No one expects a stop at the gas station to end in an insurance nightmare. But that’s what happened to Aunindo Dey.
A driver wanted to pull away from the pump but accidentally went in reverse instead. They smashed up the front of Dey’s six-month old Ford Mustang. Dey exchanged insurance info with the expectation that he’s covered.
But phone calls with the insurer revealed the worst. The at-fault driver’s insurance expired. Dey’s insurance wouldn’t cover 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 thought that would protect him in an accident. But, like many drivers, he found insurance confusing. The amount of insurance terminology is overwhelming. And the lack of upfront information makes it hard to determine if the policy gives 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.”
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 figure out how much car insurance you need, take a look at the different types of car insurance to understand what each does.
If you’re at fault in a car accident, liability coverage covers the cost of damage or injuries you cause to others. If you rear end a driver, liability insurance will pay to fix their car. But not yours.
Almost 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.
You’ll see liability coverage limits shown as three numbers. These stand for how much your insurer pays 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
Liability insurance covers the damages for someone else’s car. But collision insurance pays to repair or replace your car. It doesn’t matter if you’re in an accident with someone else or the lone driver involved.
If you add collision coverage, you’ll have a deductible. That’s 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 have to pay $500. And your insurer would pay $1,500.
If you don’t have collision coverage and get in an accident that’s your fault or the other driver doesn’t have liability insurance, you’ll find yourself in a situation similar to Dey’s. You’re stuck paying $2,000 out-of-pocket.
While collision coverage will protect you if you get in an accident, comprehensive insurance covers loss or damages for events that don’t happen on the road.
If your car 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’re covered. Comprehensive coverage will also cover the costs if your car is vandalised or stolen.
Like collision coverage, comprehensive insurance will come with a deductible.
If you opt for both, it’s called full coverage.
Personal Injury Protection (PIP)
Personal injury protection will cover medical expenses or lost wages that you or your passengers get as a result of an accident.
Don’t confuse this with bodily injury liability. This covers medical costs for those who’ve been harmed in an accident you caused. But like liability insurance, PIP is required in some states.
PIP is no-fault insurance. This means you’re covered regardless of who caused the accident. It will vary by state, but PIP can also cover other expenses, 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 don’t have insurance.
If you get 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, 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 all the damage. 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 premium options and aren’t 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 an 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 you have to pay the $15,000 bill.
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 insurer.
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?
If your state’s minimum isn’t enough, 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 major 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 means you’d have unnecessarily high monthly payments.
Let’s dig into the different types of insurance and their worth.
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, suggests that people buy an amount of insurance that’s roughly proportional to the assets and income they want to protect.
Add up the value of your car, house, savings, and investments. For ultimate protection, you want that number to be equal to or close to your bodily injury liability limit. That’s 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 it comes down to how much you’re willing to risk and how much you can afford.
Collision and comprehensive
Other insurance options won’t fix your car if you’re at fault or a freak accident happens.
Around 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 depends on the value of your car. The higher value the car, the more you should add these to your policy.
Generally, if you drive an older car (10+ years) you don’t need full coverage. It wouldn’t make sense financially. The money you’d get from your insurer isn’t worth paying for full coverage.
Other things to think about:
- If your car is damaged or out of commission, do you have out-of-pocket funds to cover expenses?
- Do you live in an area prone to natural disasters, such as fires or flooding?
- If you’re making payments on the car, does your lender require this coverage?
The rates you pay for collision and comprehensive depend on the deductible you choose. The higher the deductible, the less you pay each month.
Personal injury protection
PIP is mandatory in 16 states. 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 make a medical 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 your costs. But it keeps you from relying only 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, add PIP. It’ll help you after an accident.
Uninsured and underinsured motorist coverage
There are 20 states that require uninsured motorist coverage for bodily injuries. The minimum amount is usually the same as the state’s minimum liability coverage.
And according to Willis, in some states you can’t buy more uninsured motorist coverage than bodily injury liability. This can change how much you buy of each.
Uninsured motorist coverage is pretty cheap to add to your policy. Even if you live in a state that doesn’t require it, it’s good coverage to have. Especially when you think about how many drivers there are with little to no insurance.
Willis says to think about it like this: How much coverage would make you feel financially safe in the event of an accident.
What about insurance for rental cars?
If you’ve rented a car you know the rental company will offer you their insurance as part of the package. But do you need it?
The first thing to do is check whether your car insurance covers rental cars.
Generally the liability portion of your personal policy should mean you don’t need liability coverage from the rental company (although this depends on what your coverage limits are).
If you have collision and comprehensive coverage this also could extend to when you drive a rental car, but be sure to check the specifics of your policy.
How to save on car insurance
With so many types of car insurance, you don’t need us to tell you that it 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 2015. Three states — New Jersey, Louisiana, and New York — had averages equalling more than $1,300.
But the rate you pay is affected by many things. This includes the car you drive and how often, your age, your gender, marital status, and past insurance claims.
Here a few tips for saving some money:
Your rates can vary by hundreds of dollars from one insurer to another. Don’t jump on the first quote you find.
And if your situation changes, such as buying a new car or moving to a new state, check to see you’re still getting the best rate. Cover can do this for you.
We work with over 30 insurers to find you the best rate for the coverage you want.
Ask about discounts
When it comes to saving money, it never hurts to ask. Insurers give discounts for many things. This includes a clean 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 it, choose a higher deductible for collision or comprehensive. Your monthly rate will drop. Think of it as coverage for major damage as opposed to every little ding or scratch.