Figuring out car insurance is a necessity of adulting. Unfortunately, those strings of numbers — 50/100/50, 100/300/100, 250/500/100, and so on — can seem nebulous and confusing. What will they mean if you get in an accident? How much is enough?
Since those lower numbers come alongside lower premiums, they can be hard to resist. But we’re here to tell you: It’s crucially important to make sure you have enough car insurance. Because you are responsible for paying for any damages resulting from any accident for which you’re at fault. If the damage exceeds your insurance coverage, you’re still on the hook to pay for it. You could lose or be unable to repair your car. You could end up unable to afford your medical bills or lost wages, or the medical bills, lost wages, and other damages incurred by the person you hit. You could even be headed toward financial ruin, losing your home, savings, and other assets.
Yes, car insurance really is that important. It’s far more than that tiny piece of paper in your wallet or glove compartment. It’s necessary insulation against a world in which we simply can’t control whether we’ll ever be in a car accident.
So how much car insurance do you need? What will protect you from the majority of situations? Everyone’s situation is different. But minimum car insurance is rarely the right answer. By answering these eight questions, you’ll be well on your way to figuring out how much car insurance you really need.
#1 What’s Mandated Where You Live?
The easiest way to begin? Find out the minimum car insurance required by your state.
But let’s be clear: These limits are simply your starting point. In most states, you should have more than the minimum. Again, minimum coverage levels are often insufficient to cover the damages of an accident. Having too little auto insurance coverage really is an open invitation for financial ruin. Remember, you’re too smart to sign up for financial ruin!
Understanding the Basics
- State-by-state rules: In the United States, each state establishes its own requirements for minimum auto insurance coverage. Find your state’s requirements.
- Liability coverage: Most states require you to carry both bodily injury and property damage liability coverage. This insurance covers the driver, passengers, and car you’re in an accident with — NOT you, your passengers, or your car.
- Uninsured/underinsured motorists and medical payments coverage: About half the states also require certain minimum coverages for uninsured and underinsured motorists. This covers costs resulting from hit and runs, or from situations in which an uninsured or underinsured motorist is at fault. Only two states (Wisconsin and Maine) presently mandate coverage for medical payments, which can be used for medical costs no matter who’s at fault.
- No-fault states and personal injury protection coverage: Several states have elected to be “no-fault” states. If you’re involved in a collision in any of these states, insurance companies don’t recognize any driver as “at fault.” Motorists in no-fault states are required to purchase personal injury protection (PIP) insurance, which pays out for medical expenses and other costs (e.g., lost wages, rehab, funeral costs) no matter who’s at fault. At the time of publication, no-fault states mandating PIP include Arkansas, Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania, and Utah. Puerto Rico is a no-fault US territory.
- Potential consequences for failing to meet minimum requirements: Failure to meet minimum auto insurance requirements gives states the right to impound your vehicle. You could also be ticketed, taken to court, or have your driver’s license suspended. In some states, you’re ineligible to receive financial compensation in an accident if you’re caught driving without insurance.
Example State-specific Requirements
Minimum car insurance requirements vary widely from state to state. For example:
- Covered’s home state of Colorado has fairly average requirements. Only bodily injury and property damage liability are required. Minimum limits are 25/50/15 — and here’s how you read that funny little number string:
- The first number applies to bodily injury coverage required for one person injured in an accident, $25,000.
- The second number refers to bodily injury coverage for all persons injured in an accident, $50,000.
- The last number is property damage coverage, $15,000.
- These numbers represent the limits of your coverage. Again, you’re responsible for paying for any damages that exceed these numbers.
- Up in Maine, requirements are more substantial. Minimum limits for bodily injury and property damage liability are 50/100/25. They also require $50,000 per person and $100,000 per accident for uninsured motorists, and $2,000 in medical payments coverage.
- Just next door to Maine, New Hampshire — yes, the “Live Free or Die” state — doesn’t require auto insurance. Instead, they have what’s called a “Motor Vehicle Financial Responsibility Law,” which means at-fault drivers are financially responsible for all losses resulting from an accident. Because those costs can add up quickly, most residents do carry insurance policies. (Live free, sure — but make sure you can cover the potential costs of living so freely.)
#2 Who’s Driving Your Car?
The next question to consider: Who’s driving? The ages, experience levels, and driving records of your car’s drivers should absolutely inform your coverage choices. The greater the risk profile, the more coverage you should have. For example:
- Let’s say you alone drive your car, and you’ve got more than 10 years of driving experience under your belt. Any accidents have been minor or not your fault. This puts you at an average risk level.
- Maybe your significant other sometimes drives your car, too. Despite being an experienced driver, they’ve had more fender benders than you have — and maybe one or more of those accidents were their fault. That risk level ticks upward.
- Your teenager recently began driving. Though there’ve been no accidents yet, they lack driving experience. You also worry that they haven’t fully listened to all your lectures about not texting while driving. This puts your risk level well above average.
- Finally, maybe your aging parent sometimes insists on borrowing your car. Their eyesight and reaction times aren’t what they used to be. This, too, may put your risk level well above average.
#3 How Many Miles Do You Put on the Car?
It’s worth considering how often and how far you drive your car. The more miles you put on the car, the longer you’re out on the road and the greater the likelihood you could be involved in an accident. As that likelihood increases, so should your coverages.
For example, if you don’t use your car for your work commute (e.g., you bike to work or work from home), using it mostly for errands and the occasional road trip, your risk is likely to be lower. If you’ve got a long daily freeway commute or a job that requires frequent driving, that skews your risk level upward.
Some auto insurance providers offer discounts for lower annual mileage. Ask your insurance agent or advisor for details.
#4 What’s the Weather Like?
Think about where you drive. What’s the weather like? Rain, snow, sleet, ice, fog — all of these weather conditions make it hard to navigate the road safely. Dust storms, too, can wreak havoc on visibility. Tornadoes, hurricanes, or other wind storms can throw all sorts of obstacles in your way, or even ON your car.
The best drivers in the world can be helpless in the face of black ice, dense fog, or sudden hydroplaning. So if you live in an area where severe, volatile, or low-visibility weather patterns are common, you should consider buying more insurance.
#5 What Are Your Assets Worth?
When you add up the value of your house, car(s), savings, and other assets, how much is it all worth? The more you have, the more you have to lose.
After insurance limits are exceeded, courts will go after the at-fault party’s assets. A person who rents an apartment, doesn’t own many luxury items, and has very little savings simply has less to lose. A person who owns their home, multiple vehicles, and a bunch of high-end electronics, and who has several retirement savings accounts — that person has much more to lose. And that person should absolutely buy more insurance.
#6 Do You Have Health Insurance?
Remember that PIP insurance we talked about? If you don’t live in a no-fault state where it’s required AND you have health insurance, you probably don’t need PIP. Your health insurance is likely sufficient to cover any medical or disability costs.
That said, even if your state doesn’t require uninsured or underinsured motorist coverage, you should still purchase it. Uninsured and underinsured motorist coverage applies to more than just medical bills and lost wages — it can also cover damage to your vehicle. On top of that, relatively speaking, it’s an inexpensive addition to your auto insurance policy. And there are a LOT of uninsured motorists out there: about one in eight, according to the latest information from the Insurance Information Institute.
#7 How Much Is Your Car Worth?
Before we explain this one, let’s make sure you’re clear on the difference between “collision” and “comprehensive” coverage:
- Collision coverage pays for damages to your car when you’re at fault for a collision. Think of your vehicle striking another vehicle, running into a tree, or rolling. Essentially, this covers collision-related property damage that isn’t covered by liability.
- Comprehensive coverage pays for any damage to your car that isn’t the result of a collision. Think damage from fire, hail, theft, vandalism (e.g., slashed tires or smashed windows), or hitting an animal running across the road.
If you’ve financed your car, you’re likely required to carry both collision and comprehensive coverage. Otherwise, it’s not required. But it’s still a good idea, especially if you have a newer or higher-value car. Do you want to be out of luck in the situations described above? To watch that nice new Prius you bought go straight to the salvage yard, with no compensation for you?
Some car owners choose to drop one or both of these coverages to save money on auto insurance premiums. If you have an older car or a car that isn’t in the greatest shape, it may make sense. But there are situations in which it may be too much of a gamble, even if your car isn’t worth much. For example:
- You’re somewhere hazards are common. If you live, work, or play in an area where deer are semi-constantly leaping over roads, car break-ins are common, or hail is frequent, you’ll want comprehensive.
- You don’t have a ton of savings. Most of us need our cars to get through daily life. Can you afford to go without if you’re at fault for an accident? Collision is a must if you can’t afford a new car.
- You’re regularly at risk while driving. Again, if you drive a lot or in hazardous conditions, your risk of getting in an accident is simply higher. At minimum, get collision.
#8 Do You Rent Cars?
All rental car agencies require you to have insurance in order to rent a car. To be fully covered in all situations, you’re likely to need both collision and comprehensive coverage. If you rent cars frequently, check out this Insurance Information Institute guide to the ins and outs of rental car insurance.
Our Baseline Auto Insurance Recommendation…
For most people, Covered’s auto insurance experts recommend 100/300/100 coverage, which translates to:
- Bodily injury liability coverage of $100,000 for one person and $300,000 for all persons injured in an accident
- Property damage liability coverage of $100,000 for an accident
We know it sounds like a lot. We promise: It’s not a lot. It is ENOUGH, at least for the majority of drivers. Going with 100/300/100 means you’ll be much more likely to have adequate coverage for most situations. (That said, if adding up your assets brings you well past these numbers, consider adding more coverage.)
While your annual auto insurance premiums will obviously be higher than for minimum coverages, the increase probably isn’t as much as you think. Why not compare for yourself? Ask your independent Covered advisor for auto insurance quotes at several levels, including 100/300/100 coverage.
Oh, and one more thing: Don’t buy roadside assistance coverage from your auto insurance provider. It could increase your premium or mark you as a higher-risk driver.
It’s time to get smart about car insurance coverage. Further down that hazard-strewn road, you’ll thank yourself. (No need to thank us. Just fulfilling our self-assigned mission of making insurance easy to understand and painless to purchase!) (But you’re welcome.)
Still have questions about how much car insurance coverage is enough for your needs? Let Covered help!