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Car insurance is designed to protect your finances from the fallout of accidents, injuries and vehicle damage, so buying the right amount of coverage is crucial. Learning how much car insurance you need might seem complicated, but Bankrate’s insurance editorial team — which includes four licensed insurance agents — is here to help. We’ll explain the different car insurance coverage types so you understand what car insurance covers. We’ll also help you learn how to decide which coverage types and how much coverage to buy.
How much car insurance does my state require?
Almost every state has minimum car insurance coverage requirements its residents must carry to drive legally, and car insurance laws vary state by state. It’s essential to understand your state’s minimum limits to ensure that you comply with the law. Additionally, this information can serve as a baseline when requesting auto insurance quotes.
An easy way to understand your policy is to know which coverage types are required and which are optional. For example, drivers are almost always required to carry bodily injury and property damage liability by their state.
For instance, your state may require you to carry a minimum liability amount of $25,000 per person, $50,000 per accident in bodily injury liability coverage, and $10,000 for property damage liability coverage. Your policy documentation will usually list these as 25/50/10 to make reading your policy easier.
In other words, a 25/50/10 state-required minimum limit means that you must carry:
- $25,000 bodily injury coverage per person: This coverage pays for injuries to other parties if you cause an at-fault accident. This can be the other driver, passengers in the other vehicle(s), bicyclists, pedestrians or anyone else who was injured as a result of a crash that you caused.
- $50,000 bodily injury coverage per accident: This number represents the total amount of money that your insurance company will pay for bodily injury coverage to the other party or parties in a single accident.
- $10,000 property damage coverage: This coverage pays for property that you damage in an at-fault accident. This is usually the other party’s vehicle, but this coverage will also pay for damage to buildings, mailboxes, light poles, fences, street signs or other objects that you damage.
Other state car insurance requirements
Some states also have requirements for:
- Personal injury protection (PIP): If you live in a so-called no-fault insurance state, you will also be required to carry personal injury protection coverage (PIP). This coverage pays for medical costs for injuries sustained to you and passengers in your vehicle, regardless of fault, as well as lost wages. It does not mean that fault is not assigned for the accident itself.
- Medical payments: Medical payments coverage is similar to PIP but is generally an option in states that are not considered no-fault. It pays for injuries sustained by you and your passengers, regardless of fault, but does not cover lost wages.
- Uninsured and underinsured motorist coverage: These coverage types pay for your injuries and property damage if you are hit by someone who doesn’t have car insurance or doesn’t have enough insurance to cover your damages.
What car insurance coverage limits do I need?
When requesting car insurance quotes, deciding how much liability coverage to have in your car insurance policy is a balance between your budget, financial situation and risk tolerance level. Opting for state minimum coverage levels may mean a lower premium, but those coverage limits may not be enough to pay for medical bills or property damage expenses if you cause an accident. If the costs of the accident exceed your car insurance coverage, you will be responsible for the difference out of pocket. Additionally, state minimum requirements do not cover damage to your vehicle.
For this reason, most insurance experts recommend purchasing higher liability limits or full coverage car insurance if you can afford to. It may result in a little extra premium, but you will have better protection from financial losses if you cause an accident. This is especially true if paying for another person’s injury and property damage out-of-pocket could be a massive financial burden for you and your family.
What is minimum coverage car insurance?
Minimum coverage car insurance is carrying only the coverage types and limits as required by your state. A minimum amount of liability insurance is required in all states except Virginia and New Hampshire, but many states also require additional coverage like underinsured or uninsured motorist coverage, PIP or medical payments. And even in Virginia and New Hampshire, you will be required to either pay the state a fee each year if you do not carry insurance or prove that you are financially able to pay for damages out of pocket if you cause an accident.
While opting for minimum coverage may result in the cheapest car insurance, most insurance experts agree that purchasing such limited coverage is a smart financial decision. Instead, it’s more important to assess your situation. If your vehicle is too old, for example, and not worth much, it may make sense to have liability-only coverage. However, in this case, you could purchase higher liability coverage limits to avoid leaving you financially vulnerable by only purchasing your state’s minimum liability requirements.
What is full coverage car insurance?
Minimum coverage car insurance usually only refers to liability coverage, which is designed to pay for damage you cause to other parties. It doesn’t include coverage for your vehicle, yourself or any passengers in your car. For that, you will need full coverage.
While there isn’t an industry-standard definition for full coverage, it usually means adding comprehensive and collision coverage to your auto insurance policy. Collision insurance pays for damage to your vehicle if you collide with an object or another vehicle. Comprehensive insurance, sometimes called “other-than-collision” coverage, pays for damage caused by theft, vandalism, fire, storm damage and hitting an animal. If you have a loan or lease on your car, your lender will likely require these two coverage types. Comprehensive and collision coverage also require separate deductibles.
To round out full coverage car insurance, you may consider some popular coverage add-ons such as roadside assistance and rental reimbursement. Although these options may not be mandatory, they could prove invaluable if you experience a flat tire or need to rent a vehicle while yours is repaired due to a covered claim. When choosing optional coverage, it may help to consider the age and value of your car, how often you drive and your financial situation. If you’re unsure, you may want to speak with a licensed insurance agent.
How to choose your deductible
When you choose comprehensive and collision coverage, you’ll need to decide on a deductible amount. This is the amount you are responsible for paying in the event of a covered claim. Most deductibles range from $250 to $1,000, with the lower end resulting in a higher premium and vice versa.
After you file a claim, your deductible amount will be deducted directly from your insurance payout, so you’ll need to pay the shop or individual completing the repair work any amount not covered by your insurance company. The insurance company will pay the rest up to your policy limits.
If you want to save on your car insurance premium, you could consider a higher deductible. Keep in mind that this amount will be your out-of-pocket expense in the event of a claim, so it should be set with your finances in mind. Although a high deductible may provide you with cheap car insurance, it can also cause financial hardship if you need to use your comprehensive or collision coverage. Consider which level is best when determining your car insurance deductible needs: a lower premium or a lower out-of-pocket cost.
Additional coverage options
Most auto insurance companies offer additional coverage options that some policyholders may want to take advantage of. These are not usually required by the state, but could help to create a policy that fits your unique needs. Some common add-on coverage options include:
- Gap insurance: Newer vehicles depreciate quickly. Gap insurance is designed to cover the “gap” between your car’s actual cash value and how much you still owe on your financing. This way, if your vehicle is totaled or stolen and unrecoverable, you don’t have to pay the difference out of pocket to pay off your loan.
- Accident forgiveness: This means that your first at-fault accident will be waived and you won’t experience a premium surcharge. This option isn’t available from every company, but if it is available to you, it can help keep your insurance costs in check if you cause an accident.
- New car replacement: New car replacement isn’t available with every company, but this coverage could offer financial protection if your car is one model year or newer. If you carry this coverage and your insurance company declares your new vehicle as a total loss, you would be able to replace your vehicle with a similar new car.
Every company has unique coverage offerings. Talking to a representative from your insurance company or your agent can help you understand what options your insurance company offers.
What happens if you get caught driving without insurance?
Driving without insurance is a serious offense and can leave you open to a variety of consequences. You could face fines, license suspension and suspension of your vehicle’s registration if you are caught. If you cause an accident without insurance, you will be responsible for the damages out of pocket, which could be financially devastating. If you are unable to pay, you could be sued, your assets could be seized and your wages could be garnished.
What factors might affect my car insurance coverage?
Choosing coverage types and amounts isn’t the only thing that determines your car insurance premium. Instead, companies consider a range of individual factors that impact car insurance rates. This means that even if you and a friend have the same policy selections, your premiums may be very different. For this reason, it can be very helpful to shop around with different carriers to compare rates when looking for the cheapest car insurance policy.
Keep in mind that some states restrict or ban car insurance companies from using some personal factors when setting your car insurance premium. You may want to check your state’s laws to see if they ban or restrict the use of information such as your age, gender or credit-based insurance score when setting your premium. If your state does not have those restrictions, your personal information may affect your premium even more than the factors below.
Some car insurance rating factors include:
- Driving record: This is by far one of the most important car insurance rating factors. A driver with a clean driving record may signify to car insurance companies that the driver will be less risky to insure compared to a driver with multiple incidents on their record. High-risk drivers may have a harder time getting affordable car insurance and may not have their pick of the best insurance companies.
- Adding a teen to your policy: Teens are among the most expensive drivers to insure, even when adding them to your policy. There are also things to consider, like increasing liability limits to protect you and your teen’s finances if they cause an accident. With liability-only insurance being cheaper than full coverage, insuring a used car for a teen could save you on insurance premiums. There are also teen driving discounts that could potentially lower the cost of your car insurance, such as good student or distant student savings.
- Vehicle: The age, make and model of your vehicle are also important factors that may impact your car insurance rates. Insurance companies consider elements such as the crashworthiness of the car, how expensive the costs to repair might be and the current value of the car to determine its insurance rate.
- Location: Where you live and drive your car could also influence your car insurance rates. A city, for example, could have more traffic as well as higher accident and vehicle crime rates compared to a suburb.
Frequently asked questions
With so many auto insurance companies to choose from, it may feel confusing to know where to start. We recommend that you make a list of factors that are important to you, such as average car insurance rates, digital tools or 24/7 customer service. Next, research companies that offer the options you want and request quotes from several different insurance providers. You can compare the quotes by looking at available coverage types, discount options and price to decide which company fits your needs.
Although each state is different, motorcycles generally fall under the same requirements for state minimum coverage types and limits that other vehicles are subjected to. In fact, any vehicle that is registered to drive on public roads, including motorcycles, RVs and ATVs, will likely need to carry at least state minimum limits to be legally driven, just like private passenger vehicles.
If you store a vehicle such as a sports car or classic car in the offseason, you may be able to remove the state-required liability coverage and only insure your vehicle with comprehensive coverage. This is sometimes called “storage insurance,” as the comprehensive coverage will cover the vehicle for damage that could happen in storage, such as weather damage or damage caused by animals. Check with your insurance agent before you request this change, though — your state may not allow you to remove the required limits, and if you have a loan or lease on your vehicle, you may need to keep full coverage on it even if you are not driving it.
Broadly speaking, a standard auto insurance policy covers the car, not the driver. If you allow someone to borrow your vehicle and they get into an accident, your car insurance will usually provide coverage. This type of accident is called a lending loss. However, it is essential to note that every company has its own guidelines regarding lending losses, and coverage may or may not apply. When determining if coverage applies, your company may consider other factors, such as how often the driver uses your vehicle, whether they live in your household or if they are excluded from your policy. Additionally, lending losses can still affect your premium, although you were not the driver.
However, there are instances where car insurance covers the driver. For example, you borrow a friend’s vehicle and get into an at-fault accident. The accident is severe enough that it exceeds the liability limits on your friend’s policy. In that case, your liability limits may cover the balance (up to the limits you carry).