Do You Really Need Car Insurance? How Much?

Do You Really Need Car Insurance? How Much?

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Every state, excluding New Hampshire, requires a minimum level of car insurance. In most states, you have to have liability insurance to cover property damage and bodily injuries. Twelve states require some level of personal injury protection, while 22 states require uninsured motorist coverage. Beyond those types of insurance, collision, comprehensive and gap coverage are required for a car that's financed or leased. Those policies can also augment protection for a car you own.

We recommend you purchase more than the minimum coverage in most cases, if you can afford it. More coverage can protect your assets and go toward vehicle repairs. The cost of raising liability coverage limits is usually not too high compared to how much more protection you get.

What car insurance do you need?

A total of 49 states require you to purchase some level of insurance. All but two states require liability coverage. In some states, ones that use no-fault systems and Oregon, you will have to purchase personal injury protection (PIP) coverage.

  • Some level of insurance required: Every state except New Hampshire
  • Liability insurance required: Every state except Florida and New Hampshire
  • PIP insurance requires: 13 states
  • Uninsured motorist insurance required: 22 states

Although you can stick with the minimum required coverage, there can be advantages to raising your coverage in several categories.

Do you need to have liability insurance?

Bodily injury liability and property damage liability are mandated in just about every state, but how much you need depends on your assets and the level of protection you are comfortable with. Purchasing coverage to match your net worth is a good starting point, but it is worth noting that your costs after an accident may not be limited to your net worth.

How much minimum coverage you need varies by state. For example, in Louisiana, you have to have at least $15,000 in liability coverage per person, with a maximum of $30,000 per accident. That's on the lower end of the spectrum. Maine is on the high end, as it requires $50,000 of liability coverage per person and $100,000 per accident (often written as 50/100 limits). The majority of states, you will need 25/50 limits to satisfy the legal minimum.

The average bodily injury (BI) claim in 2018 was just less than $16,000, but the costs can be much higher depending on the severity of the accident and who was at fault. We recommend more coverage than your net worth, especially if you have a high income and relatively few assets. Your future earnings may be targeted as a means of compensating another driver for their costs.

You might not need to increase your property damage (PD) limits above the minimum, as claims usually don't cost more than several thousand dollars. The average claim in 2018 was $3,841.

You can use ValuePenguin's coverage calculator to estimate costs based on liability 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 14%. And when going from 50/100 to 100/300, the premium increased just 19%.

When you will need personal injury protection (PIP)

Thirteen states require drivers to purchase some level of personal injury protection insurance. PIP coverage pays for the policyholder’s medical bills after an accident. It is a key part of no-fault insurance systems and is also required in Oregon, which does not use a no-fault system.

A driver's health insurance often covers physical injuries beyond the PIP limit in many cases. However, a policy can also cover lost wages and funeral costs. Minimum coverage ranges from $3,000 in Utah to as high as $250,000 in Michigan.

No-fault insurance states

  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • New York
  • North Dakota
  • Pennsylvania
  • Utah

Where you need uninsured motorist insurance

A total of 22 states make uninsured motorist (UIM) insurance mandatory, but drivers in any state can purchase this coverage. While the chance of getting into an accident with an uninsured driver is low, if it does happen, it can prove to be costly. The minimum limits in states where UIM is required generally follow a state's minimum liability limits.

Nationally, about one in eight drivers is uninsured, so having some level of UIM is strongly recommended. A policy extends a level of coverage to you if you are in an accident with an uninsured driver.

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 may reduce the need for each type of UIM, as long as it is not mandated. With those coverages, you may be able to take care of medical and repair costs if you get into an accident with an uninsured driver.

How much collision and comprehensive insurance should you have?

Collision and comprehensive coverages are required if you finance or lease a vehicle. For a car you own, those coverages are optional in every state, but we recommend most drivers 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 Highway Loss Data Institute, about 7% of drivers filed a collision claim each year from 2017 to 2019.

We recommend that drivers remove comprehensive and collision coverage once they can reasonably afford to replace their car if it's destroyed or stolen.

Collision and comprehensive become a worse value over time because the price you pay as your vehicle ages doesn't decrease as quickly as your vehicle's value. The value of a car decreases about 13% per year you own it, but the cost of full coverage only drops by 5% each year.

There's no single perfect time to remove these coverages from your policy, but we generally recommend that you do so when the value of your car drops to between four and six times your annual rate for collision and comprehensive coverage. This typically happens when your car is 8 to 12 years old or worth $5,000-$10,000.

How much car insurance coverage we recommend by type

The range of protections across liability, collision, comprehensive and other coverages forms 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

You drive a carYou have many assets in your nameYou don't have many assets

Property damage liability

You drive a carYou have many assets in your nameYou don't have many assets

Uninsured motorist

Mandated or you do not have personal injury protection (PIP) or collision insuranceYou have neither collision, comprehensive or PIPYou have PIP and/or collision

Collision and comprehensive

Your car is worth more than $5,000N/AN/A

Personal injury protection (PIP)/medical payments (MedPay)

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

Should you get MedPay insurance or optional PIP coverage?

If you live in a state that does not make either coverage mandatory, health insurance often covers many of the same costs as PIP and MedPay.

The policies can be similar to health insurance you buy with your auto policy. However, some 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.

When you have to have gap insurance

Gap insurance, also called guaranteed asset protection, covers the difference between what you receive from an insurance company after a total loss and what you still owe on a vehicle. It only applies when you have leased or financed a vehicle.

This means that if your financed or leased car is totaled in an accident, insurance will cover the money still owed. It does not apply when the car can reasonably be repaired.

In most situations, gap insurance is not required. Some lenders, however, make it mandatory as part of financing a car. You might also need gap coverage to lease a vehicle in some situations.

We recommend gap insurance when the money you owe on a vehicle is greater than its actual cash value.

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.