How Much Car Insurance Do I Need?

How Much Car Insurance Do I Need?

Find Cheap Auto Insurance Quotes in Your Area

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While every state sets its own car insurance limits, you might need more coverage depending on your situation. First, you'll need to consider your own financial situation and understand how the different types of protection work together. Here's how to make sure you're getting the right amount of coverage.

How much car insurance to get by coverage

Car insurance is made of several protections that form a complete auto policy. Ensuring you are properly insured is a matter of having the right amount of coverage for the different types.

Car insurance type

You should have if…Get high limits if…Get low limits if…

Bodily injury liability

MandatedYou have many assets in your nameYou don't have many assets

Property damage liability

MandatedYou have many assets in your nameYou don't have many assets

Uninsured motorist

Mandated/Don't have PIP or collision insuranceYou have neither collision, comprehensive or PIPYou have PIP and/or collision

Collision and comprehensive

Your car is worth more than $2,000N/AN/A

Personal injury protection/medical payments

Mandated or do not have health insuranceYou don't have health insuranceYou have health insurance but want economic benefits of PIP/MedPay

How much liability car insurance should you have?

Bodily injury liability and property damage liability are mandated in just about every state, but you might need to increase your limits to match your net worth (more on bodily injury here and property damage here). To calculate your net worth, add up all of your debts and subtract them from your total assets. So if you have a $40,000 student loan and $90,000 among all your bank accounts and home equity, then your net worth would be $50,000.

Your bodily injury coverage should reflect that amount, but you might not need to increase your property damage limits, as claims usually don't cost more than a few thousand dollars. If your net worth is lower than the minimum amount required by your state, you may opt for the minimum.

But if you have high income and relatively few assets, then your future earnings may be targeted as a means of compensating another driver for their costs. You should account for your potential net worth for the near future when choosing your coverage limits.

The cost of increasing BI and PD limits is generally inexpensive. We found that going from 25/50 limits to 50/100 — a 100% increase in coverage — resulted in a rate hike of only 34%. And when going from 50/100 to 100/300, the premium increased just 14%.

How much uninsured motorist insurance do you need?

Nationally, about 1 in 7 drivers is uninsured, so most policies should have uninsured motorist (UIM) insurance with coverage equal to the BI and PD limits. About half of the states make UIM mandatory, but drivers can purchase this coverage anywhere. While the chances of getting into an accident with an uninsured driver is low, if it does happen, it can prove to be costly. A minimum insurance policy won't pay for your own medical or property costs following an accident.

UIM is fairly inexpensive compared to other types of coverage. Most drivers should be able to add the equivalent of their liability limits for less than $50 per year. If you have collision, comprehensive, and/or personal injury protection insurance on your policy, it will be OK to opt out of UIM (so long as it is not mandated). With those coverages, you will be able to take care of medical and repair costs if you get into an accident with an uninsured driver.

Should you get collision and comprehensive insurance?

Collision and comprehensive coverages are optional in every state, but most drivers should have both on their policy. While opting out of collision insurance can save you several hundred dollars per year, it could prove to be a costly choice if you're involved in an expensive car accident.

Collision claims are much more frequent than other types of auto insurance claims. According to the Insurance Information Institute, about 6% of drivers filed a collision claim in 2015, with the average claim worth $3,350. While 6% may seem low, that is by far the most of any other type of car insurance claim.

Adding collision and comprehensive insurance to your policy may double your payments, but you can control costs by choosing the right deductible — which is a fee you'll pay before the insurance kicks in. Common deductibles fall between $50 and $2,000. A lower deductible results in a higher premium and vice versa, so you'll want to select a deductible you're comfortable paying. If you choose a high deductible to reduce your monthly premiums, we recommend starting an emergency fund to cover the deductible.

Should you buy personal injury protection and/or MedPay insurance?

If you come from a state that does not make either coverage mandatory, it is OK to opt out of these coverages — as long as your health insurance policy covers injuries resulting from a car accident. PIP and MedPay can be similar to health insurance you buy with your auto policy. However, the economic benefits of these coverages are usually not found in a standard health plan. MedPay and PIP pay for funeral costs, and PIP covers any earnings you lose due to your injuries. If you can afford either coverage, they may be worth having just for those reasons.

Can I just get the state minimum car insurance?

Every state sets minimum insurance limits that every driver needs to have. Most drivers should increase their coverage limits above the minimum required by the state. Oftentimes, the minimum isn't enough to cover all of the expenses following a car accident. But it's OK to get the minimum if all of these apply to you:

  • You have low-value assets. There's less for another party to sue for, so the other party is more likely to accept whatever your insurance company offers them.
  • Your car is worth less than $2,000. Following an accident, the cost of repairs might be more expensive than the car itself.
  • You have health insurance that covers car accidents. Injuries stemming from a car crash are usually expensive, and you will want to be sure your health insurance company will cover your costs.

Mark is a Senior Research Analyst for ValuePenguin focusing on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.