How much car insurance do you need?

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Car insurance is a requirement in almost every state. Even if your vehicle sits in your garage most days, you still need to carry a minimum amount of coverage. How much coverage is required depends on where you live.

But the minimum required amount of coverage in your state might not be enough to cover you and your vehicle adequately. If you’re wondering how much insurance do I need, we’ll help you figure it out.

Chances are, your state requires car insurance. But how much is required?

According to insurance expert, Laura Adams, “How much car insurance you need depends on several factors, such as the minimum requirements in your state, the value of your vehicle, your net worth and your risk tolerance. The more assets you own, the more you could lose.”

When determining how much insurance you need, it’s easiest to start by investigating the types of car insurance coverage that you need to 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 Edmunds.com.

However, you probably want more than just the bare minimum. “Remember that minimum state requirements for auto insurance may not be enough for your situation. Another option to boost your liability is to purchase a personal umbrella liability policy, which offers higher protection at affordable rates,” says Adams.

Your personal financial assets may also have an impact on the amount of coverage you need. Passmore adds, “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.”

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 the car insurance rates and requirements are in your state 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.

Should I buy comprehensive and collision coverage?

Comprehensive insurance and collision insurance are not required at the state level. But if you have a leased car, or are financing your car with a loan, it might be a different story. If your vehicle is financed, your lender generally will require you to have collision and comprehensive coverage.

According to Adams, “The amount of recommended car insurance coverage, such as collision and comprehensive, depends on the vehicle you insure, and requirements set by a lender or leasing company. If you’ve paid for your car, you can opt for less coverage as its value declines over time.”

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.

How much car insurance should I buy?

When you purchase car insurance, it’s important to make sure you’re carrying the minimum amount required by your state. If you’re buying more coverage than what’s required (which is recommended), there are a few things you should take into consideration.

  • 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.

First, consider your age and driving record. Statistically, younger drivers and older drivers carry the most risk. And if you have a history of accidents, it’s probably worth it to buy extra coverage.

You should also look at your personal assets that could be at risk if you get involved in a costly claim. Adams says, “Having enough liability coverage is critical because it protects you from the most expensive accidents. If you injure someone, you could be involved in a costly lawsuit. Add up the value of your non-retirement assets that could be at risk–such as your home, car and savings–and make sure you have at least that much liability coverage.”

Next, factor in the age of your vehicle. Older cars are much cheaper to insure than new cars, even when depreciation is factored in. The same goes for the make and model. It’s more expensive to insure a BMW than it is to insure a Toyota, even when the cars are roughly the same age and in similar condition.

The last thing to consider is how much tolerance you have for risk and how much money you can afford to pay for insurance. If you’re on a tight budget, it might make sense to settle for the minimum amount of coverage. If you can afford to pay a little more, and you want the added peace of mind, raising your coverage limits is a good option.

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.”

Whether you buy a car insurance policy online, over the phone, or in-person, you’ll have the option to add endorsements to your policy before you sign the documents. If you’re looking for a car insurance company that is known for offering customizable coverage, do some research and shop around to get a few different price quotes.