September 17, 2021

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How much car insurance do I need?

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Each state sets its own requirements for auto insurance. To drive legally, you’ll need to purchase at least the minimum coverage limits, but if you don’t know these offhand, you may be asking, “how much car insurance do I need?”

In this article, we’ll look at how to find the appropriate amount of coverage and review factors that affect the price of a car insurance policy.  One shortcut to cheap car insurance is getting prices from multiple insurance providers. You can use the tool below to start getting free quotes from the top insurers in your area.

In this article:

  • What type of car insurance do I need?
  • State required coverage
  • How much car insurance do I need when financing? 
  • Optional types of insurance
  • Frequently asked questions 
  • Our methodology
What type of car insurance do I need?

Assessing how much car insurance you need really breaks down into two factors: where you live and what car you drive. Where you live will determine the state minimum required insurance you need to carry in order for your car to be street legal. Most often, this includes a certain amount of liability insurance. In addition to that, the value of the car you drive and whether you own it outright dictates what optional kinds of insurance you may want to carry.

If you’re shopping for insurance, you’ve probably seen the term “full coverage” mentioned a few times. While there’s no universal definition, it usually refers to a policy that combines liability car insurance, collision insurance and comprehensive insurance.

Here’s an overview of what each of these policies covers: 

  • Liability insurance: Covers other parties’ injuries and property damage after an accident for which you are found at fault
  • Collision insurance: Covers your own vehicle’s damages after an accident, regardless of who is at fault
  • Comprehensive insurance: Covers repairs if your own vehicle is stolen or is damaged in an incident that isn’t a collision with another car, such as a natural disaster or hitting an animal

Neither collision nor comprehensive coverage is mandated by law in any state, but you may need it if you have an outstanding car loan. Lenders often require that drivers purchase additional coverage in order to protect their investment.

If a car is damaged and declared a total loss, depending on the claim, comprehensive or collision insurance will reimburse the policyholder up to the actual cash value of the vehicle, minus an agreed-on deductible. If the car is being financed, that payout will go to the lienholder.

State required coverage

As mentioned, a liability insurance policy is required in some form by almost every state. Liability coverage ensures that if you cause an accident, the other parties’ medical bills and repair bills will be taken care of. It does not cover any damage to your own car or your injuries after an accident you’re found at fault for. 

Liability coverage is broken down into two parts:

  • Bodily injury liability: Covers medical expenses and lost wages for individuals other than the at-fault driver
  • Property damage liability: Reimburses another party for damage to their vehicle or property when the policyholder is at fault for an accident

How much liability insurance do I need?

Each state sets its own minimum liability insurance requirements, which you’ll often see broken down into three numbers. For example, California requires minimum coverage limits of 15/30/5. That means drivers need to purchase at least $15,000 in bodily injury liability coverage per person, $30,000 in bodily injury liability coverage per accident and $5,000 in property damage per accident.

The risk of purchasing the minimum amount of car insurance is that a driver may not be totally covered after a car accident. If a California driver carrying the bare-minimum coverage causes $35,000 in property damage, they wouldn’t have enough liability insurance to cover the costs. The remaining $30,000 would have to come out of their pocket, and if they were not able to pay, they could be sued.

As a general precaution, insurance experts recommend choosing the largest liability limit you can afford. That helps to protect your wallet and protect you from lawsuits in the event of an at-fault accident.

The average price of liability coverage in 2018 was $644.11, according to the National Association of Insurance Commissioners (NAIC). Higher coverage limits usually mean a higher premium, but other factors like your car, driving record and credit score also shape the price of an insurance policy.

Other required coverage

States may also mandate additional coverage besides bodily injury and property damage liability coverage. Here are some other common types of insurance you might need to carry depending on where you live:

  • Uninsured motorist/underinsured motorist coverage (UM/UIM): Uninsured motorist coverage comes into play if your car is hit and the person at fault has insufficient liability insurance or no insurance at all. It offers assistance for medical expenses, lost wages and car damage.
  • Medical payments (MedPay): MedPay covers medical bills for the policyholder and other passengers, regardless of fault.
  • Personal injury protection (PIP): Similar to MedPay, PIP insurance pays for medical bills. It also covers lost wages, funeral expenses and child care in certain situations.

Each of these coverages is required in certain states but can be purchased optionally elsewhere.

How much car insurance do I need when financing? 

Taking out an auto insurance policy on a financed vehicle may mean purchasing more than just liability coverage. As mentioned, lenders generally require car owners to carry collision and comprehensive coverage because these types of insurance pay for damage to a vehicle that the lender legally owns.

Newer cars may be more expensive to insure if they have a high value or are expensive to repair, so a lender may ask for higher coverage limits. That usually means a larger insurance premium for the car owner.

Gap insurance 

In addition to comprehensive and collision coverage, a lienholder may ask that a driver purchase gap insurance as well. “Gap” stands for guaranteed asset protection, and the coverage assists the policyholder when a financed car is totaled.

After a total-loss accident, if your insurer pays out the actual cash value of your car and it does not cover the amount you still owe on the vehicle, gap insurance pays the difference. For example, if you owe $15,000 and your insurer values your vehicle at $10,000 after a total-loss accident, gap insurance will pay the remaining $5,000 balance.

Optional types of insurance 

Outside of liability and full coverage insurance, there are a number of add-on policies that insurers offer to give drivers greater peace of mind on the road. These include:

  • Roadside assistance: Covers breakdowns, lockout services and towing needs
  • Rental reimbursement: Covers rental car or taxi services if your primary vehicle is in the shop due to a covered repair
  • New car replacement: Usually only applies to newer vehicles and will help you purchase a new vehicle if your car is deemed a total loss
  • Umbrella insurance: Extra insurance beyond normal policy limits that can be used to cover injuries, property damage and other liability claims

Not all insurance providers have these options, so be sure to ask about the coverage you want when getting a quote or contacting an insurer for information.

Frequently asked questions

What is recommended for car insurance coverage?

In order to drive legally, you’ll need to carry the minimum liability insurance required in your state. Additional coverage will depend on whether the vehicle is owned or being financed, the car’s value, your income level and your personal coverage preferences.

How much insurance is required for a financed car?

Lenders usually require a car owner to purchase liability and comprehensive coverage when financing a car to financially protect it from damage. The lender may also ask for gap insurance to ensure a loan can be paid off if the car is totaled.

What does 100/300/50 represent on an insurance policy?

Liability coverage limits are often represented by three numbers, such as 100/300/50. In this case, it would mean the driver has $100,000 worth of bodily injury coverage per person, $300,000 worth of bodily injury coverage per accident and $50,000 worth of property damage coverage per accident. These are the maximum amounts your insurer will pay out after an accident you cause.

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