No one expects a routine stop at the gas station to result in an insurance nightmare. But that’s what happened to Aunindo Dey.
Another driver intended to pull away from the pump but accidentally went in reverse instead. They smashed up the front end of Dey’s six-month old Ford Mustang. Dey did what any driver would do after an accident. He exchanged insurance information with the expectation that he’s covered.
But a few phone calls with the insurance company revealed the worst. The at-fault driver’s insurance expired. Dey’s insurance would not cover any of the damages either. This left him to deal with $4,000 worth of damages out of pocket.
“They said I just have liability insurance, so that doesn’t cover what happened,” he says. “Since she’s not insured, you need to have uninsured motorist coverage, which I wasn’t aware of.”
Dey met Alabama’s minimum coverage requirements for car insurance. He assumed that would protect him in the event of an accident. But, like many drivers, he found the overwhelming amount of insurance terminology and lack of upfront information makes hard to determine if the policy would give him the coverage he needed.
“It’s just not easy for a layman to understand that convoluted language,” Dey says. “There are so many technicalities… and I didn’t learn them until after the accident.”
So, that leads to the million-dollar question: How much car insurance do I need to ensure that I’m protected? There isn’t a universal answer, but let’s break it down so you can find the one that best fits your needs.
Types of car insurance
Before you can determine how much car insurance you need, first take a look at the different types of car insurance to understand what each does for your policy.
If you’re at fault in a car accident, liability coverage covers the cost of damage or injuries you cause to others. So, if you rear end another driver, liability insurance will pay to fix their vehicle. But not yours.
Virtually every state has a minimum liability requirement. It’s broken down into two main types: property damage and bodily injury.
- Property damage liability covers costs to repair or replace any property you damage in an accident, such as the other driver’s car or valuables.
- Bodily injury liability pays for costs such as medical expenses or lost wages others experience due to an accident you cause.
When choosing an insurance policy, you’ll see liability coverage limits shown as three numbers. These represent how much your insurer will pay in an accident you cause.
For example, if you see a liability coverage limit written as 25/50/25, it breaks down like this:
- $25,000 for bodily injuries per person in an accident
- $50,000 total for bodily injuries in an accident
- $25,000 for property damage per accident
Whereas liability insurance covers the damages for someone else’s vehicle, collision insurance will pay to repair or replace your car. It doesn’t matter whether you’re in an accident with someone else or the lone driver involved.
If you add collision coverage to your policy, you’ll typically have a deductible, or the amount you have to pay when making a claim.
Say your collision deductible is $500 and you get in an accident that results in $2,000 worth of damages. You would be responsible for paying $500. And your insurer would foot the rest of the bill, $1,500.
If you don’t have collision coverage and get in an accident that is your fault or the other driver doesn’t have liability insurance, you’ll find yourself in a situation similar to Dey’s, stuck paying that $2,000 bill out-of-pocket.
While collision coverage will protect you if you get in an accident, comprehensive insurance will cover loss or damages for events that don’t happen on the road.
If your vehicle gets damaged due to nature-related events such as hail, floods, fires, earthquakes, a bad storm or even a deer running out in the road, you’ll be covered. Comprehensive insurance will also cover the costs if your car is vandalised or stolen.
Like collision coverage, comprehensive insurance will typically come with a deductible.
If you opt for both collision and comprehensive insurance, it’s called full coverage.
Personal Injury Protection
Personal injury protection, or PIP, will cover any medical expenses or lost wages that you or your passengers experience as a result of a car accident.
Don’t confuse this with bodily injury liability, which covers medical costs for those who have been harmed in an accident you caused. But like liability insurance, personal injury protection is required by law in some states.
PIP is no-fault insurance, which means regardless of who caused an accident, you’ll be covered. It will vary by state, but PIP can also cover other expenses beyond medical costs and lost wages, such as funeral costs, rehabilitation expenses, and costs incurred due to the accident, such as childcare.
Uninsured/Underinsured Motorist Coverage
In a perfect world, every driver would meet the legal requirements for carrying car insurance, but that’s not the case. According to the Insurance Research Council, nearly one in eight drivers are out on the road without insurance.
If you’re unfortunate enough to be involved in an accident with a driver who has no insurance, such as Dey, you could be stuck with two options: Cover your expenses out of pocket or take the other driver to court in hopes of getting compensation.
If you add uninsured motorist coverage to your policy, you would be covered in this scenario.
Similarly, if you get in an accident with a driver who has very little liability insurance, it might not be enough to cover the actual costs of damages. In this case, underinsured motorist coverage would cover the difference.
You can consider other add-on types of insurance, such as rental reimbursement, pay-per-mile coverage, umbrella insurance and roadside assistance. But these are considered premium options and not necessarily required.
Minimum insurance requirements vary by state
When trying to figure out how much car insurance you need, a good place to start is your state’s minimum requirements.
Every state will have different laws regarding what types of car insurance drivers are required to have and the minimum amount they carry.
Liability coverage is the most common type of compulsory insurance. It’s found in every state’s minimum requirements policy. Along with liability insurance, some states require uninsured motorist coverage or personal injury protection.
Is your state’s minimum requirement enough insurance?
It’s easy to assume that once you meet state requirements, you’ve done enough to protect yourself. But those minimum numbers don’t always hold up when you find yourself dealing with real-life damages and a bill waiting to be paid.
For example, Florida only requires drivers to have $10,000 in property damage liability per accident and $10,00 in personal injury protection.
Say you cause a car accident and the other driver racks up $15,000 in medical expenses. With the Florida minimum, you don’t have any bodily injury liability coverage. This means that $15,000 bill is headed straight to your mailbox. Florida also has the highest estimated percentage of uninsured drivers, at 26.7 percent. Without uninsured motorist coverage, you’d be at an even higher risk of getting stuck with expensive bills and no help from your insurance company.
You can see how your state’s minimum might do little to protect you in the event of an accident.
How much car insurance do I need
So, if your state’s minimum isn’t enough insurance, how can you figure out the magic number that will protect you when things go south?
If your coverage is low and you cause a catastrophic accident, your assets could be seized and sold off. You could find yourself being sued as well.
And on the flip side, choosing too much coverage will result in unnecessarily high monthly payments.
Let’s dig into the different types of insurance and their worth.
Put simply, you want enough car insurance to protect you from financial fallout in the event of a car accident, particularly when it comes to liability coverage.
Tina Willis, an Orlando personal injury attorney who regularly deals with lawsuits concerning car insurance, suggests that people purchase an amount of insurance that is roughly proportional to the assets and income they want to protect.
Add up the total value of your vehicle, house, savings, and investments. For ultimate protection, you’d want that number to be equal to or close to your bodily injury liability limit, the middle number you see on your policy liability coverage limit — ex. 25/50/25.
“For example, for middle income individuals, the range amount might roughly be $100,000-300,000, for higher,” says Willis. “For higher income individuals, then the appropriate amount might be more like $300,000 to one million.”
If you have little to no assets, the state minimum might be enough liability insurance. But at the end of the day, it comes down to how much you’re willing to risk and how much insurance you can practically afford.
Collision and Comprehensive
Other insurance options won’t fix your car if you’re at fault or a freak accident happens.
Approximately 78 percent of drivers have comprehensive insurance. And 73 percent of drivers have collision insurance. Whether or not you opt for collision, comprehensive or both will typically depend on the value of your car. The higher value the car, the more you should consider adding these to your insurance policy.
Generally, if you drive an older car (10+ years) you wouldn’t need full coverage. It wouldn’t make sense financially. The payment you’d get from your insurer isn’t worth the extra payments for full coverage.
Other factors to consider:
- If your vehicle is damaged or out of commission, do you have the out-of-pocket money to cover expenses?
- Do you live in an area prone to natural disasters, such as fires or flooding?
- If you’re still making payments on the car, does your lender require this coverage?
The rates you pay for collision and comprehensive will depend on the deductible you choose. The higher the deductible, the less you pay each month.
Personal Injury Protection
Personal injury protection is mandatory in 16 states, with varying minimum requirements. If you live in one of these states and have health insurance and disability coverage, the state minimum for PIP is probably enough.
If you need to make a medical expenses claim due to an accident, you’ll have to go through your PIP first, then health insurance. The minimum PIP coverage might not cover all of your costs. But it at least keeps you from relying 100 percent on your health insurance.
If your state doesn’t require PIP and you have adequate health and disability insurance, you could skip this coverage. This will lower your monthly insurance costs.
If you don’t have health insurance, then adding PIP will help you after an accident.
Uninsured/Underinsured Motorist Coverage
There are currently 20 states that require uninsured motorist coverage for bodily injuries. The minimum amount is usually equal to the state’s minimum liability coverage.
And according to Willis, in some states you actually can’t buy more uninsured motorist coverage than bodily injury liability. This can change how much you purchase of each.
Uninsured motorist coverage is relatively inexpensive to add to your policy. Even if you live in a state that doesn’t require it, it’s good coverage to consider. Especially when you think about the number of drivers out and about with little to no insurance.
Willis suggests thinking about the amount you need like this: How much coverage would make you feel financially safe in the event of a catastrophic accident.
How to save on car insurance
With so many different types of car insurance, you don’t need us to tell you that coverage isn’t cheap.
Data from the National Association of Insurance Commissioners shows that the average spent on yearly car insurance in 2016 was $935.80. This was 5.3 percent more than the year before. Three states — New Jersey, Louisiana, and New York — had averages equalling more than $1,300.
But keep in mind that the rate you end up paying is influenced by many factors. This includes the car you drive and how often, your age, your gender, marital status, and previous insurance claims.
Here a few tips for getting the coverage you need and saving some money:
Your insurance rates can vary by hundreds of dollars from one major insurer to another. Don’t jump on the first you find.
And if your situation changes, such as a new car or moving to a new state, double check to ensure you’re still getting the best rate. Cover can do this for you.
We work with over 30 insurance partners to find you the best rate for the coverages you want.
Ask about discounts
When it comes to saving money, it never hurts to ask. Insurers will provide discounts for a variety of things. This includes a spotless driving record, bundling your insurance, driving your car less, having anti-lock brakes, and opting for paperless billing.
Raise your deductibles
If you can afford a higher deductible for collision or comprehensive coverage, your monthly rate will drop. Think of it as coverage for major damage as opposed to every little ding or scratch.