or vandalism, comprehensive protection can help pay to repair or replace the vehicle.

When it's required: These types of coverage are typically required if you have an outstanding auto loan on your car because they protect the lender's investment.

Typical coverage amounts: The amount of coverage you have depends on the value of your car, so you can't change the coverage amount. However, you can select a deductible, which will typically range from $250 to $1,000.

Tip: A deductible is the amount you must pay out of pocket on an insurance claim before your policy covers the rest.

Uninsured and Underinsured Motorist Coverage

What it covers: If you're a victim in an accident where the at-fault driver doesn't have car insurance or has insufficient coverage, this protection may help pay your medical bills and even repairs to your vehicle in some cases.

When it's required: Some states require some form of uninsured/underinsured motorist coverage.

Typical coverage amounts: If it's available in your state, experts recommend matching your liability coverage.

Medical Payments Coverage or Personal Injury Protection

What it covers: If anyone in your vehicle is injured, medical payments coverage may help pay for medical costs associated with the injury. Personal injury protection (PIP) is similar, but it may also cover other things such as lost income, child care expenses and more.

When it's required: Only a handful of states require PIP, and some have a separate requirement for individual and total coverage per accident. Just two states require medical payments coverage.

Typical coverage amounts: Experts typically recommend $10,000 in coverage if available in your state.

Types of Optional Auto Insurance Coverage

Depending on your situation, some of the aforementioned coverages may or may not be optional. And depending on which insurance carrier you choose, you may also have access to other forms of optional coverage, including:

• Rental reimbursement: If you're at fault in a claim and need a rental car while your vehicle is being repaired, this coverage can reimburse you for the cost of your rental car up to a certain daily limit for a predetermined number of days.
• Gap insurance: Gap insurance can help you pay off your loan or lease if your car is damaged and the insurance payout is less than the amount you owe on the car.
• Towing and labor cost: If your vehicle breaks down, you get a flat tire, you're locked out of your car or you run out of gas, this coverage can help pay for some or all of the costs associated with getting the roadside assistance you need.
• Mechanical breakdown: If you own or lease a newer vehicle, this protection can help cover the cost of mechanical repairs and replacement parts—typically with a deductible.
• Disappearing deductible: Also called vanishing or diminishing deductible coverage, this can reduce your deductible each year or policy period in which you avoid accidents and moving violations.

Penalties for Driving Without Auto Insurance

The penalties for driving without insurance coverage can vary by state, but they can be severe. Depending on where you live, penalties typically include:

• Fines, which can range from $100 to $5,000
• Suspension of your license or registration
• Impounding of your vehicle
• Confiscation of your license plates
• Points on your driving record
• SR-22 form requirement
• Up to a year of jail time

Learn more: Do You Need Car Insurance?

How to Choose Car Insurance Coverage

As you consider how much car insurance to buy, here are some steps you can take to determine the right amount:

1. Know your state and lender minimums. Depending on where you live and your lender, you may need to have at least a minimum amount of liability, collision and comprehensive coverage, as well as other types of protection. Check with your state (see list above) and lender to find out what's required.
2. Consider the age and value of your car. If you're driving an older car and you own it outright, it may not be worth enough to get certain types of insurance coverage, such as collision and comprehensive protection.
3. Look at your budget. In an ideal world, you wouldn't have to trade off coverage for a lower premium. But if you're on a budget, you may need to have less coverage than you want. Take a look at how much you can afford in terms of monthly premiums, then work with your insurance agent to determine how much coverage you can get.
4. Consider your savings. If you have a sizable emergency fund, you may not need as much coverage as someone who only has a little saved up. In this scenario, you can effectively self-insure if something happens to your car, so you could choose a lower coverage amount and or a higher deductible or even skip certain optional coverages altogether and save on monthly premiums.

Learn more: How to Save on Car Insurance

As you consider these and other factors that are important to you, don't forget about the value of peace of mind. Even if you can afford to pay for certain costs out of pocket, it can still be stressful. Depending on your tolerance to risk, it could be worth paying for more coverage than the minimum you think you need.

Another consideration when choosing coverage amounts is to understand that if you're involved in an at-fault accident where the cost of damages exceeds your insurance coverage, assets like your home could be at risk. That said, this is relatively rare. But you can protect yourself by increasing your car insurance coverages and considering an umbrella policy to have an added layer of protection.

Learn more: How to Choose the Right Auto Insurance Policy

Compare Car Insurance Quotes to Maximize Your Savings

As you consider how much car insurance you need, it's important to note that each insurance provider has its own criteria for determining rates. As a result, it's critical that you take the time to shop around and compare auto insurance rates from multiple carriers to ensure you get the right coverage for the lowest price possible.