How Much Car Insurance Should I Buy?
Searching for a new auto insurance policy can be an intimidating process, especially if you're a first-time shopper. Terms like bodily injury liability and property damage liability sound scary and may be confusing. There's also the challenge of finding affordable liability coverage that meets your state's minimum car insurance requirements. You have to weed through the optional coverages to find what matches your needs, along with any discounts that may apply. Finally, you have to get a quote from reputable insurance companies.
Do You Have Enough Bodily Injury Liability and Property Damage Liability?
Unfortunately, most of us buy car insurance based on impulse without considering how much coverage we need in the event of an accident. You can't choose car insurance that way. You're likely to be underinsured or overinsured if you do. To get the most out of your car insurance without paying too much, you'll need to understand what coverage you're getting and what the minimum requirements are in your state.
In this article, you'll learn how to select the right auto insurance coverage. You'll discover how to protect yourself and your financial assets in case a car accident occurs.
You can also use an online insurance comparison tool like SmartFinancial to find out what rates insurance companies will offer you. Just enter your zip code on this page, and we'll provide you with free car insurance quotes from top rated carriers.
What Is Car Insurance?
Car insurance coverage provides financial protection for your things and property if a collision, theft, natural disaster or other accident occurs. It is an agreement between you and the auto insurance carrier. In exchange for paying a premium, the insurer pays for losses covered under your contract, so you won't have to pay out of pocket.
If you drive without insurance, not only could you receive a criminal charge. You could pay massive fines and even spend time in jail, especially if it's your second conviction.
How Much Auto Insurance Coverage is Right For Me?
Insurance companies use rating factors like your driving history, residence, credit score, gender, and other demographics to calculate your auto insurance premiums. They help the insurer figure out how much of a risk you have of filing a claim within two years.
You should purchase enough coverage that will protect your assets in case someone sues you in a car accident. Car insurance will help you if you're at fault for an accident, but it only provides financial protection up to the policy's limits. For instance, what if you crash into another vehicle that results in $100,000 in damages, but you only have $50,000 in car insurance coverage? If the other driver wins a judgment against you, you'll be responsible for the remaining $50,000. You'd have to pay out of pocket for these damages. It may come from your own savings account. If you don't have enough money, you'll have to sell your personal assets (like your car or home) or have your wages garnished.
The judgment could cause substantial financial hardship until you pay it off in full. Buying enough coverage could protect these assets in the end. If you don't have many assets, you can consider buying a lower amount of coverage.
Types of Auto Insurance Coverage
Most states mandate their drivers to carry the required minimum of car insurance. Liability coverage doesn't pay for your damages or injuries after a car crash. This insurance pays for the damage you cause to another person's vehicle. Liability also covers the other driver's doctor's fees and medical expenses.
States usually require the following types of liability coverage:
- Bodily Injury Liability
- Property Damage Liability
The minimum coverage you'll need is listed as a series of three numbers, for example, 30/50/35.
- $30,000 of coverage of bodily injury liability insurance (per person)
- $50,000 of coverage of bodily injury liability insurance (per accident)
- $35,000 of coverage for property damage liability (per accident)
What do these numbers mean?
The first number (30) is the maximum amount ($30,000) that your carrier will pay if you injure someone in an accident (bodily injury liability per person).
The next number (50) is the maximum your insurer will pay per accident ($50,000) if more than one person is injured (bodily injury liability per accident).
The final number (35) represents the highest amount ($35,000) your insurer will pay for property damages (property damage liability per accident).
Consider buying more than your state's minimum amount of car insurance coverage due to the high cost of health insurance, which the other driver may not have. The higher your bodily injury liability limit, the better. You can also buy an umbrella policy if you have assets to protect against a lawsuit.
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Are Uninsured Motorist Bodily Injury Liability and Uninsured Motorist Property Damage Liability Required?
Some states also require Uninsured/Underinsured Motorist Bodily Injury and Property Damage Liability Coverage. (UMBI/UIMBI and UMPD/UIMPD). Additionally, these coverages will pay for the legal costs, settlements and other bills that result from the accident up to the policy limits.
Other regions require Medical Payments (MedPay) or no-fault coverage like Personal Injury Protection. This insurance pay for hospital or funeral expenses.
A lender or financing company may require individuals to get non-liability coverage like collision and comprehensive coverage to protect their assets.
Bodily Injury Liability Insurance
Bodily injury liability pays for the medical care of another driver that you injured in an accident you caused. It pays for medical care and hospital stays. Bodily injury liability also pays for the other person's long-term care and rehabilitation treatment.
If you're at fault and someone gets hurt, you're responsible for the medical care of the driver and their passengers. With bodily injury liability coverage, there are usually two breakdowns for injuries, one per person, per accident, and then one for total coverage for injuries per accident. Bodily injury liability also pays for the other driver's lost wages. Passengers and even pedestrians who have accident-related injuries that you caused are also covered by bodily injury liability insurance.
Typical coverage minimum amounts for bodily injury liability insurance are:
- $15,000 to $25,000 per person bodily injury liability per accident
- $50,000 for two or more people bodily injury liability per accident
Even though bodily injury liability insurance helps protect you against lawsuits, this protection pays up only up to the limits of your coverage.
Healthcare costs can be expensive, so if you owe more than your limits and the other driver sues you after being paid out the covered limit on your policy, your insurance will not cover the ensuing legal battle.
Most insurance agents urge drivers to carry higher limits than the minimum requirements for bodily injury and physical damage liability insurance. However, this required coverage does not take care of you and your passengers' medical expenses.
Property Damage Liability Car Insurance
Property damage liability insurance doesn't cover repairs for your vehicle after an accident. It only covers the vehicle damages you cause to another driver's vehicle or property when you are at fault.
For instance, what if you accidentally rear-ended another vehicle on a neighborhood street in front of a grocery store? You'd be responsible for vehicle damages and physical injuries you caused to the other driver and their passengers.
Minimum amounts for property damage liability coverage typically start between $5,000 and $25,000.
Do you need coverage for your car's repair costs after an accident, vandalism or theft? You'll need to get optional comprehensive and collision coverage, which covers these incidents.
How much does property damage liability insurance adequately protect you? A great way to start calculating how much insurance you need is to look at the minimums, which vary by state.
For instance, minimum property damage coverage is $50,000 in Oklahoma but only $5,000 in California. Big difference. It's encouraged that you carry more than the minimum, especially if your state sets it at a lower limit.
For example, if you live in California and total someone's car, and it's 100% your fault, you may be looking at $20,000 or more worth of damage. You'll only be covered for $5,000 if you have the bare minimum. That leaves you owing at least $15,000 -- and that's not counting the damages to your car.
The average property claim is usually $4,000 or less. Now, consider if people got hurt. Bodily injury is much more expensive than property damage. To learn more, keep reading.
How Do I Choose Liability Coverage Limits?
As previously mentioned, you should consider raising your liability insurance limits. If you don't have many assets and no savings, no home and only own a modest car, you are best off keeping your limits lower. The chances that someone will sue you are slim since you don't own much.
However, if you own a home, multiple cars and have a healthy savings and some investments, you'd be wise to raise your bodily injury limits to equal your net worth. The bodily injury limit is usually the middle number you're given in the three limits set on your liability coverage.
If your net worth is $100,000, your bodily injury liability insurance (the middle number) should be at least that much.
If your net worth is higher than all the liability limits, you'll want to buy an umbrella policy to extend your limits on both home and auto insurance. You usually have to get maximum limits on both home and auto to purchase an umbrella policy.
When you consider that a million-dollar umbrella policy often costs less than $350 a year, it may well be worth the cost to protect your wealth.
Collision and Comprehensive Insurance
Collision and comprehensive insurance are optional coverages that aren't mandated by law. A lender or financing company may require that you carry full insurance. These policies include collision and comprehensive, if you still owe money on your car. Insurance companies refer to this as "full coverage."
It helps protect your lienholder's interests in case the car is totaled, stolen or loses its value before the person pays off the loan.
Collision insurance pays for impact-related damages caused to your auto, regardless of fault.
Comprehensive insurance pays for non-collision damages that harm your vehicles, such as vandalism, flood, theft, fire and hail damage.
Here is how these coverages work. If someone damages or totals your car, the insurance will ensure that you will get it fixed or that it will pay the costs in full.
You aren't required to carry collision and comprehensive coverage if you've already paid off your car.
Do you own a rare or high-end car? In this situation, you should consider keeping your collision and comprehensive coverage. The repairs for these vehicles are expensive, and insurance can provide some protection for you. Comprehensive insurance is also essential coverage that will pay for your auto if a thief steals your car.
It's not to say that it always makes sense to have collision and comprehensive coverage. It may not be worthwhile to get these coverages if your car is worth $1,500 or less.
You may be paying more than the vehicle's worth when you buy this coverage. Additionally, the insurance company will ask you to meet the deductible ($500-$1,000) to get reimbursed for an accident. In this instance, you may be better off skipping these two types of coverage altogether and buying a new car.
The best thing to do is first figure out the value of your car using the Kelley Blue Book. Next, get a car insurance quote for how much you would be paying in comprehensive and collision in a year. Keep your deductible (which you choose) in mind and do the math to see if it makes sense to get the coverage.
Should I Choose a Low or High Deductible?
The deductible is an essential thing to consider when purchasing car insurance. It is the amount of money you must pay upfront before the insurer pays their part.
For instance, what if you're in an accident and have to meet a $1,000 deductible? That leaves you with $15,000 in repairs. You must meet the $1,000 deductible before your insurance pays the remaining $14,000.
Your insurance company will see you as a lower risk if you select a higher deductible. As a result, your insurer will give you a lower premium. The carrier will view you as a higher risk if you have a low deductible. It will charge you with higher insurance rates, as a result.
Having a $1,000 deductible usually means you'll pay lower premiums. A $500 one can raise your rates.
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Uninsured and Underinsured Motorist Coverage
If someone hits and leaves the scene of an accident, you could be left to pay out of pocket for these expenses if you cannot find the driver. Uninsured motorist coverage can help cover the cost for these repairs.
Uninsured motorist property damage liability coverage pays to repair your car if an uninsured driver hits your car.
Uninsured motorist bodily injury liability pays for the medical bills of you and your passengers when a hit-and-run accident occurs.
Underinsured motorist property damage liability coverage pays to repair your car when a person with little or no coverage hits your car.
Underinsured motorist bodily injury liability covers the cost of your medical bills if a person with inadequate insurance coverage hits your car.
Personal Injury Protection (PIP)
Personal injury protection (PIP) will cover your healthcare expenses and lost wages if you or your passengers are involved in an accident. Insurers refer to PIP as no-fault insurance because it pays for medical fees regardless of who is at fault for the accident. It's mandatory in states like Florida, Michigan, New York, New Jersey and Pennsylvania. It's optional in other areas.
Medical payments coverage, also called MedPay, covers you and your passengers if you or they are injured, even if the accident was your fault. Limits are usually below $10,000, and they won't provide enough coverage for lost wages. It is not a required coverage but may save you a good deal on medical care if you are in an accident.
Your car begins to drop in value as soon as you drive away from the dealership. This process is called depreciation. Insurers usually pay for the actual cash value of a vehicle if it's totaled or stolen. Carriers base the ACV on the vehicle's depreciated value. It is usually less than what a person paid for at the dealership. If your car gets totaled after an accident, it could mean the settlement you receive won't be enough to pay off the total amount of the loan. Guaranteed Asset Protection (Gap) insurance policies pay the difference in the event of a total loss. Some lenders require this coverage when you lease or finance a vehicle.
This coverage can provide you with assistance when you're locked out of your vehicle or when it breaks down on a highway. There are companies, like AAA, that offer roadside assistance programs to their customers.
Some new cars have warranties that have roadside assistance. Some insurance companies also offer supplemental roadside assistance programs along with their policies. Others are available through a subscription service.
These optional policies provide additional liability coverage that goes into effect if you've exhausted your insurance policy. They help out if someone decides to sue you after an accident. They provide protection of $1 million or more for individuals with lots of assets.
Rideshare Insurance Coverage
Do you drive for Uber, Lyft or other rideshare services? Another coverage you may want to consider is rideshare insurance. Many personal insurance policies won't pay if you have an accident when you're doing commercial work, especially if you haven't disclosed this to your insurer. Rideshare company insurance will only provide protection when you use your auto for work-related purposes.
This supplemental coverage fills the gap between your personal insurance coverage and rideshare insurance policy. It's not expensive to add this coverage, and it will provide better protection.
Original Equipment Parts Coverage
This insurance provides original manufacturer parts if you get into an accident. Repair shops often use an aftermarket to get parts that function similarly to your car's original ones. They are cheaper than the ones available from your car's manufacturer.
This insurance covers the costs of repairs with original manufacturer parts, instead of aftermarket ones.
The Quality and Price of the Car Insurance You Buy
You never want to skimp on quality because you will be sorry if you have a car accident and the insurance company you chose goes out of business or has some shady small-print that enables them to pay out less than you bargained for. You don't have to pay too much for car insurance if you shop for car insurance with multiple carriers. You don't even have to do the footwork if you visit SmartFinancial and shop for car insurance quotes within just a couple of minutes. Enter your zip code below for free quotes.
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