29 May How Much Car Insurance Do I Need?

The Correct Amount of Car Insurance for You

Choosing the correct amount of auto insurance for your need’s entails taking into account factors such as the value of your vehicle, your driving background, and the amount you might realistically afford to pay out of pocket in the event of an accident.

Car insurance covers you financially if you cause an accident, kill others, or harm property while driving. Your insurance can also cover damage to your own vehicle caused by accidents or other risks such as severe weather, falling objects, burglary, and vandalism. 

In nearly every state, at least a certain amount of auto insurance is required, but even in states where car insurance is not required, you are still obligated to pay for any harm you do with your car, and the safest way to do that is to get car insurance.

Many states only provide liability insurance, which covers any property damage or injury you cause. However, most drivers need more coverage than their state requires, so how do you know if you’re getting the right amount of coverage? 

Knowing how much auto insurance you need entails determining both the types of coverage you need and the amount of coverage you need. Let’s look at the different parts of auto insurance and how to set your coverage limits and premium rates.

3 Steps for Determining How Much Car Insurance You Need

1. Find out what the minimum coverage standards are in your state. 
2. Consider the cost of collision and comprehensive compensation in relation to the cash value of the vehicle. Consider skipping it if the expense exceeds 10% of your car’s value minus your deductible. 
3. Determine the amount of liability insurance required to cover the entire value of your net worth.

Types of Coverage

Understanding the various forms of auto insurance policy choices is the first step in selecting your car insurance coverage. There are several basic components that make up what is commonly referred to as “full coverage” car insurance, but your insurer can also provide different coverage options and add-ons.

Liability 

Liability insurance covers the expenses if the car causes an accident, damages property, or injures someone. Following an at-fault crash, liability insurance would cover the related bills, legal fees, and litigation expenses up to the policy limits. It is also required in most states. 

Liability coverage is divided into two parts: bodily injury liability (BI), which covers the costs if your car injures anyone else, and property damage liability (PD), which covers the costs if your car damages someone else’s property.

Three numbers separated by slashes are often used to represent liability coverage. Texas, for example, includes 30/60/25—meaning, up to $30,000 for one person’s injury, $60,000 for all injured persons in an accident, and $25,000 for property damage. 

Since bodily injury cases are often the most costly, you should choose at least as much compensation as your net worth for the middle number in the description. A 100/200/50 liability policy could be a good match if your total assets are worth $185,000 or less. Property loss is typically less costly than accidents after an accident, so the third figure would most likely be the lowest.

Personal Insurance Protection (PIP)

Personal injury insurance, also known as PIP, pays for personal-related costs up to the extent of your coverage if you or your passengers are involved in a car accident, regardless of who was at fault. PIP is a form of no-fault insurance that your state can require.

Following an accident, PIP pays medical expenses for you and your passengers. It is typically needed in the 12 no-fault states, and you generally don’t need more than the legal minimum if you have health insurance to cover medical expenses.

Medical Expenses (MedPay)

MedPay operates similarly to PIP in that it can be used to file a lawsuit regardless of who is at fault for an accident. However, it does not cover lost income and typically has lower policy limits than PIP. Again, if you have healthcare, you probably don’t need anything more than what is needed.

Uninsured Motorist/Underinsured Motorist Insurance (UM/UIM)

Uninsured/underinsured motorist coverage will protect you if you are struck by an uninsured driver, are involved in a hit-and-run, or crash with someone who does not have adequate coverage to cover all of the damage they cause. 

Some states mandate that drivers bear a certain amount of uninsured/underinsured motorist compensation. However, it’s worth adding to your policy even if it’s not a requirement by law in your state because it’s relatively inexpensive and can come in handy. 

Optional Coverage Features for Car Insurance 

Since liability insurance does not cover damage to property, you should also have coverage for your car. If you leased or financed your vehicle, the lender may enable you to obtain any or more of the following coverage types:

Collision Insurance

Collision insurance covers damage to your own car because of an accident, regardless of who was at fault. Although it is not mandated by law in either state, accident coverage, combined with comprehensive coverage, contributes to what is commonly referred to as “full coverage” auto insurance. Collision compensation often necessitates the payment of a premium before it can cover a cost.

Comprehensive Insurance

Comprehensive coverage protects the vehicle from damage that can occur while it is not being driven, such as damage from severe weather, dropping objects, animals, flood, fire, vandalism, and robbery. It is inextricably linked to crash insurance. Comprehensive policies, like collision insurance, has a premium.

Guaranteed Auto/Asset Protection (GAP)

Cars can depreciate quickly and if your vehicle is totaled, you could easily end up owing more on your loan than the vehicle is worth. Gap insurance will cover the difference, paying off the balance of your lease or loan payments. 

Extra Coverage Options

In addition to the basic coverage that constitutes a “full coverage” policy, most major auto insurance providers have a variety of coverage options. These can include roadside assistance, which includes flat tire repairs, jump starts, and towing, or new vehicle repair coverage, which pays for a replacement if your new car is totaled during the first one or two years of ownership. 

Some auto insurance companies have personal object coverage, which protects personal belongings in your car if they are damaged or stolen, as well as separate rental car replacement coverage, which pays for a rental car if yours is in the shop after a covered loss. If you’re a rideshare driver, you can also check to see if your car insurance company provides rideshare coverage to support you when your app is enabled but you don’t have a passenger.

How Much Coverage is Required per State?

Except for two states, all mandate a certain amount of auto insurance and impose severe penalties for drivers who are found driving without insurance. The exceptions are as follows: New Hampshire allows you to pay up to certain limits out of pocket if you go uninsured or face penalties; and Virginia requires an annual charge to the state if you go without insurance. 

Any other state mandates at least two forms of bodily injury liability (BIL) and property damage liability (PDL) (PDL). Personal injury insurance (PIP) and uninsured/underinsured motorist (UM/UIM) coverage are also required in some states.

Choosing Car Insurance Coverage Limits

When it comes to setting your coverage limits, your state’s mandatory minimums are a starting point, not an end point. State minimums are insufficient for most people to ensure they are safe in the event of an accident. 

Assume your state allows you to carry $15,000 in property damage liability insurance and you cause an accident that causes $35,000 in damage. You’ll be responsible for the difference, which amounts to $20,000 in total.

And what if you can’t pay out of pocket? Your properties may be confiscated, and your salaries may be docked to cover the expenses. If you buy a house or have insurance, either may be used to pay off your debt. Setting low coverage limits will result in low prices, but you risk having to pay much, much more than you save by skimping on coverage. Here are some things to think about when selecting a form of coverage:

Liability Coverage: Many experts suggest purchasing as much liability coverage as you can afford, as well as ensuring that you purchase enough liability insurance to protect the entire value of your properties (your house, your car, savings, investments, etc.).  If you have teen drivers on your policy, you should raise your liability coverage limits even higher. 

Personal Injury Protection (PIP): When it comes to personal injury insurance, you usually don’t need to purchase more than the legally mandated minimum, if it’s even required in your state. If you have health insurance and any kind of disability insurance, and you know your passengers do as well, you should be able to cover any medical costs or missed earnings after an accident.

Uninsured Motorist/Underinsured Motorist Insurance (UM/UIM): Uninsured and underinsured motorist insurance is required in some jurisdictions. However, even if yours does not, you should consider it mandatory. This insurance will cover the expenses if you are involved in an accident where the other driver is either underinsured or uninsured. Uninsured motorist coverage is a reasonably inexpensive alternative to the auto insurance policy that can be extremely beneficial.

Collision and comprehensive coverage: Certain car insurance providers combine collision and comprehensive coverage as a single add-on, while others encourage you to choose only one or the other. If your vehicle is less than ten years old, or if you don’t have enough cash on hand to fix or replace it in the event of an accident, you can get both comprehensive and crash coverage.

People who live in areas susceptible to wildfires and floods may want to opt for comprehensive insurance because it will pay out if the car is destroyed by a natural disaster. If you lease or finance your vehicle, your lessor or lienholder can need both accident and comprehensive coverage. Both policies have deductibles, so ask how much you’re prepared to pay out of pocket for losses before the insurance kicks in.

Full Coverage Policy Example

Consider the following policy for a driver in Pittsburgh, Pennsylvania. She is a 30-year-old single woman who leases a home and drives a paid-off 2014 Toyota Camry. Here are the particulars she chose:

BASIC COVERAGES	POLICY LIMITS
Bodily injury liability	$50,000 each person, $100,000 each accident
Property damage liability	$50,000 each accident
Medical expenses (personal injury protection)	$5,000 each person
Uninsured/underinsured motorist	$50,000 each person, $100,000 each accident
Comprehensive	$500 deductible
Collision	$500 deductible

Since she needs to be properly protected in the event of an at-fault crash, our sample driver selected liability coverage limits that are far higher than her state’s criteria. Since she has health insurance and disability insurance that will cover her medical costs, her PIP coverage is set at the state-required rate.

Uninsured/underinsured motorist coverage is not needed where she lives, but she has chosen to provide it for her own safety. She’s also set her accident and comprehensive deductibles at $500 each, indicating how much she’s willing to spend out of pocket before the coverage kicks in. Our example driver does not need gap insurance because she has paid off her car loan.

What Happens if You’re Caught Driving Without Car Insurance?

Driving without the bare minimum of auto insurance coverage is extremely dangerous. It might also have life-altering effects. 

• If you are pulled over and do not have insurance, you can face fines, license and registration suspensions, and expensive insurance premium surcharges.
• If you are uninsured or underinsured and are involved in an accident, you will be forced to pay thousands of dollars out of your own pocket to cover the costs of collateral damage and medical bills. 
• If you are unable to pay, your income will be garnished, and your properties may be confiscated. 

Even going for the bare minimum could be a risky move, as you would still be held liable if anything goes wrong. Keep in mind – insurance only pays up to the limits of your coverage.

Final Thoughts

Since no two drivers are alike, auto insurance providers must examine individual risk factors in order to have a more accurate price for their products. Your insurer weighs various aspects of your driver profile methodically to assess how likely you are to file a lawsuit. Insurance rates are as special as you are after base rate premiums, which is why auto insurance comparison is so pertinent.