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How Much Car Insurance Coverage Do You Really Need?

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Dana George
Author: Dana George
Dana George
Dana George
Writer

Dana George has a BA in Management and Organization Development from Spring Arbor University. For more than 25 years, she has written and reported on business and finance, and she's still passionate about her work. Dana and her husband recently moved to Champaign, Illinois, home of the Fighting Illini. And though she finds the color orange unflattering on most people, she thinks they'll enjoy Champaign tremendously.

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If you're thinking about buying a car, you may also be wondering, "Is car insurance required?" and "How much auto insurance do I need?" The answers depend on the minimum car insurance that the state where a driver lives requires -- and what additional coverage matters to them. Here, we'll go through the type of insurance drivers definitely need in most states and how to choose the right coverage.

How much liability car insurance do I need?

Nearly every state requires drivers to carry liability insurance. The minimum amount of coverage a motorist must carry depends on their state. To find out what your state requires, go to your state's department of motor vehicles website. Alternatively, you can talk with an insurance agent who works in your state.

When it comes to coverage, snagging low cost car insurance is not the only thing that matters. It's important for a driver to purchase enough coverage to feel financially secure if they happen to be part of an accident.

As you shop for auto insurance, you'll see requirements that look like this: 25/50/25. Here's what they mean:

  • First number: The first number (25) represents $25,000, the amount of bodily injury liability coverage per person required.
  • Second number: The second number (50) represents $50,000, the amount of bodily injury liability coverage per accident required.
  • Third number: The last number (25) represents $25,000, the amount of property damage liability coverage per accident required.

Liability policies are designed to compensate other parties if the policyholder causes an accident that leads to property or bodily damage. That means if the policyholder hits another car or someone walking across the road, liability insurance will cover it. If the driver runs off the road and crash into someone's fence, liability will cover that type of incident too.

An example:

Imagine that Driver A hits another car carrying two passengers. Both are hospitalized and their bills amount to $500,000. There is $10,000 in property damage to their vehicle. Let's say the minimum liability coverage for Driver A's state is 25/50/25. That means the maximum Driver A's insurance company will cover is $25,000 in bodily injury per person, $50,000 in total bodily injury per accident, and $25,000 in property damage.

If that's the case, the Driver A's liability insurance would be enough to cover property damage to the car. But, because of the liability limit, they'd be $450,000 short in bodily injury liability coverage. The passengers in the other car do not have to accept the $50,000 in bodily injury supplied by Driver A's insurer as full car insurance coverage. It is likely that they will sue for the rest.

Before shopping for car insurance, it's a good idea for people to ask if they can afford to be sued following a serious accident. If not, the amount of liability insurance they carry should reflect that fact.

A motorist should think about what they own, including property and money in the bank. The amount of liability insurance a person carries should be enough to protect those assets. A driver may have to shop around for a company that carries enough to make them comfortable, as many policies have a coverage limit of $300,000 or $500,000.

Key takeaways:

  • Nearly every state requires drivers to carry liability insurance.
  • Liability requirements might look like this: 25/50/25. Those numbers represent the coverage amount available for bodily injury per person, bodily injury per accident, and total property damage.
  • State minimum requirements for liability insurance coverage vary.
  • People should have enough liability insurance to protect their assets.

What other types of car insurance coverage do I need?

The recommended car insurance coverage begins with the coverage a driver is required to have. Minimum requirements for auto insurance coverage are mandated by each state. Here are some types of coverage that a state may require:

Personal injury protection

Some form of personal injury protection (PIP) is required in 15 states. PIP coverage is similar to medical payments coverage, with the difference being that it covers things like loss of income, house cleaning, and childcare expenses while a driver recovers from an accident. If someone dies due to an accident, PIP even covers funeral expenses.

Uninsured and underinsured motorist coverage

Some states require uninsured and underinsured motorist coverage. If a policyholder is hit by a driver who does not carry automobile insurance and they get hurt, uninsured motorist coverage will cover their medical expenses. In some states, it will also cover damage to the vehicle. If the policyholder is hit by a driver who is underinsured, this coverage will help make up the difference, paying for things the underinsured driver's policy does not.

Medical payments coverage

Some states also require medical payments coverage, while it is optional in others. This coverage pays medical expenses like hospitalization, surgery, and medical tests if a driver, a passenger in their car, or anyone driving that vehicle is hurt in an accident.

Other available coverage options

The next step in figuring out car insurance coverage is looking at the various coverage options. Even if someone lives in a state that only requires liability coverage, they should choose a type of coverage that makes them feel financially secure at the lowest insurance cost they can find. Besides the coverage required by each state, here are some more options:

Comprehensive insurance

Comprehensive coverage takes care of issues not covered by other policy types. For example, if a tree falls on a driver's car, they're in a flood, or a deer runs out in front of them, they are covered. Comprehensive insurance goes with the driver -- even if they're driving someone else's car. Comprehensive coverage is typically optional unless the driver is leasing a car.

If a motorist wants as much security as possible, they should shop for a comprehensive plan. As you compare car insurance companies you will find that their rates for comprehensive coverage vary wildly. It pays to take your time and compare all options.

Collision insurance

Collision coverage is less expensive than comprehensive but does not cover as much. Collision insurance pays up to the cash value of the vehicle, minus the deductible. Let's say a driver hits black ice, slides off the road, and totals a car worth $3,500. If the driver has a deductible of $1,000, the insurer will pay out $2,500.

Roadside assistance and towing

If a vehicle breaks down on the side of the road, roadside assistance and towing covers the costs to tow it to a repair shop. It can also cover things like the cost to send someone out to charge a dead battery, fix a flat tire, or help the motorist get into their car after a lock-out.

Some policies automatically throw these services in as a perk of the policy.

Rental reimbursement coverage

Rental reimbursement pays a set amount each day for a rental car or public transportation while the vehicle is being repaired after a claim.

Gap insurance

In the event a car is totaled, gap insurance helps pay off the car loan without the driver getting stuck with a big bill.

If a car is totaled in an accident, insurance only covers the current value of the car. This may not cover total loan costs. If a motorist owes more for the car than its current value, they will have to pay the rest not covered by insurance. Gap insurance will help cover that difference between the current value of the car and what the driver owes on it.

Classic car insurance

This type of coverage is for vehicles that are at least 25-30 years old. There are typically limits on how many miles someone can drive a vehicle with classic car insurance, but if a driver only bring it out on weekends or drive it to car shows, this may be the perfect level of coverage. Classic car insurance can also be purchased for high-value vehicles, like muscle cars.

Ridesharing

This fills the gap between a personal insurance policy and the policy provided by ridesharing services like Lyft or Uber. A personal insurer does not cover a vehicle while it's being used for business, and the policy provided by the ridesharing service may not cover a driver while they're waiting for a ride request, according to the National Association of Insurance Commissioners (NAIC). For example, if a driver is available for hire, but waiting for a ride request, they may not be covered by either policy. Having rideshare insurance can cover the gaps left by both policies.

What car insurance is required in each state?

Auto insurance coverage recommendations first depend on the state a driver lives in. With each state having its own minimum coverage requirements, it's important to check the rules of your state when you buy a car or become a new resident.

There are two easy ways to find the current minimum coverage for your state. One is to check your state's department of motor vehicles website. The other is to ask an insurance agent who operates in your state.

Here are a few of the differences in state insurance requirements that struck us as interesting:

  • Fifteen states and the U.S. territory of Puerto Rico each have some version of "no-fault" car insurance. What that means is that no matter who is at fault in an accident, everyone must file a claim with their own insurance company. It is the driver's insurance that pays to repair their vehicle and the driver's required PIP coverage that pays medical expenses following an accident in these 15 states:
    • Delaware
    • Florida
    • Hawaii
    • Kansas
    • Kentucky
    • Massachusetts
    • Michigan
    • Minnesota
    • New Jersey
    • New York
    • North Dakota
    • Oregon
    • Pennsylvania
    • Texas (unless the driver signs a waiver)
    • Utah
  • Alaska appears to have some of the strictest auto insurance laws in the land. In addition to minimum mandatory coverage of 50/100/25, an Alaskan driver who cannot provide proof of insurance after being pulled over can count on having their license suspended for 90-365 days.
  • Auto insurance of any kind is 100% optional in New Hampshire, although going without coverage is a recipe for financial disaster.
  • For a $500 fee, the state of Virginia will allow a motorist to drive an uninsured vehicle "at their own risk." The fee must be paid each time they renew the car registration.

How to choose car insurance coverage

What's right for one driver may not be right for another. These five steps should help narrow down policies to find the right one.

Step 1: Ask, "How much auto insurance coverage do I need?" While a driver must meet the minimum requirements set by their state, they can decide on the level of coverage they're most comfortable carrying.

Step 2: Work with your budget to decide how much you can afford to pay for an insurance policy.

Step 3: A motorist should think about which policy type is best for their vehicle. For example, if someone drives a new car, they may want gap insurance coverage. If a driver takes a classic car to auto shows, they can look at classic car coverage. And if a motorist has an old beater that they drive around their property and won't miss if it's gone, they could consider liability insurance coverage only.

Step 4: Don't be shy about checking online rates or calling an insurance agent. The right auto insurance policy is based on state requirements along with a combination of enough coverage to make a driver feel secure behind the wheel and a car insurance rate they can afford.

Step 5: Ask questions until you feel comfortable settling on a policy. If a term is confusing or you feel like you're being "sold" coverage you don't need, ask even more questions. The more drivers know about one policy type, the better they can compare it to the average monthly car insurance cost of other policies.

While auto insurance coverage is not an expense anyone particularly enjoys paying, it's there for people's protection. In addition to helping motorists get back on the road, a good insurance policy can get a driver back on their feet following an accident and help protect their bank account.

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FAQs

  • A good deductible is one a driver can afford to pay in the event of an accident. It's a balancing act, though, because the lower the deductible, the higher the monthly premiums.

  • This kind of insurance provides up to $100,000 in bodily injury coverage for one person in an accident and up to $300,000 for total bodily injuries, no matter how many people are involved in the accident. How much an individual can afford to cover in the event of an accident determines whether they need 100/300.

  • No state requires full coverage, but if a driver is concerned about inadequate coverage or they have a valuable vehicle to insure, full coverage is a good idea.

  • The average cost of auto insurance in the U.S. is $199 per month. A driver's cost may be more or less, depending on the type of vehicle they drive, their driving record, and the coverage they want.

  • Yes, if a motorist has a newer vehicle and they don't have the resources to make repairs or buy a new car in the event of storm damage, theft, or another unexpected occurrence. Comprehensive car insurance could pay for itself with just one claim.