Buying the right amount of car insurance means you have enough coverage to meet your state’s requirements and to provide you with adequate financial protection. Most drivers benefit from having more coverage than their state’s required minimums.
The value of your vehicle, whether you lease or finance it, your location, driving history, and many other factors all play a role in how much coverage you need. Read on for a closer look at how to determine how much car insurance you should buy.
What are the minimum car insurance requirements?
Every state except New Hampshire requires drivers to have car insurance. The types you need depend a lot on where you live. Each state sets its own rules regarding car insurance, but most typically require a combination of some common coverages:
Bodily injury liability coverage: Part of a basic car insurance policy, bodily injury liability insurance covers medical expenses for other people injured in a car accident you cause.1
Property damage liability coverage: If you or someone driving your car damages someone else’s property — such as their vehicle, house, or fence — property damage liability coverage pays those costs, up to your policy’s limits.
Uninsured/underinsured motorist coverage: If you’re in a car accident with a driver who doesn’t have an auto insurance policy, or who has a policy but not enough coverage, this insurance kicks in. Uninsured/underinsured motorist policies cover your medical bills and damage to your vehicle. They also pay if a hit-and-run driver damages your vehicle.
Personal injury protection (PIP) coverage: No-fault states typically require personal injury protection coverage. PIP coverage can pay medical expenses, lost wages if injuries from an accident keep you out of work, and other related costs for you and your passengers, regardless of who caused a car accident.
Medical payments coverage: Also known as MedPay, this insurance provides coverage for medical expenses for you and your passengers, whether or not you’re at fault. But it won’t cover partial lost wages if injuries from an accident leave you temporarily unable to work.
Car insurance requirements by state
The state you live in determines the minimum amounts and specific types of car insurance coverage you need to drive legally. Here are the minimum car insurance requirements in every state and Washington, D.C. Keep in mind that if you move states, you’ll need to update your coverage accordingly.
What other auto insurance coverages do you need?
Most states require drivers to have bodily injury liability and property damage liability coverage, but you may want to consider some optional types of car insurance. Meeting your state’s minimum requirements can help you stay on the right side of the law, but insurance experts advise buying more extensive coverage beyond state minimums.
Full-coverage car insurance combines liability coverage with collision and comprehensive. While liability coverage pays for another driver’s injuries and damages in an accident you cause, full coverage can pay for your own damages. Leasing companies and auto loan companies typically require borrowers to buy full-coverage car insurance.
Collision coverage can pay to repair your vehicle after you collide with another vehicle or a stationary object like a tree, fence, or light pole. It also pays in case of rollover accidents.
Comprehensive coverage pays for damages from non-collision events, like severe weather, vandalism, vehicle theft, or falling objects.
Full-coverage car insurance provides greater financial security in case of an at-fault accident. Insurance companies also sell additional types of coverage that you may need, depending on your situation. These include:
Factors to consider when deciding how much coverage you need
When you go to buy a new car insurance policy, consider these factors to help you find the right amount of coverage:
State requirements: You must buy at least your state’s minimum required coverages. But most drivers can benefit from getting higher liability limits and — depending on your situation — optional coverages like collision, comprehensive, and accident forgiveness.
Value and age of vehicle: The more it costs to replace a car, the more auto insurance coverage you need. If your vehicle is older and low in value, you may need less coverage.
Financial situation: Once you meet the legal requirements, deciding how much car insurance coverage to buy may depend on how much you can afford to spend. Buying less coverage can result in a lower premium, but you’ll face higher out-of-pocket costs in case of an at-fault accident.
Frequency and purpose of use: Keep how often and when you plan to drive in mind when buying car insurance. For example, a homebody retiree may not need as much coverage as a working professional who commutes to a big city during rush hour traffic every day.
Location: Do you live in an area prone to car thefts? Does extreme weather tend to cause damage to vehicles in your city? Where you live can affect the types of auto insurance coverage you need.
Risk assessment: How well-equipped are you to handle the financial risks of driving with a minimum amount of insurance?
How does your deductible affect insurance costs?
A deductible is the amount you pay out of pocket before your insurance kicks in to pay for a covered claim. When you purchase a full-coverage car insurance policy, you choose a deductible amount for your collision and comprehensive coverages — liability insurance has no deductible.
Your deductible affects how much you spend on your premium. Generally, a higher deductible gives you a lower premium, as your insurer is taking on less risk.3 A lower deductible usually means a higher premium but less out of your pocket in case of an accident.