Maximum Car Insurance Coverage

Your maximum car insurance coverage depends on the company's assets and what they offer. Paying for more coverage than your car is worth is usually a waste.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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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: Jun 24, 2020

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Here's what you need to know...

  • Having more car insurance than you need can be a waste
  • The majority of states requires bodily injury liability coverage
  • There are minimum amounts of coverage every driver should carry
  • How much money collision and comprehensive insurance will pay out on a claim depends on the value of the car being insured

Most people do not over-insure their cars, and most car insurance providers have limits as to how much coverage the policyholder can buy based on their assets. The limits depend on the type of car insurance coverage it is.

While having enough car insurance is very important, having more than you need can just be a waste.

Most states have minimums that the policyholder has to buy. In certain states, certain types of coverage are required, while in other places, they are optional.

You can find out your state’s particular requirements at its official state insurance website. For example, if you live in New Jersey, you would check out the site for the State of New Jersey Department of Banking and Insurance.

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What types of car insurance coverage are available?

The most basic types of car insurance coverage are liability, collision, comprehensive, uninsured motorist, underinsured motorist, and personal injury protection coverage. Bodily injury and property damage are the two types of liability coverage that a driver should have.

Liability coverage pays for the costs of the other driver when the policyholder is the cause of the incident.

The majority of states require bodily injury liability coverage. This type of coverage protects the policyholder’s other assets. If they are in an accident and do not have enough insurance to cover the other driver’s medical costs, they could be sued.

Property damage liability coverage is the insurance that will pay for the damage to the other driver’s car. This coverage will pay for repairs or replacing the other car if it is totaled in the accident.

Personal injury protection coverage is required by some states now because it is such an important type of coverage. This coverage pays for the medical costs of the policyholder and is an important coverage to have if the policyholder does not have health insurance.

Collision and comprehensive coverage pay for the policyholder’s car when it is damaged.

  • Collision coverage is for accidents involving other cars or structures like buildings or poles
  • Comprehensive coverage will pay if the car is damaged by things like hail, fire, or vandalism

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How much of each type of coverage should I buy?

There are minimum amounts of coverage every driver should carry. Bodily injury liability coverage is sold in increments.

The first amount is how much the insurance provider will pay for each person other than the policyholder who is injured in the accident. The second amount is the amount of coverage the policyholder has per accident.

An example would be $100,000/$300,000, which means the car insurance provider will pay up to $100,000 in medical costs for each person injured in the accident up to $300,000.

The amount of bodily injury liability coverage a person needs depends on the other assets they have.

Someone who makes a high annual income and owns their own home will need more of this type of coverage than someone with an entry level job who rents an apartment.

A policyholder should have at least $50,000 in property damage coverage. Some states only require drivers to carry as little as $5,000, but if they damage a luxury car, they will be open to getting sued.

Having up to $100,000 in this type of coverage will keep the driver protected if they cause an accident with a luxury car.

How much personal injury protection insurance someone needs will depend on how much health insurance coverage they have. Someone with a great health insurance plan will not need as much of this coverage as someone with no health coverage at all.

How much money collision and comprehensive insurance will pay out on a claim depends on the value of the car being insured.

With these types of coverage, the deductible is the most important thing to consider. A deductible is how much the policyholder has to pay on their own before the insurance starts to pay.

The policyholder should make sure their deductible is not too high.

What are the consequences of not having enough car insurance coverage?

The most important reason to have the right amount of car insurance coverage is to protect your other assets. If a driver gets sued after an accident, everything from their house to their life savings could be at risk.

With the right amount of coverage, the insurance provider will cover the costs of the accident and protect the policyholder from being sued.

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References:

  1. https://www.thebalance.com/understanding-minimum-car-insurance-requirements-2645473
  2. https://www.state.nj.us/dobi/index.html
  3. https://www.allstate.com/tools-and-resources/car-insurance/liability-car-insurance-cover.aspx
  4. https://www.healthcare.gov/get-coverage/
  5. https://www.esurance.com/info/car/comprehensive-and-collision-coverage

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