How Much Car Insurance Should I Buy?

Fran
Fran Majidi
November 1, 2019

“How much car insurance coverage do I need?” Everyone asks this question and not everyone has the same answer. Every person has different needs, often based on how much they have in the bank, in the garage or on the stock market. Unfortunately, most of us take a stab at an answer as to how much car insurance to buy based on gut. You can’t choose car insurance that way. If you do, you are likely to be underinsured or over-insured. To get the most out of your car insurance without paying too much, you need to understand what you’re getting and what the minimum requirements are in your state. We’re here to help.

Property Damage Car Insurance

“How much property damage car insurance do I need?” This is the second most common question people ask. Property damage liability insurance is an important and required kind of protection that covers you financially if you are in an accident and cause damage to someone else’s property.

For instance, say you hit someone’s mailbox with your car or you took down a fence, you’d be responsible for the damage and repairs. If the damage you caused ended up in lost income, you may also be held responsible. Plus, there may be recurring expenses from the damage you caused.

Remember that your property damage liability insurance does not cover your car. If you want to be covered for damage to your car, either caused by you or a thief/vandal, you’ll want to buy comprehensive and collision coverage.

A good 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 very low 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’d 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 own car!

With that said, the average property claim is usually $4000 or less. Now, consider if people got hurt. Bodily injury is much more expensive than property damage. For more, keep reading.

Bodily Injury Liability Insurance

If you’re at fault and someone gets hurt you’re responsible for their medical care and the medical care of their passengers. 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 lost wages for other drivers, their passengers and even pedestrians who may have been injured in an accident that was your fault.

Even though you are protected against being sued, this protection pays up only up to the limits of your coverage. 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 a limit that is considerably higher than the state minimum requirement for bodily injury liability and physical damage liability insurance. However, this required coverage does not take care of you and your passengers’ medical expenses.

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 it won’t cover lost wages. This is not a required coverage but may save you a good deal on medical care if you are in an accident.

How Do I Choose Liability Coverage Limits?

As we mentioned above, you may want to consider having higher limits. However, if you do not 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 you will be sued are slim because 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 3 limits set on your liability coverage. If your net worth is $100,000, that 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 car insurance. You usually have to buy maximum limits on both home and auto in order to buy 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: When Do I Not Need It?

If you still owe money on your car, you’re required to carry both collision and comprehensive coverage to protect the lienholder’s interests. How it works is that if your car gets damaged or totalled, the insurance will ensure that you will get it fixed or that it will be paid for in full.

If you’ve already paid off your car, you are not required to carry collision and comprehensive coverage. However, you may want to, in case you are in an accident that is your fault and your car needs very expensive repairs. Also, having comprehensive insurance is the only way to collect if your car is stolen.

That’s not to say that it always makes sense to have full coverage. If your car is worth $1,500 or less, you may be paying more than the worth of the car in insurance if you buy collision coverage and also have to pay a 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’d 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.

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 car insurance with multiple carriers. You don’t even have to do the footwork if you visit SmartFinancial and shop car insurance quotes within just a couple of minutes!

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