How Much Car Insurance Do I Need?


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Each state sets its own auto insurance requirements. To drive legally you will need to purchase at least the minimum coverage limits, but if you don’t know them up front, you might be wondering “how much auto insurance do I need?” “

In this article, we’ll look at how to find the right amount of coverage and go over the factors that affect the price of an auto insurance policy. A shortcut to cheap auto insurance is to get quotes from several insurance providers. You can use the tool below to start getting free quotes from the best insurers in your area.

In this article:

  • What type of auto insurance do i need?

  • Required coverage status

  • How much auto insurance do I need to finance?

  • Types of optional insurance

  • Frequently Asked Questions

  • Our methodology

What type of auto insurance do i need?

Evaluating the amount of auto insurance you need breaks down into two factors: where you live and what car you drive. Where you live will determine the minimum state-required insurance you must purchase to keep your car in compliance with road regulations. Most often this includes a certain amount of liability insurance. On top of that, the value of the car you drive and whether you own it dictates the types of optional insurance you can purchase.

If you’re shopping around for insurance, you’ve probably seen the term “full coverage” mentioned a few times. Although there is no universal definition, it is usually a policy that combines automobile liability insurance, collision insurance and comprehensive insurance.

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

  • Liability insurance: Covers bodily injury and material damage to others following an accident for which you are responsible
  • Collision insurance: Covers damage to your own vehicle after an accident, no matter who is at fault
  • Back to back insurance: Covers repairs if your own vehicle is stolen or damaged in an incident that is not a collision with another car, such as a natural disaster or collision with an animal

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

If a car is damaged and declared a total loss, depending on the loss, the comprehensive or collision insurance will reimburse the policyholder up to the actual cash value of the vehicle, less an agreed deductible. If the car is funded, this payment will go to the lien holder.

Required coverage status

As mentioned, a liability insurance policy is required in one form or another by almost all states. Liability coverage ensures that if you cause an accident, other parties’ medical bills and repair bills will be taken care of. It does not cover damage to your own car or your injuries as a result of an accident for which you are responsible.

Liability coverage is broken down into two parts:

  • Liability for bodily injury: Covers medical expenses and lost wages for people other than the driver at fault
  • Civil liability for property damage: Reimburses to another party the damage caused to his vehicle or to his property when the insured is responsible 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 digits. For example, California requires minimum coverage limits of 15/30/5. This means that drivers must purchase at least $ 15,000 in personal injury liability coverage per person, $ 30,000 in personal injury liability coverage per accident and $ 5,000 in property damage per accident.

The risk of buying the minimum amount of auto insurance is that a driver may not be fully covered after a car accident. If a California driver with minimum coverage causes $ 35,000 in property damage, they would not have enough liability insurance to cover the costs. The remaining $ 30,000 should come out of their pocket, and if they were unable to pay, they could be sued.

As a general precaution, insurance experts recommend choosing the highest liability limit you can afford. This helps protect your wallet and protect you from lawsuits in the event of a responsible accident.

The average price for 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 determine the price of an insurance policy.

Other coverage required

States may also require additional coverage in addition to liability coverage for personal injury and property damage. Here are other common types of insurance that you may need to purchase depending on where you live:

  • Uninsured motorist / underinsured motorist coverage (UM / UIM): Uninsured motorist coverage kicks in 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 damage to the car.
  • Medical payments (MedPay): MedPay covers the medical bills of the policyholder and other passengers, regardless of the fault.
  • Injury Protection (PIP): Similar to MedPay, PIP insurance pays medical bills. It also covers lost wages, funeral costs and childcare costs in certain situations.

Each of these covers is required in some states, but can be purchased as an option elsewhere.

How much auto insurance do I need to finance?

Buying an auto insurance policy on a financed vehicle can mean taking out more than just liability coverage. As mentioned, lenders generally require car owners to purchase collision and comprehensive coverage, as 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 request higher coverage limits. This usually means a higher insurance premium for the car owner.

Gap insurance

In addition to full and collision coverage, a lien holder may request that a driver also purchase gap insurance. “Gap” means guaranteed asset protection and coverage assists the policyholder when a financed car is totaled.

After a total loss accident, if your insurer pays the actual value of your car and they don’t cover the amount you still owe on the vehicle, gap insurance pays the difference. For example, if you owe $ 15,000 and your insurer assesses your vehicle at $ 10,000 after a total loss accident, the variance insurance will pay the balance of $ 5,000.

Types of optional insurance

Apart from liability insurance and comprehensive coverage, there are a number of supplemental policies that insurers offer to give drivers greater peace of mind on the road. These include:

  • Road assistance: Covers breakdowns, lockout services and towing needs
  • Rent reimbursement: Covers car or taxi rental 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 considered a total loss
  • Umbrella insurance: Additional insurance beyond normal policy limits that can be used to cover personal injury, property damage and other liability claims

Not all insurers offer these options, so be sure to inquire about the coverage you want when getting a quote or contact an insurer for information.

Frequently Asked Questions

What is recommended for auto insurance coverage?

In order to drive legally, you will need to purchase the minimum liability insurance required in your state. Additional coverage will depend on vehicle ownership or financing, the value of the car, your income level, and your personal coverage preferences.

What insurance do i need for a financed car?

Lenders generally require a car owner to take out liability and full coverage when financing a car in order to financially protect it from damage. The lender can also apply for gap insurance to ensure that 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, that would mean that the driver has bodily injury coverage of $ 100,000 per person, $ 300,000 of personal injury coverage per accident and $ 50,000 of property damage coverage per accident. These are the maximum amounts your insurer will pay after an accident you cause.


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