How Much Car Insurance Do You Need?


  • How Much Car Insurance Is Enough?

    How Much Car Insurance Is Enough?

    Your inclination might be to get the minimum insurance coverage required by law in your state. But that might not fully protect you or your assets if you're at fault in an accident. | October 01, 2013

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The next time you're on the freeway, think about this: Approximately one of every seven U.S. drivers on the road has no automobile insurance. That's the most recent estimate from the Insurance Research Council, which noted that the five states with the highest percentage of uninsured drivers were Florida, Mississippi, New Mexico, Oklahoma and Tennessee. With that many people driving without coverage, it's more important than ever for you to be insured. But how much car insurance do you need to have?

If you're like many people, you might be in an economic pinch these days. Your inclination might be to get the minimum insurance coverage required by law in your state. The trouble with minimum coverage is that it might not fully protect you — or your assets — if you're at fault in an accident. It's a better idea to carry more than the minimum coverage unless you are driving an older car with little value and have no assets to protect.

Every state in the nation except for New Hampshire requires you to have liability insurance. That mandatory coverage varies according to state.

The chart below shows minimum liability limits (in thousands of dollars):

  • Bodily injury liability for one person in an accident
  • Bodily injury liability for all people injured in an accident
  • Property damage liability for one accident
  • In Alabama, for example, the minimum requirements are $25,000 of bodily injury liability for one person, $50,000 bodily injury liability for all people in an accident and $25,000 property damage liability. Another type of coverage, personal injury protection (PIP), or a system called medical payments (MedPay) in some states, pays for your own medical expenses, any lost wages and whatever other costs may arise when you're injured in an accident. It usually pays about 80 percent of your losses, and it also pays a death benefit. PIP is required in Delaware, Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania and Utah. In Arkansas and Maryland, the coverage is not required, but drivers must reject it in writing if they choose not to purchase it.

    Some states also require you to purchase car insurance that will cover your medical expenses, pain and suffering losses and, in some states, car damage, in the event that the other motorist is at fault and is either uninsured or underinsured. The chart below also lists the states that require this uninsured or underinsured motorist coverage.

    State

    Liability limits
    (in thousands of dollars)

    Uninsured/Underinsured motorist coverage required?

    Alabama

    25/50/25

    No

    Alaska

    50/100/25

    No

    Arizona

    15/30/10

    No

    Arkansas

    25/50/25

    No

    California

    15/30/5

    No

    Colorado

    25/50/15

    No

    Connecticut

    20/40/10

    Yes

    Delaware

    15/30/10

    No


    D.C.

    25/50/10

    Yes

    Florida

    10/20/10

    No

    Georgia

    25/50/25

    No

    Hawaii

    20/40/10

    No

    Idaho

    25/50/15

    No

    Illinois

    20/40/15

    Yes

    Indiana

    25/50/10

    No

    Iowa

    20/40/15

    No

    Kansas

    25/50/10

    Yes

    Kentucky

    25/50/10

    No

    Louisiana

    15/30/25

    No

    Maine

    50/100/25

    Yes

    Maryland

    30/60/15

    Yes

    Massachusetts

    20/40/5

    Yes

    Michigan

    20/40/10

    No

    Minnesota

    30/60/10

    Yes

    Mississippi

    25/50/25

    No

    Missouri

    25/50/10

    Yes

    Montana

    25/50/10

    No

    Nebraska

    25/50/25

    No

    Nevada

    15/30/10

    No

    New Hampshire

    Not required. If elected: 25/50/25

    Yes

    New Jersey

    15/30/5

    Yes

    New Mexico

    25/50/10

    No

    New York

    25/50/10

    Yes

    North Carolina

    30/60/25

    Yes

    North Dakota

    25/50/25

    Yes

    Ohio

    12.5/25/7.5

    No

    Oklahoma

    25/50/25

    No

    Oregon

    25/50/20

    Yes

    Pennsylvania

    15/30/5

    No

    Rhode Island

    25/50/25

    No

    South Carolina

    25/50/25

    No

    South Dakota

    25/50/25

    Yes

    Tennessee

    25/50/15

    No

    Texas

    30/60/25

    No

    Utah

    25/65/15

    No

    Vermont

    25/50/10

    Yes

    Virginia

    25/50/20

    Yes

    Washington

    25/50/10

    No

    West Virginia

    20/40/10

    Yes

    Wisconsin

    25/50/10

    Yes

    Wyoming

    25/50/20

    No

    Even though each state, except for New Hampshire, has minimum requirements for bodily injury liability, it is probably in your best interest to purchase higher limits. If someone else is injured and you're at fault, the minimum liability coverage may not cover the other motorist's medical expenses, in which case he or she will most likely come after your assets. Insurance experts generally recommended that you purchase 100/300 limits of bodily injury liability (meaning $100,000 for one person in an accident and $300,000 for all people injured in one accident). On the other hand, if your personal assets don't amount to much, there's little for another driver to get if he were to sue you. The minimum requirements might actually suit you and will save you some much-needed cash.

    Besides various forms of liability insurance, there is collision and comprehensive auto insurance coverage to consider. Collision insurance covers damage to the policyholder's car resulting from running into anything, be it another car, a fire hydrant or a light post. Comprehensive coverage takes care of your car in the case of theft, fire, falling objects, explosions or other unexpected problems.

    Collision and comprehensive coverage are required in most lease contracts, and are essential if you own an expensive car. If you're driving a rattletrap, on the other hand, and the sum of your premium and your deductible are close to the value of your vehicle — or if they exceed it — you might want to consider doing without this coverage.

    Before you purchase any type of auto insurance coverage, be sure to study your other insurance policies so you don't end up paying for something you don't need. If you have a decent health insurance plan, you might get away with purchasing the bare minimum personal injury protection coverage — or none at all if your state doesn't require it. However, you might end up paying a co-pay and deductible that wouldn't apply if you have PIP or MedPay.

    Uninsured or underinsured motorist coverage also might be a wise buy, even if you have full medical coverage, since it can pay for your pain and suffering damages. If you're offered roadside assistance coverage by your insurer, you might not need it if you already belong to an organization such as AAA that offers it. The same thing applies for mechanical breakdown insurance. If you own a newly financed or leased vehicle that's still covered under warranty, such coverage is unnecessary.

    It's easy to resent having to spend money on insurance. But keep in mind that auto insurance will most likely come to your rescue at some point, so it's imperative to purchase a worthwhile policy. Know what coverage you must have and know what additional coverage fits your lifestyle. Then if trouble strikes, you'll be ready.

Comments

  • teendrivers teendrivers Posts:

    Great article. It´s the first time I´ve seen a complete list of liability limits and having teenagers to insure, this has been one of the best articles I´ve come across on the topic of what each type of cover entails and what is a safe level of insurance to have. Steve

  • clachnit clachnit Posts:

    Thanks, Steve. We've just updated the list, since some states' laws changed in 2011. Now only N.H. that has no liability-coverage requirement. --Carroll Lachnit, features editor, Edmunds.com

  • tomshallue tomshallue Posts:

    I recommend at least one level up from state minimum coverage: ex. Texas, minimum liability 30/60/25. You should carry 50/100/50 liability to make sure you have enough coverage and carry UM/UIM coverage of 50/100/50!!!!!! People don't realize that state-required liability coverage protects other people in an accident but it's UM/UIM coverage that protects YOU in an accident. Tom Shallue- Liberty Mutual Insurance tom.shallue@libertymutual.com libertymutual.com/tomshallue

  • Insurance companies employ very bright actuaries to calculate your chances of an accident or death. Once they make this economic / actuarial decision, they then add their mark-up to the expected cost of insuring you So - if you follow this logic - then you are almost always better off not getting insurance or getting cheap minimum coverage insurance ($30/month from 4autoinsurancequote is the best i found) and banking the quoted premium for the inevitable rainy day. This advice will be on no use to you whatsoever when your house burns down or your teenager tags a tree with your BMW.

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