HOW MUCH AUTO INSURANCE DO I NEED?

3 September 5 MINS READ
Blog Feature Image

There are many types of insurance you may need to protect yourself financially, but how much car insurance is recommended?

When you buy car insurance, you’re purchasing a combination of coverages that make up your policy. That's why it's helpful to know how much car insurance you need. Your state may require a certain amount of coverage, but it's not always enough. Too little car insurance and you’re financially vulnerable. Too much, and you’ll overpay.

So how much is enough? Well, the answer depends on several factors, including where you live, how much your car is worth, and what other assets you need to protect. In this article, we'll tell you what you need to know.

So, buckle up and let’s get rolling.

HOW MUCH AUTO INSURANCE DO YOU REALLY NEED?

When deciding which types of auto insurance and how much car insurance coverage you need, you’ll need to consider your state’s minimum requirements. Though state requirements are often much lower than the amount necessary to protect you financially in the event of an accident. You'll also need to consider how much you can afford to pay for insurance and your personal risk tolerance.

At the very least, you need minimum coverage. Because without it, you could end up spending a few months in jail. In general, we recommend you take out optional coverage including comprehensive and collision for extra financial protection.

On second thought, let's break it down to the different types of coverages. An auto insurance policy is actually a package of several different types of insurance. Let's take the common ones one after the other.

1. Liability Coverage

This is the main component of auto insurance. It doesn’t pay you if you cause a crash. Instead, it pays for injuries, deaths, and property damage you cause, up to your policy’s limits.

There are two types;

• Bodily Injury Liability

This is the part of a car insurance policy that will pay for injuries you or family members who are listed on your policy cause to someone else in an auto accident.

Each state has its minimum liability requirements, but it’s a good decision for you to have at least $100,000 per person and $300,000 per accident in bodily injury liability coverage.

On an auto insurance policy, your liability coverage is typically expressed as a series of three numbers, such as 25/50/20, which denotes $25,000 of bodily injury liability for one person, $50,000 bodily injury liability for all people in an accident, and $25,000 of property damage liability. So yeah, the third number refers to property damage liability, which we'll take next.

Oh, hold on. Quick one. Your state's minimum requirements might not be enough, however, especially if you are involved in a serious accident. You'll need to consider your assets and whether they'd be adequately protected in the event of a lawsuit.  You might want to buy more coverage in this case. We'll recommend that you purchase 100/300 limits of bodily injury liability (meaning $100,000 for one person in an accident and $300,000 for all people injured in one accident). But if your personal assets don't amount to much, there's little for another driver to get if he were to sue you. So no worries, the minimum requirements are just fine in this case.

• Property Damage Liability

Property damage liability covers the cost when you or members of your family damage another person's car or other property in an accident.

Just like bodily injury liability, virtually every state requires you to have some amount of property damage coverage. Like we said earlier, it is represented on your policy as the third number in that sequence, so a 25/50/20 policy would provide $20,000 in coverage. Each state has its own minimum liability requirements, but you may want to have a minimum of $100,000 in property damage liability coverage.

2. Personal Injury Protection (PIP)

This covers the cost of injuries to the driver and any passengers in your car. In some cases, it will also cover any lost wages resulting from injuries sustained in an accident.

So how much do you need? First, this type of coverage is mandatory in some states while it's optional in other states. In New York, for example, drivers must carry at least  $50,000. Generally, this coverage is mandatory in states with no-fault insurance laws.

If you have good health insurance, the minimum coverage is just fine. If not, purchase more.

3. Collision and Comprehensive Coverage

Collision coverage will pay to repair or replace your car if you're involved in an accident with another car or hit some other object.

Comprehensive coverage takes care of your car in the case of theft, fire, falling objects, explosions, or other unexpected problems.

Comprehensive and collision coverages aren’t requirements by law, but that doesn’t mean you don’t need them. If you have a loan on your vehicle, your lender may require comprehensive and collision coverage on your policy. They are also essential if you own an expensive car. If you don't,  you might want to consider doing without this coverage, especially if the sum of your premium and your deductible are close to or exceed the value of your vehicle.

If you do buy collision and comprehensive coverage, pay attention to the deductible. Collision and comprehensive deductibles tend to range from $250 to $1,000. So, choose an amount you could afford to pay in a jam.

4. Uninsured/Underinsured Motorist Coverage

This covers you and family members if you're injured or your car is damaged by an uninsured, underinsured, or hit-and-run driver.

Some states require drivers to carry uninsured motorist coverage (UM). Some also require underinsured motorist coverage (UIM). If your state requires uninsured/underinsured motorist coverage, you can buy more than the required amount if you wish to. But if you aren't required to,  you might want to consider it if the coverage you already have would be insufficient to pay the bills if you're involved in a serious accident.

5. Other Types of Coverage

When you're shopping for auto insurance, you may see some other, totally optional types of coverage like gap coverage, windshield coverage, roadside assistance, or rental reimbursements. These may be required by your lender to make sure you are protecting their investment.

Whether you need any of those will depend on what other resources you have (such as membership in an auto club) and how much you could afford to pay out of pocket if you must.

BOTTOM LINE

It's easy to resent having to spend money on insurance. But keep in mind that auto insurance will most likely come to your rescue at some point, so it's imperative to purchase a worthwhile policy, and as soon as possible. You don’t want to wonder what coverage you have when it’s too late.

It's wise to carry more than the minimum coverage unless you are driving an older car with little value and have no assets to protect.

Before you purchase any type of recommended auto insurance coverage, be sure to review your needs. Examine what coverage you must have to protect your assets and what additional coverage fits your lifestyle. So if trouble strikes, you'll be ready. Get the best auto-insurance deals with Black Insure.