Choosing the right amount of car insurance for your needs means considering factors like your car’s value, your driving habits and the amount you could reasonably afford to pay out of pocket after an accident.
Car insurance protects you financially if you cause an accident, injure someone, or damage property with your vehicle. Your insurance can also cover damage to your own car, from accidents or other threats, like extreme weather, falling objects, theft and vandalism.
At least a minimum amount of car insurance is required in almost every state, but even in the states where car insurance is not required, you’re still obligated to pay for any damage you cause with your car, and the best way to do that is to have car insurance.
Many states just require liability coverage, which covers any property damage or injuries you’re responsible for. But most drivers need more than the minimum amount of coverage that their state mandates, so how do you know if you’re choosing the right amount of coverage?
Knowing how much car insurance you need means figuring out both which types of coverage you should get and how much of that coverage you need. Let’s take a look at the various components of car insurance and how to set your coverage limits and deductible amounts.
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The first part of choosing your car insurance coverage is understanding the different types of car insurance coverage options. There are several basic components that make up what’s typically referred to as “full coverage” auto insurance, but there are also additional coverage options and add-ons that your insurer might offer.
Liability insurance covers the costs if you cause an accident, damage property or injure someone with your vehicle. Liability insurance will cover resulting bills, legal, and settlement costs up to your policy limits after an at-fault accident. It’s also required in most states.
Liability coverage is made up of two parts: Bodily injury liability (BIL) which covers the costs if you injure someone else with your car, and property damage liability (PDL), which covers the costs if you damage someone else’s property with your car.
Personal injury protection, often referred to as PIP, covers medical and related expenses up to your coverage limits if you or your passengers are injured in a car accident, regardless of who was at fault. PIP is a type of no-fault coverage and may be required in your state.
Uninsured/underinsured motorist coverage covers you if you’re in an accident caused by a driver who either doesn’t have insurance, or whose insurance can’t pay for the full extent of the damage they caused. Some states require drivers to carry a minimum amount of uninsured/underinsured motorist coverage.
Collision insurance covers damage to your own vehicle after an accident, no matter who was at fault. It’s not required by law in any states, but, along with comprehensive coverage, collision coverage helps make up what’s usually referred to as “full coverage” car insurance. Collision coverage also requires you to pay a deductible before it will cover a loss.
Comprehensive coverage covers the types of damage to your car that can happen when it’s not being driven, including damage from extreme weather, falling objects, animals, flood, fire, vandalism and theft. It goes hand-in-hand with collision insurance. Like collision, comprehensive insurance requires a deductible.
If your car is declared a “total loss,” because of extensive damage or theft, collision or comprehensive will usually only pay out the car’s actual cash value (ACV). But the actual cash value factors in depreciation, and might not cover the amount you still owe on a car loan or lease. Gap insurance pays out the difference, so you aren’t stuck making payments on a car you no longer have.
Most major car insurance companies offer a range of coverage options in addition to the standard coverage that comprises a “full coverage” policy. Those may include roadside assistance, which covers things like flat tire changes, jump-starts and towing, or new car replacement coverage, which pays for a replacement if your new car is totaled, usually within one or two years of ownership.
Some car insurance providers offer personal item coverage, which covers personal belongings in your car if they’re damaged or stolen, and separate rental car replacement coverage to pay for a rental car if yours is in the shop after a covered loss. If you’re a rideshare driver, you might also want to see if your car insurance provider offers rideshare coverage to protect you during the time that your app is on but you don’t have a passenger.
All but two states require you have to have a minimum amount of car insurance, and lay out strict penalties for drivers caught behind the wheel without insurance. The exceptions: New Hampshire requires you to pay up to certain limits out of pocket if you go uninsured or else face penalties; Virginia requires an annual payment to the state if you forego insurance.
All other states require at least two types of bodily injury liability (BIL) and property damage liability (PDL). Some states also require personal injury protection (PIP) and some require uninsured/underinsured motorist (UM/UIM) coverage.
Find out your state’s required minimum car insurance coverage.
Your state’s required minimums are a starting point when it comes to setting your coverage limits, not an ending point. State minimums don’t provide enough coverage for most people to ensure they are protected in case of an accident.
Say your state requires you to carry $15,000 in property damage liability coverage, and you cause an accident that results in $35,000 worth of damage. You’ll have to pay the difference, leaving you on the hook for $20,000.
And if you can’t pay out of pocket? Your assets can be seized and wages docked to cover the costs. If you own a home or have savings, both could be taken to pay your debt. Setting low coverage limits can mean low rates, but you risk having to pay much, much more than you’ll save by skimping on coverage. Here’s what you should consider when choosing each coverage type:
Liability insurance. Many people recommend buying as much liability coverage as you can afford, and to make sure you buy enough liability insurance to cover the full value of your assets (your house, your car, savings, investments, etc.). If you have teen drivers on your policy, you should increase your liability coverage limits even more.
Personal injury protection (PIP) When it comes to personal injury protection, you probably don’t need to buy more than the legally required minimum, if it’s required at all in your state. As long as you have health insurance and some form of disability insurance — and know your passengers do too — you’ll probably be able to cover any medical expenses or lost wages after an accident.
Uninsured motorist/underinsured motorist insurance. Some states require uninsured/underinsured motorist insurance, but even if yours doesn’t, you should consider it mandatory. If you get involved in an accident where the other person is either underinsured or uninsured, this insurance will cover your costs. Uninsured motorist coverage is a relatively cheap addition to your car insurance policy that can be incredibly useful.
Collision coverage and comprehensive coverage. Many car insurance companies combine collision and comprehensive coverage, though some allow you to choose one or the other. If you have a vehicle that is less than 10 years old or if you don’t have enough cash on hand to repair or replace your car in case of an accident, you should get both comprehensive and collision. People who live in areas prone to wildfires and floods may especially want to opt in to comprehensive, as this kind of insurance would pay out if your car was destroyed by a natural disaster. If you lease or finance your car, your lessor or lienholder may require that you have both collision and comprehensive coverage. These coverages both require deductibles, so consider how much you’d be willing to pay out of pocket for damage before the coverage kicks in.
Let’s take a look at a sample policy for a driver in Pittsburgh, Pennsylvania. She’s a 30-year-old, single woman who rents a home and drives a 2014 Toyota Camry that’s paid off. Here are the specifics 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|
Our sample driver chose liability coverage limits that are well above her state’s requirements, because she wants to be adequately covered in case of an at-fault accident. Her PIP coverage is set at the state-required amount because she has health insurance and disability insurance that will also cover her medical expenses.
Uninsured/underinsured motorist coverage isn’t required where she lives, but she’s elected to have it to protect herself. And she’s set her comp and collision deductibles at $500 each, meaning that’s how much she’s willing to pay out of pocket before the coverage kicks in. Because our sample driver has paid off her car loan, she doesn’t need gap insurance.
Of course, the best way to determine what kind of coverage you need and how much to buy is to work with an independent broker, like the experts at Policygenius. That way you can work with a professional to determine what types of coverage you need, how much to get and how to find the best rates.
About the authors
Logan Sachon is the co-founder of The Billfold, a groundbreaking personal finance site for millennials that was named one of Time's 25 Best Blogs of 2012. Her work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.
Anna Swartz is a Managing Editor at Policygenius in New York City, and an expert in auto insurance. Previously, she was a senior staff writer at Mic, writing about news and culture. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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