How Much Car Insurance Do You Need?

How much car insurance do you need? The simple answer: as much as you can afford.

Everyone's needs are different, but that doesn't mean that you can't protect yourself from unforeseen financial trouble resulting from car accidents. How much coverage do you need? Just like most everything else concerning car insurance, it varies. But we are here to guide you in the right direction. Below you'll find a breakdown of the different types of coverage and our suggestions for the amounts you should carry.

How much liability insurance do I need?

Probably more than you think. Generally, we recommend $50,000/$100,000/$50,000 and for people who own a home the recommended amount is $100,000/$300,000/$100,000. Below are some rates for an insurance policy with liability limits set at 100/300/100.

It's important to understand what liability coverage does for you in the event of an accident. Liability is third-party coverage and pays for injuries to another driver or their passengers as well as damage to the vehicle they are driving. Liability insurance is broken down into two sections: bodily injury liability and property damage liability. Bodily injury liability covers any physical harm that you may cause to another driver, up to your coverage limits. Property damage liability covers damage you cause to another person's car or other personal belongings.

The reason liability coverage is so important is because it protects you from financial burden if you are at fault in an auto accident. Even a very minor accident can result in thousands of dollars worth of damage. What liability does NOT do is provide an unlimited amount of coverage.

When purchasing an auto policy you are agreeing to the terms of coverage you select and you can choose varying amounts of insurance depending on your financial exposure. If you are someone who has a large asset such as a house, then your exposure to financial risk is much greater than someone who rents their current residence. The point of auto insurance is to protect yourself from a catastrophic financial burden, but if you don't purchase enough coverage then you could be leaving yourself open to civil litigation and potentially lose your home or other assets to pay what you owe.

How much medical payments coverage do I need?

Many consumers don't understand the difference between uninsured motorist coverage and medical coverage on their auto policies, but the main differentiating factor is fault in an accident. Uninsured motorist coverage pays for you and your passengers' injuries if you are hit by someone else who is at fault and doesn't have liability. Medical payments coverage is for you and your passengers' injuries when you are the at-fault driver in an accident. 

The other difference between these two sets of coverage is the way they are displayed on your policy. Uninsured motorist will be listed as a split limit just like liability. An example of this would be $25,000/$50,000 meaning a per person injury limit for the first number and a per accident amount of injury coverage for the second number. Medical payments coverage amounts will be listed as a single, per person limit without a per accident limit so it can cover all the people in your vehicle up to that amount individually. The most common options are $500, $1,000, $2,000, $5,000, and $10,000.  

As with liability and uninsured motorist you should carry as much medical payments coverage as you can afford to protect yourself from unforeseen injuries resulting from auto accidents. If you ever need it, the value of the coverage will significantly outweigh the cost on your policy.  

Do I need full coverage?

If you're leasing, financing, or have a valuable vehicle - yes. On average, you should expect "full" coverage to cost $720 for a standard 6-month policy for $1,440 annually.  

Let's start with the simple fact that there is no such thing as full coverage. Comprehensive and collision is coverage that is specific to repairing the damage that was caused to your vehicle. If you are financing a vehicle (read: making payments) then you more than likely will be required to carry comprehensive and collision coverage in addition to the minimum coverage required by your state (see our guide to full coverage insurance). Since comprehensive and collision is described as a deductible and not a specific dollar amount of coverage on your policy, choosing this coverage is a bit different. 

Most insurance companies will offer deductible options of $100, $250, $500, and $1,000 for physical damage coverage (comp and collision). The deductible amount and cost of the coverage are inverse meaning that the higher your deductible the lower your rate and vice versa. Cost should not be the only factor in determining your deductible since the one you choose is what you have to pay if you ever file a claim. If it's relatively easy for you to come up with $1,000, then financially it makes the most sense to select a high deductible because that will be the lowest rate. If it would be extremely taxing or impossible to pay for a large deductible, then you should opt for a lower deductible like $250. The cost of your policy will be higher, but if you select a deductible that you knowingly wouldn't be able to pay in the event of a claim, your vehicle repair will not begin until you can afford it.

Additional coverage

Do I need rental reimbursement coverage?

The majority of car owners use their vehicles to commute to work so suddenly being without a means of transportation can be devastating to your income. In the event that your vehicle is hit by another driver and they are deemed to be at fault, a rental car is normally covered by the at-fault driver's insurance while your vehicle is being repaired. If you were to be at fault in an accident or had damage caused to your vehicle by a weather event then you would be responsible for your own temporary transportation while your vehicle is being repaired. This is where rental car reimbursement can be extremely valuable since, much like roadside assistance, it can provide a great deal of value for a fairly low cost. Coverage is normally offered in daily limits over a 30 day period ($30/day with a max of $900) or one full month ($900 over 30 days). The important thing to consider with this type of coverage is that it's REIMBURSEMENT meaning that you will have to pay for the rental upfront and submit your receipt to your insurance company to be paid back for your expenses. 

Car insurance considerations

While the level of car insurance coverage that you choose will ultimately depend on your specific needs, having more than you think you might actually need is probably a good idea. If you are worried about the cost of adding to your auto insurance coverage, know that it doesn't have to be outrageous. Shopping around for a new car insurance policy can be a great way to find better coverage at a lower rate. Car insurance quotes are free and easy to find.