Help! How Much Car Insurance Do I Need? (Here's the Answer)

It doesn’t matter how much money you make, car insurance is a worthwhile investment. Plus, all but two states require drivers to have some minimum insurance to legally drive on the road.

If you’re looking to get car insurance, you’re probably wondering how much coverage you actually need. Aside from meeting the minimum requirements in your state, you also don’t want to overpay for your insurance policy. Car insurance can be expensive enough as it is.

So let’s take a look at why you need car insurance in the first place, and then we’ll dive into what types of car insurance are required so you can determine how much car insurance you really need.

Why do you need car insurance?

To understand why you need car insurance, it’s important to understand how car insurance works. Here are five reasons you need car insurance as well as an explanation of why:

1. Car insurance is mandatory in most states

All but two states require drivers to have liability insurance, and each state has its own minimum liability coverage requirement when it comes to the top limit of your coverage. This limit is the maximum amount your insurer will pay out toward a covered insurance claim. So although Alabama requires minimum bodily injury liability coverage of $25,000 per person, Alaska requires you to have $50,000 worth of insurance.

New Hampshire and Virginia don’t have state laws that require drivers to be insured. However, both states have stipulations that must be met in order to be on the road without insurance.

New Hampshire does not require you to carry auto insurance as long as you can demonstrate that you are able to pay for losses that arise from an accident you cause. Similarly, Virginia allows drivers to forgo insurance but they must pay a $500 fee to the Department of Motor Vehicles (DMV) instead. Drivers who choose not to carry insurance are financially liable if they cause an accident.

2. Your lender or leasing agent may require certain coverages

Your bank or lienholder may require you to carry certain auto insurance coverage if you’re financing or leasing your car. These requirements can vary from lender to lender, but most require you to purchase collision insurance and comprehensive insurance at minimum. This allows your bank or title holder to protect their investment (i.e. your car) should it be damaged as a result of a collision, theft, falling objects, etc.

3. Car insurance shields you financially

If you cause an accident, you may be held financially responsible for all the associated costs. This can include medical expenses if another person is injured, lost wages if a person is forced out of work as a result of those injuries, and legal fees if you’re sued as a result of the car accident. According to the Insurance Information Institute, the average auto liability claim for bodily injury in 2018 was $15,785. Without liability coverage, you may have to pay for all these costs out of your own pocket.

4. Car insurance can help you pay the cost of repairs

Comprehensive and collision coverage may be required by your lender or leasing agent, but this coverage may be worth having even if you own your vehicle outright. For example, what if you slide off a snowy road and crash through a fence, damaging your bumper and undercarriage? Collision coverage would help pay for these repairs. Without collision coverage, you would have to cover the entire cost yourself.

The minimum liability coverages required by law help pay for damage to another driver’s vehicle, not yours. So it’s important to have coverage for your own vehicle as well.

5. Car insurance can help protect you and your passengers

Between medical payments coverage, personal injury protection (PIP), and uninsured and underinsured motorist coverage, you can rest easier knowing you and your passengers are protected in the event of a car accident. Even if your state requires you to carry only bodily injury and property damage liability coverage to protect the people in other cars, it’s important you take your and your passengers’ safety into account.

Basic types of car insurance requirements

A single car insurance policy is actually made up of several different types of car insurance. Some of these insurance coverages will have state-mandated minimums; other types of coverage will be optional. The minimum requirements for certain liability coverages vary from state to state, but all fall within a similar range of coverage.

Bodily injury liability

If you cause an accident that injures someone else, a bodily injury liability policy will help pay for their medical expenses, lost wages, funeral costs, and pain and suffering. This coverage may also pay for legal fees if you’re sued as a result of the accident.

Minimum coverage limits range from $0 to $50,000 per person and $0 to $100,000 per accident.

Property damage liability

If you cause damage to another person’s property as a result of a collision, property damage liability coverage will help pay the repair costs. Property can include another person’s vehicle, a fence, a tree, a building, etc.

Minimum coverage limits range from $0 to $25,000 per accident.

Collision

Collision coverage pays for damage to your car if you collide with an object, such as another car or a tree. Collision isn’t required by law, but your lender or leasing agent may require it.

When you purchase collision coverage, you determine your car insurance deductible. A deductible is the amount of money you pay toward a covered claim before your insurer pays its portion. Deductible amounts can range from $0 to several thousand dollars. Typical deductible amounts are $250, $500, and $1,000.

Comprehensive

Comprehensive coverage pays for damage to your car that doesn’t come by way of a collision. This includes damage caused by fire, theft, vandalism, hail, and animals. Comprehensive isn’t required by law, but your lender or leasing agent may require it.

As with collision coverage, you set your deductible for comprehensive. Deductible amounts can range from $0 to several hundred thousand dollars. Typical deductible amounts are $250, $500, and $1,000.

Personal injury protection

If you’re involved in an accident, personal injury protection (PIP) coverage will pay you and your passengers a minimum amount per person, regardless of who was at fault. Benefits can vary among states, but coverage typically includes medical expenses, lost wages, rehabilitation costs, and even funeral expenses.

PIP coverage is not available in all states. It is required in some states and optional in others. The states that require PIP coverage are known as no-fault states. No-fault states require all parties involved in an accident to file an insurance claim with their own insurance provider, regardless of who was at fault.

Depending on your state, minimum coverage limits range from $0 to $50,000.

Medical payments coverage

Medical payments coverage, such as PIP, helps pay for your and your passengers’ medical and funeral expenses following an accident, regardless of fault. However, medical payments coverage is only available in fault states. In other words, medical payments coverage is only offered in states that don’t have PIP.

Medical payments coverage is required in Maine and New Hampshire but optional in other states where it’s available. Maine requires a minimum medical payments coverage of $2,000. Although New Hampshire doesn’t require you to carry auto insurance, if you choose to purchase it, you must also purchase medical payments coverage. New Hampshire requires a minimum of $1,000.

Uninsured and underinsured motorist coverage

If you’re injured in an accident with a hit-and-run driver or an at-fault driver who doesn’t have liability insurance, uninsured motorist coverage will help pay your expenses. Underinsured motorist coverage applies if you’re injured in an accident by an at-fault driver who isn’t carrying enough liability insurance to cover your claim.

Some policies combine uninsured and underinsured motorist coverage to help pay for both bodily injury and property damage losses together; others require you to purchase them separately.

Depending on your state, uninsured and underinsured motorist coverage may be required by law. Minimum coverage requirements range from $0 to $50,000 per person and $0 to $100,000 per accident.

How do you know what your state requires?

The best way to find out about your state’s specific car insurance requirements is to contact your state’s Department of Motor Vehicles directly. Alternatively, you can speak to an insurance agent. They should be able to inform you of your state’s minimum coverage limits.

When to get more than the required coverage

Each state sets a minimum car insurance amount that is required, but that doesn’t mean you can’t benefit from having more coverage. Car insurance is a justifiable investment and it protects you from having to reach into your own pocket to cover costly repair costs and medical bills.

In general, you should purchase as much coverage as you can afford. Although everyone wants to save on car insurance, making sure you’re adequately covered in the event of an accident is very important on both physical and financial levels.

Aside from your state minimum, here are some instances in which you might want additional coverage from your insurance company:

• You want add-on coverage. In addition to liability, collision, and comprehensive coverage, you may choose to purchase certain add-on coverages, such as gap insurance, roadside assistance, and car rental coverage. Guaranteed asset protection insurance covers the difference between what your car is currently worth and the amount you still owe on the car loan. Roadside assistance will pay labor and towing costs for a disabled vehicle. And car rental coverage will cover the cost of a car rental if your vehicle is disabled due to a covered loss.
• You want a lower deductible. The two most common types of coverage that use deductibles are collision and comprehensive coverage. As you set your deductible amount for each, it directly affects your auto policy’s premium. A high deductible will mean a lower premium and vice versa. When you opt for a lower deductible, your insurer provides more coverage, hence the higher payments. Because your deductible is how much you pay out of pocket for a covered claim, you may want to have more coverage if you’re also willing to pay the higher premium.
• You want additional coverage for special circumstances. Car insurance is tailored to each individual driver, which means the coverage you need can vary drastically from the coverage someone else needs. You might have a particular risk you want covered. For example, if you live somewhere that’s more accident-prone or has a higher percentage of uninsured drivers, you may want to add more coverage in those areas. If you’re a rideshare driver on the weekends, you will need rideshare insurance as most personal car insurance policies don’t cover business use of your vehicle.

Bottom line on car insurance coverage

Everyone who owns or leases a car can benefit from an auto insurance policy. It’s one of those things we don’t really want to pay for, but we’re grateful it’s there when we need it. When it comes to the amount of coverage we need, each state sets its own minimum coverage limits, so it’s important to familiarize yourself with those requirements before you commit to an insurance policy.

Regardless of your state minimum, it’s always best to purchase as much car insurance as you can afford, but that doesn’t mean you have to overpay for car insurance. If you’re currently in the market for a new policy or are looking to save money on car insurance, your best bet is to compare insurance quotes from several of the best car insurance companies to make sure you’re getting a good price.