If you own a car, you’re going to need to show “financial responsibility,” meaning you can pay if you or someone else driving your car causes an accident.
Every state has some form of financial responsibility law and most drivers satisfy this requirement by buying car insurance. It’s typically the easiest and most affordable way. If you don’t want car insurance, your state might require you to post a bond that can run upwards of $50,000 to show financial responsibility.
Once you’ve ruled out the idea of forking over tens of thousands of dollars to your state, the next logical question is: How much car insurance do I need?
What Types of Car Insurance Do I Need?
At the very least, you must buy your state’s minimum car insurance requirements. But state minimums are woefully inadequate and won’t provide any coverage for your own car’s repair bills. If you want better coverage, you’re going to need to buy more than the minimum requirements.
There are several coverage types to choose from. With a basic knowledge of the main types of car insurance, you can put together a good policy that fits your specific insurance needs.
Liability car insurance pays others for injuries or property damage when you cause a car accident. It also covers your legal defense if you’re sued because of an accident. Here are a few examples of what liability insurance covers:
- You rear end another car at a traffic light and cause damage
- You crash into your neighbor’s fence
- You are at-fault for a car accident and the other driver is injured
Liability car insurance is required in every state except New Hampshire and Virginia (although both states have some liability requirements under certain conditions). You will be required to carry a minimum amount. For example, in California you need to have at least $15,000 for bodily injury to one person, $30,000 for bodily injury to multiple people in a single car accident and $5,000 for property damage (written as 15/30/5).
But here’s the problem: these amounts are insufficient if you cause a serious car accident. If you total someone else’s car, $5,000 of property damage won’t get you very far. And if you’re at-fault for a car accident with multiple injuries, medical expenses can quickly exceed $30,000. You’ll be on the hook for any amount above the coverage limits.
How much liability insurance should I buy? A good rule of thumb is to buy enough liability insurance to cover what you could lose in a lawsuit against you after a car accident. For example, in California, a policy with 250/500/100 would be a much better choice than the state minimum.
For extra liability insurance above your base auto and home insurance policies, look into getting an umbrella insurance policy. For a relatively inexpensive amount you can buy an extra $1 million or more in liability coverage through an umbrella policy.
Uninsured motorist insurance
Uninsured motorist (UM) and underinsured motorist (UIM) insurance pay for your medical bills if someone crashes into you and they do not have liability insurance or not enough. Uninsured motorist coverage is required in some states and optional in others. In states where UM is optional, you can typically reject the coverage in writing.
If UM is available in your state, this is a good coverage to have. UM coverage pays for:
- Medical expenses for you and your passengers
- Lost wages if you cannot work because of injuries suffered in a car accident
- Funeral expenses
- Pain and suffering
- Car damage (depending on your state)
How much uninsured motorist coverage should I buy? You’ll typically need to purchase UM in amounts that match your liability insurance. For example, if you have 250/500/100, you’ll need to buy the same amount of UM coverage.
Collision and comprehensive insurance
If you want coverage for car repair bills, you need collision and comprehensive insurance. Often sold together, they cover a range of problems like car accidents, car theft, vandalism, collisions with animals, falling objects, fires, floods and hail damage. If you have a car loan or lease, your lender or leasing company will most likely require you to carry both of them.
How much collision and comprehensive insurance should I buy? Both coverage types will cover the cost to repair or replace your car if it is damaged by a problem covered by the policy. If you want to cut down on costs, select a higher deductible amount, which is the amount you’ll pay out of pocket if you file an insurance claim. For example, a $1,000 deductible will result in slightly cheaper premiums compared to a $500 deductible.
Personal injury protection
Personal injury protection (PIP) covers medical bills for you and your passengers no matter who caused the car accident. It also pays for other expenses like lost wages, funeral expenses and replacement services you can’t do because of injuries, like cleaning services or child care.
Some states require PIP as part of its “no-fault auto insurance” laws, while in other states you can buy PIP as an optional coverage type.
How much PIP insurance should I buy? PIP rules vary by state where it is offered. For example, for Florida car insurance, PIP options range from basic to extended:
- Basic covers 80% of your medical bills and 60% of lost wages and replacement services
- Extended covers 100% of medical bills and 80% of lost wages and replacement services
If PIP is optional in your state, you can choose to decline it if you have a good health insurance plan. But PIP has some perks your health insurance won’t provide, such as reimbursement for services and lost wages.
Medical payments coverage is often referred to as “MedPay.” It’s similar to PIP in that it pays for medical bills and other expenses for you and your passengers, no matter who caused the car accident. MedPay is required in some states. For example, MedPay is required if you buy car insurance in Pennsylvania, Maine and New Hampshire.
How much MedPay should I buy? In states where MedPay is available, it’s usually sold in small amounts of coverage that often range between $1,000 and $5,000.
Putting It All Together
Optional Car Insurance Coverage Types
Liability insurance, uninsured motorist coverage, medical payments, and collision and comprehensive insurance are a good foundation for a car insurance policy. But you might need a few additional coverage types to fill in some gaps. Here are some to consider.
- Gap insurance. If your car is totaled due to a problem covered by your policy, such as a car accident or fire, gap insurance covers the difference between the actual cash value (ACV) of your car and how much you owe on the loan or leases. For example, if you have $15,000 outstanding on your loan but your car’s value was $13,000, this coverage pays the $2,000 gap.
- Rental reimbursement insurance. If your car is being repaired due to a problem covered by your policy, this coverage pays for a rental car or substitute transportation, such as train and bus fare, during repairs.
- Roadside assistance insurance. If your car breaks down or you run into another problem (like locking your keys in your car), this pays for service like a tow truck, jump-start, fuel delivery or a locksmith.
How to Buy Car Insurance
The national average for car insurance with liability, collision and comprehensive insurance is $1,190, according to the most recent data from the National Association of Insurance Commissioners. But you shouldn’t focus strictly on cost when you’re looking for a car insurance policy.
That’s because auto insurance companies all calculate their rates differently, resulting in a wide range of prices—sometimes by thousands of dollars a year. It’s smart to compare car insurance quotes from multiple companies. You can get free quotes online or by calling an independent agent in your area.
Make sure you ask about car insurance discounts. Insurance companies offer many types of discounts to attract customers—everything from good driver discounts, car safety discounts, multi-policy discounts, and even discounts for paying in full or going paperless.
Finally, consider a company’s customer service. The best car insurance companies pair competitive prices with good customer service. If you get into a car accident, you want to be sure your insurance company will make the insurance claim process go as smoothly as possible.