You need car insurance — that’s a given. It is required in almost every U.S. state. Even in states that do not require it, you have to meet financial responsibility requirements that show you are able to pay the state’s minimum requirements for bodily injury and property damages you cause in a car accident.
The trick is knowing how much car insurance you need. It’s not all about meeting your state’s minimum insurance requirements, there are several other considerations when deciding how much car insurance you need.
Here are a few steps to help you make an informed decision.
Check State Requirements
Every state has its own minimum auto insurance requirements or financial responsibility laws. Car insurance required by your state is to cover your liability — that is, bodily injury or property damage to others that you are found to be responsible for in an accident. Here is a helpful guide from the Insurance Information Institute listing the auto insurance liability requirements by state.
States have no requirement for physical damage coverage to your vehicle. In other words, they only care that you can pay for damages you cause to other people or their property in an accident. Therefore, as far as the state is concerned, you are on your own to fix your own vehicle and pay your own medical bills if you are found to be at fault in a car accident.
And just so you know, you won't have to worry about having another state's minimum insurance requirements if you travel out of state. Your auto liability automatically adjusts to each state's minimum insurance requirements as you travel through it if your own limits are less than those of the state you are traveling in.
Do you just want to purchase the state's minimum liability insurance requirements? Think about it whether the state's minimum requirements are very low — $15,000 per person and $30,000 per accident. The cost of medical care for a serious car accident could soar into hundreds of thousands of dollars. So don't leave yourself underprotected. Higher limits cost more but could save you money in the long run.
Collision Versus Comprehensive Insurance
An easy way to understand collision and comprehensive insurance is to think of it like this: Collision insurance pays for damages to your vehicle if you are involved in an accident. That's pretty much it. Comprehensive insurance covers all other types of losses that are not a result of driving your vehicles, such as a tree falling on your car, a fire or a natural disaster.
Both collision and comprehensive insurance have a deductible — the amount you pay before the insurance company starts paying toward the claim. After you've paid your deductible toward the claim, the insurance company will pay for damages to your vehicle caused by a covered peril. Remember, neither collision nor comprehensive coverage pay for damages to another person's vehicle or medical bills.
Should you buy comprehensive and collision car insurance? It depends. If you finance your vehicle, the lender will require you to purchase both comprehensive and collision coverage to protect its interest in your car until it's paid for, so you don't have a choice if you are making payments on your vehicle. So you'll have to purchase both.
If your vehicle is paid for, the choice is up to you whether to carry full coverage. Full coverage is another term to refer to both collision and comprehensive coverage. For example, if you own a new vehicle, you would probably have a hard time coming up with the money to pay for damages in a major collision, so full coverage is a good idea for newer cars. On the other hand, if you own an old clunker, chances are the costs to repair the vehicle are more than it's worth, so carrying either comprehensive or collision coverage may not make sense.
You can also choose to raise your deductible to lower your car insurance premium. Again, the less the company has to pay out in a claim; the less your insurance will cost you.
Not every type of auto insurance is mandatory, but that doesn't mean you don't need it. Even if you don't technically need it, you may want it.
Here are some of the most common types of optional auto insurance you can purchase:
- Rental reimbursement and towing: Rental reimbursement pays for renting a car or public transportation needed if your vehicle is being repaired after an accident. The cost for it is typically very low per policy period, so it's not a bad coverage to have. Towing and labor coverage pay for a towing service's cost to tow your vehicle to a repair shop after an accident. Towing also may include tire changes, jump-starting your car, gas delivery or lockout assistance, depending on your insurance company.
- Roadside Assistance: Roadside assistance is an optional coverage that covers your vehicle if you break down or have a flat. Some auto clubs also offer roadside assistance if you don't have it included with your auto insurance policy.
- Uninsured or underinsured motorist: This coverage may or may not be optional, depending on your state. This coverage pays for your medical bills and property damage if an uninsured or underinsured driver causes an accident.
- Medical payments: Your liability coverage only pays for the cost of medical treatment to others. If you purchase medical payments coverage, it will pay a set dollar amount to pay for medical treatment to you or another member of your household regardless of who is at fault in an accident.
- Personal injury protection (PIP): Personal injury protection coverage may or may not be required in your state. It helps pay for your medical expenses after an accident and may also pay for additional expenses like any lost income you have because of an accident.
- Gap coverage: Gap insurance coverage can help you pay off an auto loan if your car is stolen or is totaled because of an accident. It pays off the difference between what you owe on your vehicle and how much it is worth.
These are only some of the most common types of optional coverage. You can check with a local insurance agent or an insurance company representative for a complete list of the optional auto coverage it has available.
Best Car Insurance Carriers
The best advice is to do your due diligence and shop around when looking to purchase auto insurance. Compare coverage options side by side and consider the cost of each. The goal is to find the most comprehensive coverage at the lowest reasonable price. Benzinga has compiled a list of the best car insurance carriers to help you find the best deal in auto insurance.
Making a Decision
Deciding on how much car insurance to purchase can be confusing. Hopefully, this information will help you determine what auto insurance options to choose. You must compare your car and your situation to the coverage options and decide which ones make the most sense for you. As always, come back to Benzinga for more insurance information and money tips.
Frequently Asked Questions
What type of car insurance do I need?
While you should check your state’s guidelines, you need liability coverage, bodily injury, personal injury, personal property, property damage and repair coverage for your vehicle. Beyond that, you can add amenities to your policy as you like.
What is a fair price for car insurance?
Car insurance should provide comprehensive coverage for you without breaking the bank. Generally, it is not a good idea to exceed a small percentage of your monthly income for the cost of auto insurance.