How Much Car Insurance Do I Need?

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“Do I need car insurance?” That’s a simple, “Yes, be it because of state law or just because of financial protection.

“How Much Auto Insurance Do I Need?” That can be harder to answer.

Do I Really Need Car Insurance?

Car insurance such as health and life insurance is required to ensure you can cover the cost of anything from minor inconveniences such as fender bending to major accidents that lead to total loss and injury. While the monthly premium may be unattractive, you are safer than sorry about your vehicle.

For starters, all states except Virginia and New Hampshire legally require residents to have insurance. Virginians can avoid purchasing insurance for a $ 500 annual fee paid to the Department of Motor Vehicles. To be clear, the fee won’t get them anything in the event of an accident, but it will keep them from facing fines and license suspensions.

New Hampshirites don’t mess around with their “Live Free or Die” motto. Car insurance is not required in the Granite State, but in the event of an accident, the driver in charge is on the hook all Property damage and personal injury fees, which can cost hundreds of thousands of dollars depending on the severity of the accident. Same goes for Virginia.

So what if you cause an accident that results in property damage, injury to someone else or yourself, or even someone’s death – and you don’t have insurance? While Virginians and New Hampshirites do not face the same fines and license suspension risks as residents of other states, all drivers should be concerned about their financial well-being. If you are held responsible for the accident and subsequent injuries, your property (house, car, savings) could be confiscated and your wages garnished until you have paid off your debts.

In short, driving without insurance can lead to financial ruin. Don’t risk it.

How Much Car Insurance Do I Need?

The simple answer: Most drivers should get full coverage, which typically includes liability, uninsured / underinsured motorists, and collision / full coverage. However, the combination of types of insurance (including extended coverage options) and the amount of insurance you have purchased, as well as the deductibles, can vary widely.

When making this decision, consider four factors:

  1. What’s the worth of your car?
  2. What are your driving habits?
  3. Where do you live
  4. How much can you afford to pay out of pocket?

Someone who has a car that is worth less than the gasoline in the tank doesn’t need coverage for their own vehicle, as repairs are likely not worth the deductible. Someone who works from home or lives in a household with two cars is likely to be able to forgo rent reimbursement. People in the 31 states who only require liability can consider skipping all other auto insurance policies. And those with an emergency savings account can opt for a high deductible plan.

Let’s examine the types of auto insurance coverage to see what you might need – and how much.

Types of car insurance coverage

liability

In many states, liability insurance is the minimum required coverage. It does not provide your own car repair costs and / or hospital bills, but does cover any property damage or personal injury that you may cause in an accident.

Do i need it Yes, everyone should take out liability insurance regardless of whether your state requires it, otherwise there is a risk of financial ruin.

How Much Liability Insurance Do I Need? Experts recommend that you get as much liability insurance as you can afford, or at least enough to cover the total value of your property / net worth. This will protect your home, savings, etc. in the event that you are at fault in an accident.

Liability insurance is usually described using three numbers representing dollar amounts, separated by slashes. For example 50/100/50 or 100/300/100 (that’s 50,000, 100,000 and 50,000 or 100,000, 300,000 and 100,000 US dollars, respectively). The first number is the dollar limit per person for personal injury liability. The second number is the accident limit for liability for personal injury. and the third number is the limit of liability for property damage. Again, the liability insurance does not cover any of your bills. It’s just a way to protect your wealth.

If you drive an older car, don’t own a home, and have a modest savings account, you can probably get away with 50/100/50. However, most financial experts suggest that middle-income drivers go for 100/300/100 coverage.

Note the jump in price from 50/100/50 (averaging $ 6 per month) to 100/300/100 (averaging $ 93 per month). But a difference of $ 87 per month could mean not incurring massive debt to pay for $ 150,000 of someone else’s medical bills.

Uninsured / underinsured motorist

Not as many states require uninsured car insurance and / or uninsured car insurance compared to those that require car liability insurance, but it is still highly recommended. While it may seem unfair, uninsured / underinsured car insurance is all about covering your medical bills and repair costs if another driver causes an accident but doesn’t have adequate car insurance or none at all.

Do i need it Even if your state doesn’t require it, consider getting this type of auto insurance to protect your assets.

A car collision occurs in heavy snowfall.
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Collision and comprehensive

Collision and full coverage are often combined depending on how your insurance company bundles policies.

Collision insurance covers damage to your vehicle, regardless of who is to blame. The collision coverage is linked to a deductible.

Fully comprehensive insurance also covers damage to your vehicle if this is the case Not be driven. Instead, full coverage is provided for damage to your vehicle from non-accidents: weather, vandalism, falling objects, and even theft. As with collision coverage, there is a comprehensive deductible.

Do i need it Depends on. If you have a newer car worth repairing or replacing in case something happens, you should have a collision with you and be comprehensive. Comprehensive is particularly important in areas affected by floods or forest fires.

How Much Collision and Comprehensive Car Insurance Do I Need? If you decide to have a collision and / or a major collision, choose a deductible that is convenient for you to pay. The higher the deductible, the cheaper the cover. You should opt for the highest possible deductible that you can afford.

A note on deductibles: To keep insurance costs low, opt for higher deductibles. This saves significant changes every month. As a savvy penny hoarder, you should create an emergency savings account specifically for car accidents. Once you’ve saved enough to cover the high deductible, you can start paying lower monthly insurance premiums without worrying about how to cover the deductible in the event of an accident.

As your car ages, the less likely you will want to spend a significant amount on repairing that vehicle. If your vehicle is at the point where you’d rather get rid of it (should something happen) than spend $ 1,000 or more on repairs, you can potentially ditch the collision and be comprehensive overall. Just note that if you do this, your insurance company will not write you a check for the total amount of your vehicle.

Personal Injury Protection (PIP)

Personal Injury Protection (known as PIP) is a legal requirement in some states and covers medical expenses, therapy, funerals, lost wages, and even “compensation” (think lawn care or childcare if an injury prevents you from doing typical duties ). PIP usually has a deductible.

Some auto insurance companies also offer health insurance coverage (called MedPay), which is similar in that it covers health insurance policies that result from an accident.

Do i need it If your state requires it but you have good health insurance, opt for the minimum required by law. If you don’t have health insurance, this could be a good idea. Deselect this option if your state does not require it and You have good health and disability insurance.

Guaranteed automatic protection (GAP)

Guaranteed automatic protection (known as GAP) protects your investment. If your newer car is added up as a result of an accident or theft, only the actual cash value of the vehicle is paid out through collision and full coverage. Since cars, trucks and SUVs devalue as soon as you drive them off the dealership and lose 20% of their value in the first year, you may owe more for a loan or lease than for your full and collision-proof payout. GAP insurance is there to fill the gaps.

Do i need it Many lenders require that you take out CAP insurance when you have a loan or lease a vehicle. Once the vehicle is paid out, it is up to you whether you want to continue with GAP insurance.

Pro tip

Consider buying a used car with cash to avoid depreciation in value and save money.

Additional coverage

Along with the options above, most auto insurance policies offer additional protection that you should normally be denied. The general options include:

  • Breakdown assistance: If you get roadside assistance through your vehicle purchase or a program like AAA, you should decline.
  • Reimbursement of rental cars: Skip this coverage if you work from home, temporarily carpool with a friend or family member, or live in a household with two vehicles.
  • Personal item coverage: Do not leave expensive items unattended in your car even if they are locked and you will not have to worry about the cost if they are stolen.
  • Carpooling: This applies to drivers for services like Uber or Lyft as the companies only offer protection when you have a customer in the vehicle. If you have an accident while working but are between passengers, this cover can be helpful. This does not apply to most drivers.

Are you looking for more ways to save on car insurance? Read some of our tips on how to cut your car insurance costs.

Timothy Moore is an editorial and graphic design researcher and a freelance writer and editor on topics such as personal finance, travel, careers, education, animal care, and automotive. He has been working in this field since 2012 with publications such as The Penny Hoarder, Debt.com, Ladders, WDW Magazine, Glassdoor and The News Wheel. He lives in Ohio with his fiancé and dog Goomba.



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