Every driver should have auto insurance to protect themselves. Not having enough to pay for an accident can financially ruin you. But how much do you need? The answer to this question depends on your situation.
Some people can afford a lot of coverage. Others might have to buy certain types because they’re leasing or financing their car. All states (except New Hampshire and Virginia) require a minimum amount of coverage to drive. As you can see, how much you should get varies for each person.
There are two questions to focus on when wondering how much insurance you should buy. The first is what types of coverage you need. As a driver, you might need any combination of the following coverage types:
- Liability (most states require this at minimum)
- Collision (part of full coverage)
- Comprehensive (part of full coverage)
- Personal injury protection
- Uninsured (UM) and underinsured (UIM) motorists coverage
- Rental reimbursement
- Roadside assistance
- Rideshare coverage
- Umbrella insurance
The second question that comes up is how much you should get. That is, what should your limits be? This is also something that depends. The answer to this question normally relates to how much you can afford to buy at the time. But it could also be for other reasons, such as:
- Where you live
- The value of your car
- State requirements
This article will break down which types of car insurance you need. It’ll also explain how much of each you should have. Finally, you’ll learn the reasons for carrying a high amount of coverage. This info will hopefully help you make informed decisions when you decide to go out and shop for a policy.
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Liability coverage is the most basic form of car insurance that states require you to have. Liability protects you from having to pay for expenses if you’re at fault in an accident. This means that if you get into an accident, you won’t have to pay for the damages outright.
There are two forms of liability coverage:
- Property damage liability. This protects you from any damages you cause to property, such as light posts, trees, buildings, etc.
- Bodily injury liability. This will cover injuries to the other party in an accident. It covers medical expenses, funeral costs, long-term care, etc.
How Much Should You Have?
Every state besides New Hampshire and Virginia requires a minimum amount of basic liability. If you’re wondering how much liability coverage you need for you car, it depends on your state’s requirements. Be sure to check the amount of liability protection that your state requires. Your agent will also have this info for you. Though, you should consider buying as much as you can afford. This will ensure you have full protection from any expenses that you might need to pay.
Collision and Comprehensive
When your auto insurance policy includes collision and comprehensive insurance, you have what’s known as full coverage. Collision coverage protects you from any accidents you get into with other cars or objects on the road. It also kicks in regardless of fault.
Comprehensive covers any “acts of God” or random events that can damage your car. This could be:
- Natural disasters e.g., hailstorms, hurricanes, tornadoes, flooding, etc.
- Hitting an animal
- Any other damage that’s not from a collision.
Full coverage won’t pay for injuries and property damage you cause in an accident. Liability insurance would take care of those expenses.
Who Needs Them?
States don’t require you to have collision or comprehensive coverage. But if you’re financing or leasing your car, you’ll likely need it. Be sure to check with your lender about what types of insurance they require you to have. Collision and comprehensive coverage will most likely be something that they want you to have.
Even if you don’t need it, having it is still a good idea. Living in a natural-disaster prone area or one that has lots of crime could be a reason to get comprehensive. Also, living somewhere that has a lot of accidents per year means that having collision coverage might be smart.
Though, you might not need either of these if you own an old or beater car. This is because it’s likely not worth it. You might be paying more yearly for the deductibles and premiums than the car is worth.
Personal Injury Protection (PIP)
Personal injury protection is an auto insurance coverage that pays for expenses from injuries you or your car’s passengers sustain in an accident. It doesn’t matter if you’re at fault or not for PIP to cover you. Here are some of the most common types of expenses that PIP covers:
- Medical bills
- Lost wages
- Rehab costs
- Funeral costs
- Loss of services (household chores, landscaping, etc.)
Who Needs It?
Some states require you to have PIP. Make sure to consult your state’s insurance policies or visit our guide on PIP to see the complete list of who requires it. In other states, insurers only have to offer you PIP, but you can decline it. For example, Washington state has providers that offer it. But if you don’t decline it, insurers will automatically add it to your policy.
Uninsured (UM) and Underinsured Motorist (UIM) Coverage
UM/UIM coverage protects you from drivers without insurance or those who don’t have enough. These two will pay for damages or medical bills if you get into an accident with an uninsured or underinsured driver. This type of insurance also works if the accident is a hit-and-run.
Who Needs It?
Several states require UM and UIM. You’ll want to check your state’s insurance requirements to see if you need it. Like PIP, you’ll likely need to reject this coverage in writing if it’s optional in your state.
Medical Payments Coverage (MedPay)
MedPay is another type of insurance that covers your medical costs. It’ll do this whether you’re at fault or not. MedPay takes care of:
- Ambulance and EMT fees.
- Doctor and clinic visits
- X-rays and other tests
- Hospital visits
- Health co-pays and deductibles
- Funeral expenses
Who Needs It?
MedPay is optional in most states. Two states require it:
- New Hampshire – with a minimum limit of $1,000 (if you buy car insurance)
- Maine – with a minimum limit of $2,000
Even though it’s mostly optional, you might still think about getting it. Medical fees can be massively expensive and exceed thousands of dollars. MedPay will make sure that you don’t have to worry about paying out of pocket for these expenses. As for how much to buy, you should consider getting as much as you can afford to fully protect yourself.
This will cover the costs of a rental car if your current vehicle is out of commission due to an accident. It’s helpful to have if you must commute and have no backup options. This type of coverage is optional and will depend on your own needs.
Roadside assistance will help you if you’re stuck on the side of the road. It covers towing expenses if your car can’t drive. This type of insurance is optional and a bonus. You might consider buying this if you drive lots of miles. This is because the wear and tear on your car could give you trouble on the road.
Rideshare coverage is specifically for people that use their car for services like Uber and Lyft. Your regular car insurance won’t cover expenses from an accident if it happens while you’re using it commercially. Rideshare insurance covers this gap while you’re doing business for a company. You should consider this coverage if you drive for a rideshare company just in case an accident occurs.
Gap insurance pays for your loan if you total a car. It’ll cover the difference between your car’s actual cash value and the remaining balance on your loan. You should consider this type of insurance if your car is new or worth a lot of money. Otherwise, you’ll be stuck paying back the loan by yourself.
This is insurance that will protect you if costs from an accident exceed your current limits. Umbrella insurance covers:
- Possible lawsuits
- Property damage
- Personal liability
Think of umbrella insurance as bonus coverage for you. It’s smart to have this because costs can often go way over your limits. This would leave you to pay the rest out of pocket. An umbrella policy helps you avoid that situation.
When You Should Buy More Insurance
Pretty much everyone needs insurance to drive. But some people need to buy more for various reasons. The general idea is that if you can afford it, you should buy as much as you can. Doing so will reduce the likelihood of you having to pay any money out of pocket.
If you own an expensive car or live in a rich area, you should buy more insurance. This is because cars around you will cost more to repair or replace. People in wealthier areas also might be more likely to sue you because they can afford to. More coverage will protect you from this.
It’s also worth noting that costs to repair cars are usually very high and are on the rise. This alone is a good reason to set high limits on your insurance. And that’s not even the biggest financial risk. Medical expenses related to car accidents are notoriously costly. You don’t want your coverage falling short if you cause an accident with severe injuries.
Reducing your exposure to the risk of financial ruin is as easy as raising your limits. But you may need additional coverages that your current insurer doesn’t offer. That’s one reason why it’s a good idea to periodically compare quotes from major insurance companies. This way you can find the coverage and discounts package that gets you the best rate.
Frequently Asked Questions
Q: How high should I set my limits?
A: States have their own requirements, but you should aim to set them as high as you can afford. You never know how much a car accident could cost you. Repair costs and medical expenses can add up fast. Setting your limits high can help keep you from paying any of your own money toward an accident.
Q: Should I have collision and comprehensive if my car isn’t worth much?
A: It depends. Living in a high-risk area for natural disasters or crime might make you more likely to buy either. If you need the car and want to make repairs from an accident or random event, then you might want to buy insurance for extra peace of mind. Repairs to windows and other parts can cost you hundreds or thousands. Having coverage will help you avoid paying a bunch of money at an inopportune time.