How Much Car Insurance Do I Need? – Forbes Advisor
If you own a car, you’ll need to show “financial responsibility,” which means you can pay if you or someone else driving your car causes an accident.
All states have some form of financial responsibility law, and most drivers satisfy this requirement by purchasing auto insurance. This is usually the easiest and cheapest way. If you don’t want car insurance, your state may require you to post a bond that can be more than $50,000 to prove financial responsibility.
Once you’ve ruled out the idea of shelling out tens of thousands of dollars to your state, the next logical question is: how much auto insurance do I need?
- Most states require drivers to carry auto liability insurance, but coverage requirements vary by state.
- Depending on where you live, you may You may need to have additional types of coverage, such as uninsured coverage. motorist coverage, personal injury protection, or medical payments coverage.
- Drivers who lease or finance their vehicles are often required to have comprehensive auto and collision insurance.
- Compare the auto insurance quotes to find the best coverage at the most affordable price.
How much car insurance do you really need?
At a minimum, you should purchase your state’s minimum auto insurance requirements. but the state minimums are woefully inadequate and will not provide any coverage for your own car repair bills. if you want better coverage, you’ll need to purchase more than the minimum requirements.
There are several types of coverage to choose from. With a basic understanding of the main types of auto insurance, you can put together a good policy that fits your specific insurance needs.
civil liability insurance
Liability insurance covers injuries and property damage suffered by others if you are at fault in an accident. It also covers your legal defense and any settlement or lawsuit if you are sued for an accident.
Liability auto insurance includes two different types of coverage in one package:
- bodily injury liability pays for injuries to other drivers, their passengers, and any pedestrians injured when you are at fault in an accident.
- property Property Damage Liability pays for damage to someone else’s property, including their car, when you cause an accident.
Here are some examples of what liability insurance covers:
- rear-end another car at a traffic light and cause damage
- hit a neighbor’s fence
- you are responsible for a car accident and the other driver is injured
Almost every state has a minimum liability insurance requirement, with the exceptions of New Hampshire and Virginia (although both states have some liability requirements under certain conditions).
for example, in california, you must have liability insurance with at least $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 (written as 15 /30 /5).
But here’s the rub: These amounts are insufficient if you cause a serious car accident. If you destroy someone else’s car, $5,000 of property damage won’t get you very far. And if you are at fault in a multi-injury car accident, medical expenses can quickly exceed $30,000. you will be aware of any amount that exceeds the limits of your coverage.
How much liability insurance should I buy? A good rule of thumb is to buy enough liability insurance to cover what you stand to lose in a lawsuit against you if you cause a car accident. In California, a policy with 250/500/100 would be a much better option than the state minimum.
For additional liability insurance on top of your basic auto and home insurance policies, consider getting an umbrella policy. You can buy an additional $1 million (or more) in liability coverage through an umbrella policy for a relatively inexpensive amount.
uninsured motorist insurance
uninsured motorist (um) and underinsured motorist (uim) insurance pays your medical bills if someone crashes into you and you don’t have or not enough liability insurance. Uninsured motorist coverage is required in some states and optional in others. in states where um is optional, you can usually decline coverage in writing.
if um is available in your state, this is a good coverage to have. um coverage pays for:
- medical expenses for you and your passengers
- lost wages if you are unable to work due to injuries sustained in a car accident
- funeral expenses
- pain and suffering
- car damage (depending on its condition)
How much uninsured motorist coverage should I buy? You’ll typically need to buy um in amounts that match your liability insurance. for example, if you have 250/500/100, you will need to purchase the same amount of coverage um.
collision and comprehensive insurance
If you want coverage for car repair bills, you need comprehensive and collision insurance. Often sold together, they cover a variety of issues including auto accidents, auto theft, vandalism, animal collisions, falling objects, fire, flood, and hail damage.
If you have a car loan or lease, chances are your lender or leasing company will require you to have both.
How much collision and comprehensive insurance should I buy? Both types of coverage will cover the cost of repairing or replacing your car if it is damaged due to a problem covered by the policy. If you want to cut costs, select a higher deductible amount, which is the amount you’ll pay out of pocket if you file an insurance claim. For example, a $1,000 deductible will result in slightly lower premiums compared to a $500 deductible.
personal injury protection
Personal Injury Protection (PIP) covers medical bills for you and your passengers, no matter who caused the car accident. It also pays for other expenses like lost wages, funeral expenses, and replacement services you can’t do because of injuries, like cleaning services or childcare.
some states require pip as part of their “no-fault car insurance” laws, while in other states you can purchase pip as an optional type of coverage.
How much PIP insurance should I buy? PIP rules vary by state where it is offered. For example, for Florida car insurance, pip options range from basic to extended:
- basic covers 80% of your medical bills and 60% of lost wages and replacement services
- extended covers 100% of medical bills and 80% of lost wages and replacement services
If pip is optional in your state, you can opt out if you have a good health insurance plan. But pip does have some perks that your health insurance won’t provide, like reimbursement for services and lost wages.
Medical payments coverage is often referred to as “medpay.” It is similar to pip in that it pays medical bills and other expenses for you and your passengers, regardless of who caused the car accident. medpay is required in some states. for example, medpay is required if you purchase auto insurance in pennsylvania, maine, and new hampshire.
how much should i buy medpay? in states where medpay is available, it is usually sold in small amounts of coverage often ranging from $1,000 to $5,000.
types of optional auto insurance coverage
Liability insurance, uninsured motorist coverage, medical payments, and collision and comprehensive insurance are good foundations for an auto insurance policy. but you may need some additional types of coverage to fill in some gaps. here are a few to consider.
- gap insurance. If your car is destroyed due to an issue covered by your policy, like a car accident or fire, gap insurance covers the difference between the actual cash value (ACV) of your car and how much you owe on the loan or lease. For example, if you have $15,000 outstanding on your loan but your car was worth $13,000, this coverage pays for the $2,000 gap.
- rental reimbursement insurance. If your car is being repaired due to a problem covered by your policy, this coverage pays for car rental or substitute transportation, such as train and bus fare, during the repairs.
- roadside assistance insurance. if your car breaks down or has another problem (like leaving your keys in your car), this pays for service like a tow truck, jump start, fuel delivery, or a locksmith.
how to take out car insurance
The national average for auto insurance with liability, collision and comprehensive insurance is $1,190, according to the most recent data from the National Association of Insurance Commissioners. But you shouldn’t focus strictly on cost when shopping for a car insurance policy.
That’s because all car insurance companies calculate their rates differently, resulting in a wide range of prices, sometimes in the thousands of dollars a year. It’s smart to compare auto insurance quotes from multiple companies. You can get free quotes online or by calling an independent agent in your area.
Be sure to ask about auto insurance discounts. Insurance companies offer many types of discounts to attract customers, from good driver discounts, car safety discounts, multiple policy discounts, and even discounts for paying in full or going paperless.
Finally, consider a company’s customer service. The best auto insurance companies combine competitive prices with good customer service. If you are in a car accident, you want to be sure that your insurance company will make the insurance claim process run as smoothly as possible.