August 13, 2019

How Much Car Insurance Do I Need?

Read more about Car Insurance

Auto insurance coverages can be confusing. Just what does each part of your policy cover? Read on for the answers, plus the amount of coverage you need to protect yourself.

Your auto policy is broken into several categories, each with a specific focus. We break down each below.

Liability

Bodily injury and property damage insurance pay for someone else's injuries and damages for which you are responsible. Many states have a minimum limit on the coverage you purchase.

These are always given in split limits: bodily injury per person, bodily injury per accident, and property damage per accident. The most common example is 25/50/25.

That means means your coverage limit is:

  • $25,000 per person
  • $50,000 per accident
  • $25,000 for property damage.

With a $25,000 bodily injury per person limit, your policy will only pay up to that amount for any one person's injuries.

Are State Minimum Limits Enough Coverage?
The answer is no. If the costs of the other person's injuries are greater $25,000, you will be legally responsible for paying the remaining medical bills out of pocket.

If you don't have that money, then the courts will likely take any assets you have to cover it. These may include your:

  • House
  • Car
  • Savings accounts
  • Retirement account
  • Income paycheck

To avoid this troubling scenario, choose the amount of coverage sufficient to protect the total value of your assets.

Amounts of Liability Coverage
Most companies offer the following split limit coverage amounts:

Per PersonPer IncidentProperty
$25,000$50,000$25,000
$50,000$100,000$50,000
$100,000$300,000$50,000
$100,000$300,000$100,000
$250,000$500,000$100,000
$500,000$500,000$100,000
$1,000,000$1,000,000$100,000

The difference in premium varies significantly between these coverage ranges. They'll also depend on other factors including your location, age, driving history, vehicle type, and credit score.

If you have at least 250/500 in bodily injury on your car insurance policy but need higher limits to protect your assets, consider a personal umbrella policy.

This extra liability coverage can be added to any personal insurance policy you have, including your homeowners, renters, boat, motorcycle, and RV insurance.

For example, if you have 250/500 on your auto insurance, a $1 million umbrella policy will increase the total liability coverage to $1,250,000. Umbrella coverage ranges from $1–$5 million, and premiums usually start at around $150.00/year.

Uninsured/Underinsured Motorist

UI/UIM coverage provides money to cover you in a not-at-fault accident if the other driver has no insurance (or insufficient coverage).

This happens often in cases where you need to use the other party's bodily injury coverage, but they only carry the state minimum liability limits.

Choose high enough UI/UIM coverage to cover:

  • Medical expenses
  • Compensatory damages
  • Loss of future income in the event of disability

The amount of UI/UIM coverage cannot exceed what you carry for bodily injury coverage. For example, if you have liability limits of 50/100/50, you can only buy UI/UIM limits of 50/100.

If you want to increase your UI/UIM coverage, you will need to increase your liability coverage as well.

Personal Injury Protection

Most states require Personal Injury Protection. It covers injuries of the insured regardless of who was at fault in an accident. This coverage typically applies instead of health insurance if the injuries were sustained as a result of a car accident.

Benefits include:

  • Ambulance fees
  • Hospitalization
  • Medical supplies
  • Rehabilitation services
  • Medication
  • Nursing care
  • Income loss
  • Childcare and household expenses

Minimum requirements are typically $50,000 in coverage. However, most insurance companies allow you to purchase additional PIP coverage up to $125,000.

Medical Payments

Medical payments cover you and the occupants of your car, no matter who was at-fault for the accident. In some states, such as New York, it will cover anything above your PIP coverage.

While medical payments is not a mandatory coverage in every state, it is an important coverage to have.

Benefits include:

  • Health insurance deductible reimbursement
  • Ambulance fees
  • Hospital stays
  • X-rays
  • Surgical procedures
  • Doctor visits

Coverage amounts available vary by insurance company. Some insurance companies, such as Allstate and State Farm, offer coverages as high as $100,000.

Medical Payments covers every person in your vehicle. If you typically drive with multiple people in your car, $2,000 might not be enough to cover everyone's expenses.

The difference in price between coverage options varies depending on the insurance company you have, but can typically range from $3.00–$40.00 per 6 month term.

Full Coverage

Full coverage includes both collision and comprehensive. These offer protection against different types of incidents.

  • Collision coverage pays for damage as a result of colliding with another object, including another car, house, city property, and trees.

  • Comprehensive coverage pays for anything other than a collision, such as fire, storm, theft, and vandalism.

Both coverages, which can be purchased separately, have a deductible that can range from $250.00–$2,000.00. Keep reading to see if full coverage is right for you.

Before the insurance company will pay for any damage, you will be required to pay the deductible. The higher deductible you choose, the lower the rates will be.

When to Carry Full Coverage

Full coverage may be worth the expense in some cases if you:

  • Drive a Leased or Financed Vehicle
    Leasing and financing companies required full coverage, with a maximum deductible of $1,000.00.

  • Have Vehicles Worth Over $5,000
    Consider how much the insurance company will have to pay after you pay your deductible. If you cannot afford to pay the rest out of pocket, you should purchase full coverage.

  • Are a High-Risk Driver
    Drivers with multiple accidents and/or traffic violations are at a greater risk of getting into an accident. Therefore, it is worth purchasing full coverage to ensure that your vehicle is covered.

Should I drop full coverage?
If you vehicle is worth less than $5,000, you'll likely have to replace it in the case of a total loss. In this case, consider saving the extra money that you would pay for full coverage.

Optional Coverages

Most companies offer additional coverages. What do they cover and are they worth the cost? Find out below.

Roadside Assistance
This coverage provides on-site repair, servicing, and towing services free of charge (with some limitations).

This coverage is only available to vehicles that have full coverage. If you think you might need Roadside Assistance coverage, you can expect to pay anywhere from $8 to $30 per vehicle.

Many companies will only offer towing and labor coverage, which reimburses you for services including:
  • Towing
  • Jump-start
  • Car unlocking

Rental Car Reimbursement
This coverage provides a daily dollar amount and a maximum limit to rent a car if your vehicle needs to be fixed after an accident or is totaled from a covered loss.

The amounts available usually range from $20–$50/day, with a maximum payout of between $600 and $1,500.

Consider this coverage if you won't have access to another car in the event of an accident. However, if you have other cars in your household or know of a friend or family member are willing to let you borrow theirs, then this coverage probably isn't necessary.

Ridesharing
While ridesharing companies provide their own insurance, it only picks up once you actually have a customer inside your vehicle. Your personal insurance will stop providing coverage once you've accepted a customer for a fee.

The Ridesharing endorsement will provide coverage between the moment you've accepted a customer and the moment that you pick them up. Without it, you likely don't have any coverage in that period of time.

GAP Insurance
If you finance a new car, it may lose its value faster than the loan will be reduced. If you have a total loss and don't have GAP coverage, then the insurance company will likely pay less for the car than what you still owe on the loan.

GAP coverage solves this problem by covering the amount owed on the loan. Some financing companies will require you to have this coverage.

This is a good option if you have a car loan, even if it is not required. However, many insurance companies will only allow this on newer vehicles (less than 5 years old).

Customized Audio Equipment
Regular auto insurance policies only cover factory-installed parts. Some insurance companies may include a limit for customized parts and equipment, but this amount is typically no higher than $3,000.

Simply put, if you have any type of customization on your car, you need to make sure you buy this extra coverage.

Bottom Line

To determine how much insurance you need, you'll need to consider your financial assets as well as your driving habits. Make sure to choose a coverage amount that will protect your financial assets and future earnings.

More from CreditDonkey:


How Long Does it Take to Get Car Insurance


How Does Car Insurance Work


What Should I Be Paying for Car Insurance

More Articles in Money Tips

Car Insurance

Adding Someone to Your Car Insurance

Adding someone to your car insurance might increase or decrease your rates. Read our guide to see what affect it may have on your policy.

Leave a comment about How Much Car Insurance Do I Need?

Name
Email (won't be published)


August
24
2019

HostGator Pricing

How do HostGator's prices compare to competitors like Bluehost? Read on to learn what you can expect to pay after the first term and for extras like SSL.
More Articles in Money Tips








About CreditDonkey®
CreditDonkey is a credit card comparison website. We publish data-driven analysis to help you save money & make savvy decisions.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

†Advertiser Disclosure: Many of the card offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.

*See the card issuer's online application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all information is presented without warranty. When you click on the "Apply Now" button you can review the terms and conditions on the card issuer's website.

CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.