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When buying a car insurance policy, it can be difficult to know how much coverage you need, especially if you're on a budget. While most states require a minimum amount of liability insurance, there are several other types of coverage you may need or want, so you'll need to find a balance between protection and cost.
Here's what you should expect when shopping around for a car insurance policy and how to determine the right amount of coverage for you.
How Much Car Insurance Do You Need?
Unfortunately, there's no clear answer to how much car insurance you absolutely need. If you're looking for the bare minimum coverage, most states have a minimum requirement for liability coverage.
Depending on the state, it may be as low as $10,000 per person and $20,000 per accident for bodily injuries, and $10,000 for property damage—that's typically shown as 10/20/10 when you're shopping around for a policy. You can check with your state's department of insurance or department of motor vehicles to understand what's required.
That said, insurance experts recommend at least $100,000 per person and $300,000 per accident for bodily injuries, and $100,000 for property damage, or 100/300/100.
Depending on where you live and whether you financed your vehicle purchase, you may be required to have other forms of coverage, but you typically can't choose the coverage level—you'll either need to have it or you won't.
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
As previously mentioned, 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.
The only state that doesn't require liability insurance outright is New Hampshire. However, you must be able to prove that you can afford the costs that liability insurance covers on your own to get the insurance requirement waived there.
Many auto policies max out at $300,000 or $500,000 for liability coverage, but you can also buy a personal liability umbrella policy if you want more coverage.
Collision and Comprehensive Coverage
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.
These types of coverage are typically required if you have an outstanding auto loan on your car because they protect the lender's investment. There are no state laws that require them, however.
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. The higher your deductible, the lower your regular insurance premiums will be.
Uninsured and Underinsured Motorist Coverage
If a driver who either doesn't have car insurance or doesn't have enough coverage causes an accident, this protection can help pay your medical bills and even repairs to your vehicle in some states.
While these coverages aren't required in all states—and some states may only require one of them—they can provide significant protection in a situation you have no control over.
Medical Payments Coverage or Personal Injury Protection
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, childcare expenses and more.
Most states don't require either of these coverages, and it's not possible to have both at the same time. In both cases, coverage is typically capped at $10,000, though limits can vary by 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.
- 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 a fine, which can range from $100 to $5,000, and suspension of your license or registration.
In some cases, however, the department of motor vehicles may impound your vehicle, confiscate your license plates, add points to your driving record or require your insurance carrier to file an SR-22 form to prove you have coverage. In addition to a filing fee, you may also face increased insurance premiums, as insurance carriers consider SR-22 drivers to be high risk.
In some states, you may even face up to a year of jail time.
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:
- 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 and lender to find out what's required.
- 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.
- 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.
- 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.
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.
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.