How Much Car Insurance Do I Need?

Lucy Lazarony
November 3, 2020

How much insurance you have will affect you and your whole family should you be the cause of a car accident. But just how much auto insurance coverage do you need to protect your family’s assets? Many states have minimum liability requirements for their drivers but those requirements are quite low and may not be enough to pay for injuries and damages. As a result, you may end up paying out of your own pocket. Here is a look at the different kinds of insurance coverages with some recommendations for coverage.

Liability Coverage

If you ever cause a car crash, liability insurance pays for other people’s injuries and property damage up to your liability limit. Most states have minimum liability requirements for the drivers in their state. These requirements are low and may not protect you fully if you are in a serious accident. Most experts recommend at least $100,000 bodily injury liability coverage per person and $300,000 bodily injury liability coverage per accident. The Insurance Information Institute recommends both of these amounts as well as $100,000 property damage liability coverage. For high net-worth individuals, it's also wise to consider a personal umbrella policy, which will cover you after you've reached your liability limits.

Compare Affordable Car Insurance Rates

Collision and Comprehensive Coverages

Collision insurance is coverage that helps to repair or replace your car if it is damaged in an accident with another vehicle or object such as a fence or a tree. Comprehensive insurance coverage covers events that aren’t covered by collision insurance. These events include fire, theft and vandalism and damages from weather such as a hailstorm, a windstorm, a hurricane and a tornado.

If there is a loan on your car, your lender may require you to carry both collision coverage and comprehensive coverage. You don’t get to decide how much collision and comprehensive coverage that you would like to buy, that is determined by the market value of your car and the costs of repairing it. But you do get to choose a deductible. A deductible is the amount you need to pay before your auto insurance company begins to pay for damages to your car or losses.

The higher the deductible that you choose the lower your auto premium. So $1,000 deductible would have a lower premium cost than a $500 deductible would. It is a good idea to put the deductible amount in a small emergency fund. That way the money will be there should you need to make a claim. If you own your car and there are no lienholders, you are not required to buy collision and comprehensive insurance but should consider doing so anyway. Otherwise, you will have to pay for repairs on your car on your own, if you caused an accident or your car is damaged from vandalism or other covered events included in your comprehensive coverage.

With that said, you should consider how much your car is worth. If your deductible is the same as (or higher than) the value of the car and you have collision or comprehensive coverage, you are paying for unnecessary insurance and will spend more out-of-pocket than you would paying for your own repairs. It’s important to discuss these details with an insurance agent.

Medical Payments or Personal Injury Protection (PIP)

Medical payments coverage pays for the treatment of injuries to the driver and passengers in the policyholder’s car. PIP is also known as no-fault insurance and this coverage will reimburse you for any hospital or medical expenses, lost wages from an inability to work and if necessary funeral costs. PIP will cover these expenses for you regardless of who is responsible for the accident.

Medical Payments or PIP is required in some states and optional in others. Check with your insurance company for more information. Your state insurance department will have this information as well.

Uninsured and Underinsured Motorist Coverage

Uninsured motorist coverage helps you pay for damages caused by a driver who doesn’t have insurance. Underinsured motorist coverage protects you in the event of an accident where the other party is at fault and doesn’t carry enough insurance. Some states require these coverages and for other states these coverages are optional. Check with your state insurance department for more information and your insurance company for prices for the policies.

Factors Determining the Cost of Your Car Insurance

There are several factors that determine how much you will pay for car insurance.

How Good a Driver You Are. If you have a good driving record, you will pay less for your car insurance than someone with speeding tickets and DUI arrests. Having a squeaky clean driving record will save you money on your car insurance.

How Often You Use the Car. The more miles you drive the greater the chance you’ll be in an accident. So if you are a heavy commuter who drives far to work and back each weekday you’ll pay more for your car insurance than someone who is only an occasional driver.

Cost of the Car. The cost of your car is a major factor in the cost to insure it. And there are other variables as well that have to do with your car. These include the likelihood of theft, the cost of repairs and overall safety record of the car. All these things impact how much you will pay for car insurance.

Have an older car with a low market value? You may wish to drop collision and comprehensive coverages. The reason? The maximum payout for collision coverage and comprehensive coverage is limited by the value of the car. So If your older car has a low market value, it may not make financial sense to carry collision and comprehensive coverages any longer.

How Often You Pay Your Premium. Rather than sign up for monthly auto insurance payments, pay the annual amount or six-months amount. Your premium is lower when you pay just once or twice a year.

How Many Cars You Insure. If you have more than one car and you insure them with the same insurance company, you will save money on your auto insurance premiums.

How Many Insurance Policies You Carry. If you bundle your auto insurance policy with another insurance policy such as a homeowners insurance policy, you will save money on your auto insurance premium.

Whether You Are a Man or A Woman. Women make fewer accident claims than men and are rewarded with lower auto insurance rates. Men make higher accident claims and pay more for insurance.

The Neighborhood Where You Live. If you live in a neighborhood with high accident claims and auto theft, you will pay more for your auto insurance. If you live in a neighborhood with low accident claims and low crime, you will pay less for your car insurance. Living in a safe neighborhood saves money on car insurance.

Whether You Are Married or Single. There is a correlation between being married and exhibiting safe driving behavior. Because of this, married drivers pay less for auto insurance than singles.

Whether You Qualify for Discounts. There is something called a good driver discount for drivers with clean driving records. And students and veterans are eligible for discounts on their car insurance as well. So be sure to reach out for a discount if you qualify.

Whether You are Under 25 and Over 65. Drivers under the age of 25 and over the age of 65 have more serious accidents and pay more for car insurance. Drivers who are older than 25 and younger than 65 pay less for car insurance.

Coverage Choices. How many types of insurance that you choose to purchase and how much coverage you sign up for are key factors in how much you wind up paying. For minimum coverage check with your state insurance department. How much liability coverage is required in your state? What about uninsured motorist coverage? Is that required as well? What about PIP? Use that minimum coverage as a building block for building a more comprehensive coverage that protects the assets of you and your family.

If you decide that the car insurance choices aren’t great enough to meet your needs, you could consider a personal liability insurance policy that would cover claims beyond your auto policy coverage. This type of liability policy would cover members of your family as well as yourself.

Whether You Shop Around. Once you zero in on the coverage that you want, it is time to shop around for car insurance. You will want to get quotes from several different insurance companies. It is the best way to find the lowest rate for your needs.

SmartFinancial makes this easy to do. Just enter in that you are looking for auto insurance and a zip code to get started. Answer a few, quick questions and you’ll be comparing auto insurance rates near you in no time.

SmartFinancial has access to more than 200 insurance companies so you are bound to find the insurance coverage you need at the price that you want.

Get a Free Auto Insurance Quote Online Now.

Related Articles

Auto Insurance Do You Need Car Insurance?

Most U.S. states require proof of insurance for drivers to operate a car. However, each state comes with its own set of rules.

Auto Insurance SR22 Insurance: Texas Laws and Requirements

SR-22 insurance policies give Texans with not-so-perfect driving records a second chance to get back on the state’s highways.

Looking for Auto Insurance?

Compare rates from dozens of companies in less than 3 minutes.