How Much Car Insurance Do I Need?

No matter what car or driving record you have, you need car insurance.

PolicyPals team

Published November 6, 2020.

Auto insurance protects you and your assets in the event of a car-related accident. No matter what car you are driving, or how good your driving record is, you need car insurance. 

Nobody wants to overpay for car insurance, but there is something worse than overpaying. Being underinsured means that you have don’t have enough car insurance. Being uninsured means you have no coverage at all. Both are less than ideal. Of course, not everybody needs the same amount, and there is no one-size-fits-all package. So, how do you know how much car insurance you truly need?

Car insurance is broken down into different categories of protection: liability, physical damage, personal injury protection, emergency road service, underinsured motorist, and car rental expenses.

Key Takeaways

Liability Coverage Amount

The first coverage on your policy, liability, protects you and your assets if a car accident is your fault. That could be hitting someone with your car and causing bodily injuries, damaging their vehicles, or getting involved in a lawsuit.

Auto liability coverage is mandatory in nearly every state. This include Bodily Injury Liability —  to cover the costs associated with injuries and death caused to the other person in the accident, and Property Damage Liability — to cover the damages caused to the other person’s vehicle or property.

When that happens, liability covers you up to the stated coverage amount. You can find this on your policy, generally displayed in amounts like 25/50/10, meaning $25,000 per person, up to $50,000 per accident, and $10,000 for property damage.

Most states have minimum requirements, like 25/50/10. Ideally this would cover all your financial assets, but usually is not enough. In a lawsuit, you could lose everything you have worked so hard if you didn’t have enough liability coverage.

A great place to start with liability needs is the value of your home, bank accounts, and car. For example, if your house is worth $100,000, your car is worth $10,000, and you have $5,000 in savings, you will need at a minimum $115,000 of liability per person. Your limits should probably look more like 150/300/100, a whole lot more than the minimum requirement!

Personal injury, unlike liability, protects you and your passengers if you’re hurt in an accident, regardless of fault.

Physical Damage Coverage Amount

When someone says they need “full coverage,” they mean physical damage coverage, meaning both comprehensive and collision.

Collision covers your car if it gets damaged in a crash with another vehicle or object.

Comprehensive is sometimes called “other than collision” coverage: it covers car damage not involving a crash: vandalism, animals, hail, and glass breakage.

Both cover your car’s monetary value. The number you see on your policy is how much you will pay in the case of a car insurance claim: it is called car insurance deductible, on average $500 per claim. If you have a loan, or can’t pay out of pocket to replace your car, physical damage coverage is necessary. For example, with an average deductible and a totaled $15,000-car, you would receive $14,500 to replace your vehicle.

In addition, if your car was in the shop getting a repair done in regard to a claim and you had car rental expenses, you would be reimbursed for the time you needed a rental car. Emergency road service also gets you out of a tight spot if you need towing or a changed tire.

Search for Discounts

Did you know that you can receive car insurance discounts for several factors?

Examples include being a student, having a clean driving record, and having other types of insurance policies. You can comparison shop various car insurance companies and choose one who is looking after your best interests, actively listens to your needs, and takes the time to put together the best budget for your goals.

Buying car insurance doesn’t have to confusing. With the right knowledge and agent, you can understand how to make the right decisions to protect yourself and your family.