How much car insurance do you really need?

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When you’ve got that proverbial “set of wheels,” you need to know how much, or how little, insurance coverage is best for protecting them.

Shopping for the right amount of car insurance requires some homework and an evaluation of how much coverage your wallet can handle.

“You can always pay less for car insurance, but it’s important to remember that you typically get what you pay for,” says Larry Thursby, vice president of auto product and pricing at Nationwide Insurance.

What insurance is required?

When determining how much insurance you need, start by investigating the insurance that you must have.

Every state, with the exception of New Hampshire, requires a vehicle owner to carry auto liability insurance. It includes bodily injury coverage, which takes care of other people’s medical bills and related costs when they’re injured in an accident you’ve caused, and property damage coverage, which pays for damage to other people’s cars or other property when you’re at fault.

Liability coverage has limits often expressed by three numbers in a policy. For example: 100/300/50. The first number is the limit on bodily injury coverage for one person hurt in an accident; the second number is the total payout limit for everyone who was injured; and the third number represents the total amount of property damage coverage available per accident. Each number is expressed in thousands of dollars.

Most states have a minimum bodily injury liability coverage requirement of $20,000 to $25,000 per person and $40,000 to $50,000 per accident, says Bob Passmore, senior director of personal insurance lines for the Property Casualty Insurers Association of America. State minimums for property damage liability coverage range from $5,000 to $25,000 per accident, according to

However, you probably want more than just the bare minimum.

“If you have assets to protect, like if you have a home or any sort of other assets like that, those are things that if you don’t have enough insurance (and) you cause an accident where someone’s seriously injured … you could wind up with some of those assets being exposed,” Passmore says.

Are there any other musts?

Some states also require drivers to have personal injury protection and uninsured/underinsured motorist coverage. Personal injury protection covers medical expenses and lost wages for you and your passengers injured in an accident, and uninsured/underinsured motorist coverage pays for injuries you sustain if you’re hit by a motorist with inadequate car insurance.

You can find out what coverage you are required to carry by checking with your state insurance department.

But wait, you say. Isn’t there anything else that must be included in a car insurance policy? Maybe you’ve heard of “collision,” “comprehensive” and “transportation expense coverage.” Isn’t any of that stuff mandatory? And, if not, would a person need it anyway?

“Everything else you might not need to purchase, so you really have to know what your own desires are and (your) needs are,” says Jim Whittle, chief claims counsel for the American Insurance Association.

Compare auto insurance rates to get the best deal.

Car insurance rules of thumb

Factors to consider when evaluating your car insurance needs:

  • Your age, assets and driving record.
  • The age, make and model of your car.
  • Your risk tolerance, or how much you can pay out of pocket in the event of a claim.
  • Any discounts available to you.

To help decide how much to spend on coverage:

  • Learn what your state requires.
  • Educate yourself on the different types of coverage available.
  • Consult an insurance agent.
  • Shop around.

Source: Insurance industry experts.

How about comprehensive, collision?

If your vehicle is financed, your lender generally will require you to have collision and comprehensive coverage. But once your loan is paid off, you may choose to forgo one or both types of coverage, depending on the age, make and model of your car.

Collision coverage pays for damage your car sustains in an accident; comprehensive coverage pays for damage caused by something other than a collision, such as hail or theft.

“If your car is older, then you have some decisions to make … and really what you want to think about is: ‘What’s my financial position? What’s the premium going to be if I carry those coverages? And would I be able to financially take the hit of a loss if I didn’t carry those coverages?’ ” Passmore says.

Use online tools, such as Kelley Blue Book, to assess your car’s worth, he adds. This will help you determine whether it still makes sense to carry collision and comprehensive coverage.

Do I want other add-ons?

Many insurers offer “roadside assistance,” including towing and labor coverage, in the event that your car breaks down, runs out of gas or faces a similar emergency. If you already pay membership fees to AAA or a similar auto club, then it may be financially savvy for you to decline this optional coverage.

MedPay — short for medical payments coverage — pays medical bills for you and your passengers if you’re injured in an accident, regardless of who is at fault. The coverage is required in some states, but if you have health insurance you may decide to go without it.

Rental car reimbursement, or “transportation expense” coverage, also is optional. You may decide to go without it if you have a second car and wouldn’t need a rental while your primary one is in the shop after a crash.

Other ways to cut your premium costs include increasing your deductibles and seeking out any and all discounts that may be available to you.

“As a customer, you have a lot of control over the cost of the insurance, probably more than you think,” says Nationwide’s Thursby.

Ultimately, how do you determine whether you have too little, or too much, car insurance?

Work with the experts, your insurance agent and insurer, says Whittle, of the American Insurance Association. “They’re trained to ask questions to make sure that they’re giving you the coverage you need.”


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