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byFabio Faschi, PLCS, SBCS, CLCS
Fabio Faschi, PLCS, SBCS, CLCS
Property & Casualty Insurance Expert
Updated October 7, 2021|6 min read
Table of Contents
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. States set minimum requirements for liability coverage, but those are too low to fully cover you after a serious accident.
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It’s best to set your liability limits high enough to cover even the worst-case scenario — we recommend at least $100,000 per person, $300,000 per accident in bodily injury liability, and $100,000 per accident in property damage liability coverage. Drivers who want to cover their own cars also need comprehensive and collision coverage.
The amount of car insurance you need depends on where you live, the value of your vehicle, and how much coverage you can afford
We recommend that drivers have at least $100,000 per person, $300,000 per accident in bodily injury liability, and $100,000 per accident in property damage liability
Most drivers need what’s called full coverage car insurance, which means that it includes comprehensive and collision coverage in addition to liability
All but two states require at least some amount of liability coverage. Some states also require personal injury protection (PIP) and some require at least some amount of uninsured/underinsured motorist (UM/UIM) coverage.
But your state’s required minimums are a just starting point when it comes to setting your coverage limits. They don’t provide enough coverage for most people to ensure they are protected in case of an accident. We recommend you purchase as much coverage as you can afford beyond your state’s minimum requirement.
There are only two states that don’t require you to have a minimum amount of car insurance: New Hampshire and Virginia. In Virginia, drivers can pay the state a $500 fee in lieu of car insurance. But even in these states, drivers are still responsible for paying for the damage they cause, and the best way to make sure you can do that is to have car insurance.
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 accident you cause.
Liability coverage is made up of two parts:
Bodily injury liability (BI) covers the costs if you injure someone else with your car
Property damage liability (PD) covers the costs if you damage someone else’s property with your car
You should buy as much liability coverage as you can afford, and make sure you have enough liability coverage to cover the full value of your assets (your house, your car, savings, investments, etc.).
We recommend limits of at least $100,000 per person, $300,000 per accident in bodily injury liability, and $100,000 per accident in property damage liability coverage. If you have teen drivers on your policy, you should increase your liability coverage limits even more.
Personal injury protection, often referred to as PIP, covers medical expenses if you or your passengers are injured in a car accident, regardless of who caused the accident. PIP is also called no-fault coverage and may be required in your state.
You may not need to buy more than the legally required minimum 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/underinsured motorist coverage (UM/UIM) covers the costs 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 uninsured/underinsured motorist insurance, but even if yours doesn’t, you should consider it mandatory. Uninsured motorist coverage is a relatively cheap addition to your car insurance policy that can be incredibly useful — you should set your UM/UIM limits relatively high as well, $100,000 per person/$300,000 per accident may be enough coverage for most drivers.
Collision coverage pays for repairs to your own vehicle after an accident, no matter who caused the accident. It’s not required by law in any states, but if you’re leasing or financing your vehicle, you may be required to have it. Collision coverage also requires you to pay a deductible before it will cover a loss. Typical deductible amounts are $500 or $1,000.
Collision coverage will pay to repair or replace your car up to its actual cash value, so you’ll get as much coverage as your car is worth. Your deductible amount will determine how much you’ll pay for coverage each month; the higher your deductible, the lower your monthly payments will be, and the lower your deductible, the more you’ll have to pay for insurance per month.
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 coverage. Like collision, comprehensive insurance requires a deductible.
Many car insurance companies offer collision and comprehensive coverage together as a single add-on, though others 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 coverage. Comprehensive coverage can also help repair or replace your car up to its actual cash value.
Most major car insurance companies offer extra coverage options in addition to the standard coverage that makes up 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. You may also want to consider gap insurance, which will pay off the remainder of your lease or loan payments if your car is totaled and you still owe more money on it than it's worth.
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.
If you’re responsible for an accident and you don’t have enough coverage to pay for it, 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.
The average cost of car insurance in the U.S. is around $1,652 per year (or about $137 per month) for middle-aged drivers. This is what drivers pay on average for different levels of coverage:
|Coverage limit||Average annual premium|
|State minimum coverage||$621|
|Full coverage (50/100/50)||$1,721|
|Full coverage (100/300/100)||$1,822|
The exact amount you’ll pay for car insurance will depend on a number of individual factors like your age, where you live, the make and model of your car, and your driving history. Your coverage limits and deductibles will also determine how much you’ll pay for car insurance, and you can customize them to pay more or less on your premium.
The average cost of car insurance in the U.S. is around $1,652 per year, so in comparison, yes, a $4,000 premium is an above-average rate for car insurance. But the amount you pay for car insurance can depend on many individual factors, like your age, your driving history, and where you live. The most expensive state for car insurance is currently Florida, where the average annual cost of car insurance is $2,914.
As long as you have a car, you should have car insurance. If your car costs less than your deductible amount, you can safely drop comprehensive and collision coverage and just keep liability. You can also drop coverage if your comp and collision premiums are 10% or more of what your car is worth, or if you can afford to replace your car out of pocket.
Even if you’re satisfied with your current car insurance company, you should still reshop regularly, especially if your rates go up at renewal. You may be able to get the same coverage you’re getting now for a cheaper price.