How much car insurance do you need?
Car insurance is an important part of your financial plan. Not only is it legally required in almost every state (excluding New Hampshire and Virginia), but it can also protect you against devastating expenses if you cause an accident. You should consider your car insurance coverage carefully, making sure that you feel comfortable with the coverages and limits that you have chosen.
But how much car insurance do you need? Answering the question can feel overwhelming because the answer will be unique to each individual. Our editorial team can help you understand what coverage options are generally available, and then you can use this information when you consult with an insurance agent to be fully informed.
Most states require drivers to carry at least minimum liability coverage limits. These limits 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 coverage per person, the second number is the minimum required level of bodily injury coverage per accident and the final number is the minimum required level of property damage 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 in the state:
- $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 injuries to the other party or parties.
- $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, poles, fences 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.
- 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.
- Uninsured/underinsured motorist coverage: Uninsured motorist coverage pays you for your injuries and property damage if you are hit by someone who does not have insurance. Underinsured motorist coverage pays for your medical bills if the driver who hit you does not have enough coverage to pay for your injuries.
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.
State minimum car insurance coverages are non-negotiable. You must carry at least the minimum levels of required coverages in your state to legally drive. If you are unsure how much coverage you need to satisfy your state’s insurance laws, checking your state’s motor vehicle website or talking to a licensed agent could be helpful.
If you opt for state minimum coverage levels, you may pay a lower premium. However, you might also be more exposed to financial risk. Your coverage limits may not be enough to pay for medical bills or property damage expenses if you cause an accident and you will have to pay the difference out of pocket.
Most insurance experts recommend that you purchase higher liability limits if you can afford to. Although you will likely pay a bit more for higher limits, you will be better protected from financial losses if you cause an accident.
For example, if your state’s minimum coverage limits are 25/50/10, you may feel that those levels are too low to adequately protect you from paying hefty out-of-pocket expenses if you cause an accident. You could opt to purchase higher limits of liability, such as 100/300/100, to provide greater protection in the event that you cause an accident with injuries or property damage.
Deciding how much liability coverage to choose is a balance between your budget and your risk tolerance level. Consider if you have the money each month to pay for higher liability limits. If not, minimum coverage may be a good option for you as some insurance is better than none.
You also need to consider your ability to pay for another person’s injuries and property damage out of pocket if you cause an accident. If paying for those types of bills could devastate your finances, you may want to consider higher liability limits to better protect yourself from long-term consequences and payment plans.
Minimum coverage vs. full coverage
Choosing higher liability limits is not your only option to personalize your auto insurance policy. Liability-only auto insurance is designed to pay for the damage you cause to other parties, but it does not provide coverage for your own vehicle. For that, you will need full coverage.
Full coverage refers to adding both comprehensive and collision coverage to your auto insurance policy. These two coverage options provide financial protection against a variety of circumstances that could damage your car. Collision coverage pays for damage to your vehicle if you collide with an object or another vehicle. Comprehensive coverage, 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 vehicle, your lender will likely require you to carry full coverage. However, if your vehicle is older and not worth much, liability-only insurance may make better financial sense.
Full coverage insurance does cost more than liability-only coverage, regardless of the level of liability coverages you choose. In the United States, the average annual premium for minimum coverage car insurance is $565, while full coverage costs $1,674. However, those higher costs also include higher liability coverage for extra financial protection.
When you choose comprehensive and collision coverage, 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. 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.
After you file a claim, you pay the deductible amount directly to the shop or individual completing the repair work. The insurance company will pay the rest. 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. While setting a higher deductible could save you in premium, you have a higher out-of-pocket responsibility. Consider which level is best when determining your car insurance deductible needs: a lower premium or a lower out-of-pocket cost.
Most auto insurance companies offer additional coverages 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 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, 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.
Every company has unique coverage offerings. Talking to a representative from your insurance company can help you get a sense of what options your insurance company offers.
Everyone brings a different set of circumstances to car insurance. For some, paying the lowest premium possible will be the most important factor. For those drivers, minimum coverage could be the best option. But for other drivers, their individual circumstances may warrant a different decision in the insurance buying process.
- High-risk driver: If you have bad credit or a spotty driving history, you may be labeled a high-risk driver. These drivers may have a harder time getting affordable car insurance and may not have their pick of the best insurance companies. Low insurance rates are typically harder to come by as a high-risk driver.
- 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 to lower the cost of car insurance so you can get the car insurance coverage you need at a better price.
- Looking for cheap coverage: While price is important, cheap coverage is not always better. If you have assets, purchasing more car insurance will usually better protect your finances. If you have limited funds to pay for car insurance, you may have to be picky about the types of coverage you can afford.
- Have a new vehicle: If you finance or lease your new car, the lender will probably require you to purchase full coverage insurance. The make and model you choose has a big impact on your car insurance premiums. Before buying a new car, shopping for car insurance can help you find the best deal on coverage and which car to buy.
Frequently asked questions
How do I choose an insurance company?
With so many auto insurance companies to choose from, it can feel confusing to know where to start. We recommend that you make a list of factors that are important to you, such as price, 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 coverages, discount options and price to decide which company fits your needs.
Do I need to carry minimum limits on a motorcycle?
Although each state is different, motorcycles likely fall under the same requirements for state minimum coverages that other cars 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.
Do I still need insurance if I do not drive my car?
If you store a vehicle, such as a sports car or classic car, in the off season, 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 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.
How many years do I need car insurance?
In most states, you will need to carry car insurance if you own or lease a vehicle, regardless of how long that is. The longer you’ve had continuous car insurance coverage, the better it looks when applying to a new company. It shows you as a responsible driver, which makes you less risky to insure and could get you better rates for coverage. Determining how long to keep car insurance records is another matter and depends on the reason you need to show them.