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How much car insurance do you need?

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A man drives his family on a trip in their van; everyone is smiling and having a great time!
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Car insurance is an important part of your financial plan, but how much car insurance do you need? Your state’s minimum requirements for car insurance could provide a baseline, but it might not be enough to protect you against devastating expenses if you cause an accident. Even after determining your coverage, the cost could be another factor. The average cost of car insurance is $1,771 per year for full coverage and $545 per year for minimum coverage, according to Bankrate’s analysis of premium data from Quadrant Information Services. However, that doesn’t mean car insurance has to be expensive. Bankrate’s editorial team can help you understand how car insurance works and what strategies you can use to find the best policy for your needs and budget.

How much car insurance does my state require?

Knowing what your state’s minimum car insurance requirements are will be useful in understanding what baseline coverage and limits you need in your insurance policy. You could consider increasing the policy limits and add additional coverage to better protect yourself financially, but you must at least have the state minimum to legally drive.

Most states require a minimum amount of liability coverage, which is separated between bodily injury liability and property damage liability. Policy limits for car insurance liability coverage are typically represented by three numbers, separated by slashes. Although the numbers are shortened, they represent thousands of dollars.

The first number is the minimum required level of bodily injury liability coverage per person, the second number is the minimum required level of bodily injury liability coverage per accident and the final number is the minimum required level of property damage liability coverage.

So, for example, when you see a state that requires 25/50/10, those numbers mean you must carry the following liability coverages to drive legally:

  • $25,000 bodily injury coverage per person: This coverage pays for injuries to the other party if you cause an at-fault accident. This can be the other driver, passengers in the other vehicle(s), bicyclists, pedestrians or anyone else injured who was not in your vehicle.
  • $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.

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/underinsured motorist coverage: This coverage pays 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.

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 car insurance coverage limits do I need?

Deciding how much liability coverage to have in your car insurance policy is a balance between your budget, your financial situation and your 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 own 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 you should consider where 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?

As you may have noticed, 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 to protect their investment. Comprehensive and collision coverage also require separate deductibles.

To round out full coverage car insurance, you can also add medical payments to cover any injuries you or other passengers in your car may have, as well as roadside assistance and  rental reimbursement. If you live in a no-fault state, PIP insurance will probably already be required, which means you may not need medical payments coverage. Adding these coverage options, along with collision and comprehensive, does result in a more expensive policy compared to minimum coverage, but it’s still possible to find cheap car insurance options at every level. Consider the age and value of your car, how often you drive and your financial situation when deciding how much car insurance to have. If you’re still not sure, speak with a licensed insurance agent.

Deductibles

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 $500 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, 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. Setting the deductible is an important part of buying car insurance because it affects your premium and how much you pay if you use the 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 coverages include:

  • Roadside assistance coverage: This pays for towing and service calls if your car breaks down. It does not pay for the vehicle to be repaired. If you drive frequently, this may be an option you should consider.
  • Car rental coverage: This option covers the cost of a rental car (up to your policy’s limits) if your vehicle is not driveable due to a covered incident. If you do not have another vehicle you could drive, this could be a good endorsement to add.
  • Gap insurance: If you have a newer vehicle that is financed or leased, this coverage option pays the difference between the actual cash value of your car and the amount of your loan or lease if your car is a total loss due to a covered claim.
  • Accident forgiveness: Some companies offer accident forgiveness endorsements, which will help to keep your premiums from increasing after your first at-fault accident.
  • New car replacement: While not offered at every company, this coverage could be useful if your car is one model year or newer. New cars depreciate quickly, so having this coverage means that if your brand new car is totaled in an accident, you would be able to replace your car 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 factors might affect my car insurance coverage?

Choosing coverage types and amounts isn’t the only thing that determines your car insurance premium. Instead, there are a range of individual factors that impact car insurance rates considered by car insurance companies. 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 now restrict or ban car insurance companies from using some personal factors when setting your car insurance premium. You will probably 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 they 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 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 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 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

Written by
June Sham
Insurance Writer
June Sham is an insurance writer for Bankrate. Before joining the team, she worked for nearly three years as a licensed producer writing auto, property, umbrella and earthquake policies.
Edited by
Insurance Editor
Reviewed by
Director of corporate communications, Insurance Information Institute
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Part of  Understanding Car Insurance Costs