How much car insurance do I need?

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 15, 2021

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Here's what you need to know...

  • Your state will require a certain amount of liability coverage
  • The state-required liability coverage is often not sufficient to cover the costs to repair or replace a damaged vehicle
  • You should consider the pros and cons of collision and comprehensive coverages
  • Additional coverage options like underinsured motorist and PIP may be beneficial to add to your policy

In order to decide how much car insurance you need, you must consider industry recommendation, personal needs and usage and state requirements.

According to the Insurance Information Institute, over 12% of drivers do not carry proper car insurance coverage.

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Many of us are asking, “How much car insurance do I need to be protected?”

Industry’s Response to How Much Coverage is Necessary

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If you are found at fault in an auto accident and the other party is injured, the minimum amount may be insufficient, leaving your significant belongings unprotected.

Usually, it’s recommended that you acquire (in thousands) 100/300 minimums of liability for personal injury.

However, if you don’t own any significant assets, there would be fewer legal consequences, and the minimum legal requirements would actually work in your favor, saving you money in the long run.

Still, the 100/300/ 100 (the final number being for property liability coverage) is generally accepted as an amount that will protect most people when this type of accident occurs.

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State Minimum Coverage Needs


The state you live in has a liability limit for the amount of coverage you are required to carry. Many are ridiculously low like, 10/20/10.

While you may be tempted to get the state-required, bare minimum car insurance policy you are counting on to see you through this difficult financial period, you may find that you are not sufficiently covered in the event that you are in an accident and need to file a claim.

Minimum liability insurance includes the following:

  • Bodily injury liability per person per accident
  • Bodily injury liability for all injured persons per accident
  • Property liability per accident

So, unless you have no possessions you need to protect, it is recommended that you purchase more than the very minimum coverage that is required by the state in which you reside.

A potential lawsuit or an immense expenditure to the “innocent” party can make a bad situation much, much worse. This is why liability auto insurance is a necessary evil: it acts as a safety net, protecting you from the worst fall, so to speak, by paying your bills for you.

Defense coverage is also included, should it be necessary to seek legal counsel.

Every state requires that drivers carry liability insurance, with the exceptions of Virginia and New Hampshire.

It is a requirement of some states that, at the very least, you purchase an auto insurance policy which will cover your own expenses, medical, vehicular, or otherwise, in the event of a serious accident. Refer to your own state’s laws regarding auto insurance to determine the requirements.

In some states, Med Pay (Medical Payments) or PIP (Personal Injury Protection) in other ones pays for any accident-related expenses as they arise, up to about 80% of your total losses, as well as a death benefit to spouses and family members.

It is a legal requirement that licensed drivers carry PIP in the following states:

  • New York
  • New Jersey
  • Pennsylvania
  • Massachusetts
  • Maryland
  • Delaware
  • Florida
  • Minnesota
  • Michigan
  • Utah
  • Oregon
  • Hawaii
  • Kansas
  • Arkansas
  • North Dakota
  • Kentucky

Most Important Types of Car Insurance

Nightmarish scenarios like this can be avoided with a good car insurance policy that takes your needs into account. Some car insurance policies are necessary for daily living.

Liability insurance is the most important form of car insurance and the only car policy that is required by the majority of U.S. states.

Liability insurance covers almost any mistake you make on the road that results in damage to other vehicles.

While liability insurance doesn’t totally protect you from a lawsuit, usually, in cases where personal injury is absent, the totaled car can be paid for, eliminating the need for a lawsuit.

Since minimum liability insurance rates are based on the average cost of a car today, most cases never go to court.

Problems can occur in cases where the minimum liability insurance rate falls short of the total cost of the vehicle.

In cases like this, the victimized motorist may choose to go to court to seek additional damages for the lost property. This is the reason why many motorists choose to get liability coverage for a higher amount than the legal minimum.

Aside from liability insurance, there are also both comprehensive and collision car insurance coverage options to contemplate. The former covers acts of God and unexpected issues, such as fire and theft.

The latter covers any damage that may occur while the vehicle is in motion.

It is imperative to remember that both are usually required if you finance or lease a vehicle, but that any damage caused in an accident on a vehicle you own outright may not be worth holding this much coverage.

It’s also important to consider the amount of risk that you tend to carry on a regular basis:

  • Do you multiple drivers on your policy (school or work carpooling)? This could mean an increase in the opportunities for accidents to occur.
  • Do you have a great distance to drive to and from work each day? This could suggest that you spent more time on busy, heavily traveled roads, thereby increasing your liability exposure.

It might also be smart to purchase an additional type of insurance. Uninsured or underinsured motorist coverage can be a wise choice to protect your assets when you’re not at fault in an accident, but the other driver is not properly insured.

It may be difficult to write that quarterly or monthly insurance payment and not become resentful, but bear in mind that as more and more cars are put on the road each year, it would be difficult to have your policy your entire life, and not make one single claim.

Do your research, decide what you need, and purchase your policy; it may be the best decision you make.

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