When you’re deciding on car insurance coverage, there needs to be a balance. You likely have a few goals.
First, you must protect your family in the event you’re in an accident. Then, you want to make sure that you make the best financial choice in terms of coverage, but you want to pay as little as possible on your premiums.
When comparing coverage, people often find that they don’t strike a good balance. They get either too much or too little coverage. A lot of this stems from not understanding the different types of coverage.
The following are things to know to help you figure out what you really need.
The first thing to consider as you work to figure out how much car insurance you need is mandatory minimums in your state.
Every state has its own minimum required levels of car insurance.
You never want to have less coverage than what’s required by your state, which is why this should be your starting point.
Liability insurance is the minimum level of insurance you need in every state but New Hampshire. Even in New Hampshire, while it doesn’t require liability coverage, you are held responsible for damage you cause if you’re in an accident. As a result, around 80% of state residents have liability insurance.
In Virginia, you can pay the state $500 and opt-out of liability insurance. If you take that option, your assets aren’t protected although you can drive uninsured.
Liability insurance provides coverage if you damage property of another driver and bodily injuries if you cause a crash. Specific coverage can include car repairs or replacement, fixing damaged structures or landscaping, and medical care.
There are three limits of liability coverage in a car insurance policy, and they’re usually shown as a ratio which could as an example look like—15/30/5.
The first number is the maximum that will be paid by your insurer for injuries to a single person in an accident.
The limit is $15,000. The next number, 30, is for $30,000. That’s the maximum for injuries for everyone hurt in the accident caused by you. The third number is representative of $5000. That’s the maximum amount an insurer will pay for property damage you caused if you’re in an accident.
How Much Liability Coverage Should You Have?
Again, you want to strike that balance between coverage and saving money, but with liability coverage, going with the minimum isn’t necessarily a good idea.
Also, if you only get liability coverage, it may not cover your assets’ total value.
- Aim to buy enough liability insurance so that it will cover the value of your assets altogether. These might include your home, savings, investments, and car. That could mean a minimum of $100,000 per person and $300,000 per accident for bodily injury.
If your insurance company doesn’t have policies with limits high enough to cover your assets, you could opt for an umbrella policy. An umbrella policy expands your car and home liability insurance past the typical limits that your insurer has, so if you have an extensive amount of assets, you’re covered.
Comprehensive coverage isn’t that expensive, and it can provide you with coverage if you need to replace or repair your car from something like theft or damage from a natural disaster.
Comprehensive coverage will usually have a limit that’s equal to the cash value of your vehicle.
Most people would say comprehensive coverage is worth it, particularly since it’s low-cost.
Collision coverage is where you might diverge as far as whether you need it or not.
Collision coverage will pay for you to repair or replace your car if you’re in an accident, even if that accident doesn’t involve another person or vehicle.
Liability insurance only covers you if the other driver is at fault, and they have enough coverage for the damages.
The majority of drivers, as a result, do opt to buy collision coverage.
If your car is old and isn’t worth much, you probably don’t need collision coverage.
Other Types of Insurance
If you want more coverage, there’s extended insurance. Specific extended insurance products include:
- MedPay: This is to cover medical payments, whether you have health insurance or not. It will cover reasonable medical expenses for your family, passengers, and you, regardless of who’s at fault for the accident. If you have kids, this might be an especially appealing type of coverage for you.
- PIP: PIP stands for Personal Injury Protection, and it’s like MedPay, but with a higher premium in exchange for higher coverage limits and more comprehensive coverage. PIP does have a deductible typically, while MedPaydoesn’t. Some states require PIP. PIP may cover medical expenses, funeral costs, occupational or physical therapy, lost wages, and substitute services such as household help if an accident leaves you unable to do certain things.
- UM and UIM: Underinsured and underinsured coverage covers medical expenses for yourself and your passengers if you’re in an accident with an uninsured driver or in a hit-and-run, but there’s no damage to your vehicle.
How Much Do You Need?
The amount of coverage you should have depends on the vehicle you’re insuring. If you’re leasing your vehicle or financing it, the company may require that you have a certain level of coverage. If your car is paid for, you might have less coverage as your vehicle’s value goes down over time.
You need to think about what kind of financial loss you might face if you didn’t have enough coverage.
Kelley Blue Book has tools that will help you determine your car’s worth, which is an important part of starting to understand how much car insurance you really need.
Other things to consider are your age, driving record and assets, and your risk tolerance as well as how much you can realistically afford to pay out of pocket if you’re in an accident. You may want the peace of mind that comes with upping your coverage, as long as you can afford it right now.