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To legally drive in most states, you need to have car insurance, with the minimum amount determined by your state of residence. We should really refer to “car insurance minimum coverages,” in plural, because requirements can exist for liability insurance, property damage, medical expenses, uninsured/underinsured coverage, and personal injury protection, among other possibilities. This post will provide a general overview using the most current information available. Verify information for your particular state to make sure you have the appropriate requirements for car insurance.

Car Insurance Requirements By State

Take a look at Alabama’s requirements for car insurance: 25/50/25. This means that the state requires $25,000 of bodily injury liability insurance per person with $50,000 for all bodily injuries that take place within a single accident and $25,000 in property damage per accident. This is the general format we’ll use while adding other insurance information about a state when available and applicable.

Which States Don’t Require Insurance?

You may notice that two states are not in this list: New Hampshire and Virginia. That’s because they don’t require car insurance, per se, although they do have laws on the subject.

In Virginia, if you don’t have car insurance, you pay a $500 fee, which is more than the average cost of liability insurance in the state.This fee does not, though, provide the driver with any coverage. So they are responsible for any damages they inflict when at fault in an accident and for compensation for any medical injuries and/or property damage.

In New Hampshire, there are no fees associated with not having car insurance but the at-fault driver is responsible for paying for any damages when they are at fault in an accident.

If a driver decides to buy car insurance in either state, then the car insurance minimum coverage in each is 20/50/25.

Recommended: How to Get Car insurance in 5 Simple Steps

Understanding Required Coverages

Here are definitions for key auto insurance terms connected to coverages:

•   At fault: A driver is “at fault” when an action they took or didn’t take caused the collision.

•   Liability insurance: This pays for the other driver’s/drivers’ car repairs (property damage) and medical bills (bodily injuries) if you’re at fault in an accident.

•   Uninsured and underinsured motorist coverage: This protects drivers and passengers alike if the other motorist has little or no car insurance. The bodily insurance portion covers medical costs while the property damage portion pays for vehicle repairs.

•   Personal injury protection: This helps to pay for accident-related medical expenses for the insured driver and the passengers, regardless of who is at fault.

Liability auto insurance may also cover loss of income, legal fees if a lawsuit occurs, and/or funeral costs. The property damage coverage can go beyond paying for vehicle repairs, also covering a fence, bicycle, shed, or building — as just four examples — that was damaged in an accident.

Exceptions to State Minimum Car Insurance Requirements

As already described, New Hampshire and Virginia take a different approach to car insurance requirements. As another approach, in the state of Kentucky, a driver can have 25/50/25 coverage or a policy with a $60,000 limit. In Maine, as another example, you can have the menu of coverages as described above or a $125,000 policy. Because each state is different, it’s best to verify what insurance is required by law where you live and what options exist.

In more than half of the states, a driver can decide to purchase a bond from the state instead of buying car insurance. Specifics vary by state (but none of the bond amounts are small) and these funds are used if you cause an accident. Any time that the state pays an injured party (from an accident where you are at fault), the money must immediately be reimbursed by you to the state along with interest. The bond is connected to the driver, not the vehicle, so it provides coverage to any vehicle driven by the bondholder.

Recommended: How Does Car Insurance Work?

Going Beyond Car Insurance Minimum Coverage

So far, this post is focusing on what insurance is required by law. But how much car insurance do you really need? That’s another question entirely.

For example, even when your state doesn’t require comprehensive coverage, if a vehicle is being financed or leased, the lender will likely require that you have this type of coverage. This covers physical damage to a vehicle that isn’t caused by an accident. This can include weather damage, theft or vandalism, hitting an animal, and other damages. Even if a vehicle is paid off, it often makes sense to include this coverage in your policy because the cost is small in comparison to what repair or replacement costs would be if the vehicle is damaged or stolen.

Collision coverage goes beyond accident-related damage and can cover costs if you run into a tree or building, hit a pothole, for example. If paying for damages out of pocket would be challenging or your risk tolerance is low, you might consider having this coverage.

Then there’s guaranteed auto protection (GAP) that can protect you as your vehicle’s value depreciates. If that car is totaled in an accident or stolen, then GAP would pay the difference between what you owe on it and its actual cash value. This allows you to pay off your loan or lease and then get any remainder from the insurer. Typically, you need full auto insurance in order to add the optional GAP.

Lowering Car Insurance

To lower your car insurance, here are tips to consider:

•   Get quotes. Using an online comparison tool can make your search especially efficient. The Insurance Information Institute recommends that you get at least three quotes. To check out the insurer’s financial health, you can use Standard & Poor’s, AM Best, or another rating service — and/or contact your state insurance department to see if there are any complaints about them.

•   Talk to your current insurance provider and ask them what discounts they can offer you. They may give you a better premium to keep your business.

•   See which discounts you may qualify for: a good driving record, a vehicle with anti-theft features, carpooling/remote working, going paperless with statements, or other strategies.

•   Find out how much you can save if you bundle other insurances with your car insurance. This can be homeowners or renters insurance, for example, or perhaps you can combine car insurance policies for multiple vehicles.

•   Consider a higher deductible, which is the out-of-pocket amount you’d have to pay before your insurance kicks in to pay a claim. This can lower your premium significantly, but if you have an accident, you may need to use your personal savings before the insurer pays your claim.

•   Reevaluate coverage needs. If your car is older, you may not need all of the coverages you once did. That said, you’ll want to balance what you can save today on premiums with what might happen tomorrow if an accident or other covered event occurs. You’ll need to keep state minimum car insurance in mind, of course.

The Takeaway

Most states have minimum requirements for car insurance (and when they don’t, they still have coverage parameters that must be met). This post shares insight into the types of coverages as well as the amounts that each state requires. To find the right insurance policy for your needs, you can compare multiple car insurance rates from top insurers and see quotes in just a matter of minutes.

Photo credit: iStock/Weekend Images Inc.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

¹SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc’s service. Vehicle Identification Number is confirmed by LexisNexis and car values are provided by J.D. Power. Auto Tracker is provided on an “as-is, as-available” basis with all faults and defects, with no warranty, express or implied. The values shown on this page are a rough estimate based on your car’s year, make, and model, but don’t take into account things such as your mileage, accident history, or car condition.

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This article is not intended to be legal advice. Please consult an attorney for advice.

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If you’re thinking, ‘Do I need a will?’ chances are, the answer is yes. Thinking about a will can feel morbid and unnecessary, especially when you’re young, healthy, and still growing your wealth. And it’s true that not everyone needs a will, especially if you’re single and growing your worth. What’s more, because the term “will” can be used to encompass end-of-life directives, it can confusing to know exactly what people mean if they say, “You should have a will.”

So, we’re here to clarify the topic. Read on to learn exactly which documents are needed if the worst were to happen and you were unable to make your end-of-life wishes known.

What Does a Will Really Do?

Simply speaking, a will dictates what will happen to your assets when you die. It can also be used to provide direction for who will care for any children and pets you have. Without a will, your property will be passed on according to state law, which means that your belongings may go to your spouse or nearest surviving relative, like a parent or sibling.

In some cases, this can be fine. But for people with children or people who own a home, this may not be ideal. Not only that, but dying without a will may put a burden on surviving relatives, leading to a costly and complex process.

In short, a will can communicate your wishes. For instance, it can:

•   Dictate who the executor (the person who administrates the will) is

•   Make a plan for how property will be distributed

•   Make a plan for how children or pets will be cared for

•   Make a plan for how debts and taxes will be paid

Creating a will does not need to be a long and complicated process. But it does need to be legal. While handwritten wills are acceptable in some states, they may be subject to additional scrutiny and may still need a signed witness to be valid.

Recommended: How To Make a Will: 7 Steps

What Does a Will Not Cover?

Let’s review some terms to see what different documents do:

•   A simple will determines what happens to your assets after you die.

•   A living will and other advance directives dictate what may happen if you were incapacitated and unable to make medical decisions. Both can be drawn up at the same time. These are legal documents that spell out medical treatments you would and would not want to be used to keep you alive. It typically communicates your preferences about other decisions, such as pain management or organ donation. In addition, if you have very specific wishes about whom you want to make financial and healthcare decisions if you were to be incapacitated, a living will can document those. This can be helpful if, for example, you’re not married but would want your partner (and not your parents) making these decisions if you were unable to make them yourself.

The guidelines and requirements for creating these documents can vary state by state. Attorneys, as well as online planning templates, can provide the documents to cover all potential end-of-life what-ifs, including creating a living will and advance directive, as well as a standard will to cover all bases.

Recommended: What Happens If You Die Without A Will?

When Do You Need a Will?

In a nutshell, you need a will if you have a spouse, children, or considerable assets. A will can take the guesswork out of matters if you were to die and can avoid legal complications.

Even if your life is relatively “simple” to unpack, a will can ensure there are no uncertainties and that your survivors are crystal clear about your wishes. Some times to consider a will:

•   When you want to leave things to family and friends. These may not be valuables but could be meaningful, sentimental items

•   When you own property

•   When you have a spouse and/or children

•   When you want to provide to a charity

•   When you have a positive net worth

•   When you have a complicated financial picture

In short, a will can help answer any questions your survivors may have, simplifying a process that may be emotion-filled. It can also help provide peace of mind that if you were to die, your loved ones will have a road map.

Are You Married? You Need a Will

You may think a will isn’t necessary if you’re married. After all, your assets will simply go to your spouse, right? It’s not that simple. State laws do differ. Typically, but not always, spouses, domestic partners and blood relatives are first in line when it comes to receiving inheritance. Having a will ensures that you direct where you want your estate to go, protecting the interests of those closest to you.

Another issue comes up when you pass away without a will, which is known as being intestate: the state gets involved in a potentially lengthy process called probate. A court-appointed administrator will identify legal heirs and determine how your estate is divided and bills are paid, according to the laws of your state. This can make for a complicated situation in which your spouse must wait for an inheritance, potentially causing financial hardship.

There’s another reason why a will is valuable if you’re married. It’s likely you and your spouse will create what’s known as a mutual will (these should be created with a lawyer’s help). After one partner dies, the remaining party is bound by the terms of the mutual will. This kind of document can, for example, be used to ensure that property gets passed to the deceased’s children rather than to a new spouse. In this way, a will can smoothe family dynamics in the future and ensure that your wishes are followed.

Recommended: Joint Will: What Is a Mutual Will?

Do You Have Kids? You Need a Will

One motivating factor for creating a will is when a couple has children. A will not only allows you to choose a guardian for your children, but it also allows you to name a guardian for your children’s finances — and they don’t necessarily need to be the same person.

It’s important to create a will even if the assumption is that the child’s other parent will look after the children. Not only can a will provide a template for a what-if situation if both parents were to pass away, but it can also ensure that your children will receive the share of your estate that you desire when they’re older.

Having a will can minimize disruption in case the worst were to happen and one or both parents were to pass away. If there is no will, the court will decide, and while the court will keep the best interests of the children in mind, the parents are the ones who know the kids best and may have the best solution.

In short, a will allows you to make sure:

•   Children are cared for by the people you wish

•   Children’s finances are cared for by the people you wish

•   Adult children will receive the inheritance you desire them to have

•   Any unique circumstances regarding child care is taken into account

Do You Have a Positive Net Worth? You Need a Will

Even if you’re single, a will may make sense if you have a positive net worth (aka, more assets than debt), which may include owning a house. Depending on your net worth, you may consider creating a trust. This can help your family avoid the probate process.

You can also be very specific about how you want your assets allocated in the future. For example, you may want to provide gifts to charity upon your death.

You also want to check your beneficiaries for any accounts, including retirement accounts and life insurance policies. The named beneficiary takes precedence over who’s named in a will, so it can be a good idea to double check that the named beneficiary is the person you want to receive those assets.

Are You Young, Single, Asset-free, or Without Kids? You Don’t Need a Will (Yet)

While you may not need a will if you don’t have any dependents, property, or assets, it’s still worth thinking through what you do own. For example, if you have a life insurance policy or retirement account, make sure the beneficiary you name matches who you would want to have those funds as time passes.

But a will can ensure there is no confusion over your wishes, especially if you have pets to be cared for or mementos you know would be meaningful to the people in your life.

How to Set Up a Will

A 2021 survey of over 2,500 people from Caring.com, a caregiver website, found that the past year made more people realize the importance of having estate planning documents. However, 2 out of 3 people don’t yet have a will. One big justification: Not enough time to create a will.

However, creating a will does not need to be complex. Online templates can walk you through the process. An online template may be free or may cost $100 and up, depending on the complexity. More expensive templates may be state-specific and detailed.

One critical aspect: Make sure the will is legal in your state. This may mean the will needs to be notarized and signed in front of witnesses. Once you have a will completed, it can be a good idea to make several copies and let the person you’ve named executor know where they can find the will in case you were to die.

If you have multiple, complex assets (such as several jointly-owned properties or properties jointly-owned with different people) you may need an attorney. This may cost $1,000 and up but can give you the peace of mind that everything is covered.

The Takeaway

While creating a will may not exactly be a fun activity, it doesn’t need to be very time-consuming or expensive. It’s an important process that can deliver some valuable peace of mind for the future. It lets you know your “house is in order,” and that your wishes are clearly captured. With a will in place, your worldly goods go where you want them to go, and you ensure that loved ones are taken care of in the way you see fit. When you get these documents done, you’ll also save those nearest and dearest to you from having to deal with legal red tape during an emotionally challenging time. Yes, death and wills are a topic many of us would like to avoid. But being pragmatic and taking care of this important legal concern is the right, responsible step to take.

The Simple Way to Protect Loved Ones: SoFi and Trust & Will

To help you with this important process and make sure it isn’t arduous, SoFi has partnered with Trust & Will^*, the leading online estate planning platform in the U.S. — to give our members 10% off their trust, will, or guardianship estate plans.

Photo credit: iStock/evgenyatamanenko

SoFi member benefits are provided by third parties, not by SoFi or its affiliates. Providers pay royalty fees to SoFi for the user of its intellectual property. These fees are used for the general purposes of SoFi. Some provider offers are subject to change and may have restrictions. Please contact the provider directly for details.
^*Trust & Will, a leading digital estate planning platform, is offering a 10% discount specifically for SoFi members. No promo code required. The 10% discount is automatically applied at checkout to the initial purchase of any Guardian, Will, or Trust-based estate plan.
Trust & Will 961 West Laurel Street San Diego, CA 92101 United States
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Historical volatility (HV) measures the range of returns on a market index or security over a given time period. When an asset’s historical volatility is going up, that means its price is moving further away from its average (in either direction) more quickly than usual.

A stock’s historical volatility is typically one standard deviation using daily returns, and it’s one factor that investors often look at to gauge the risk of a potential investment. An asset’s historical volatility is different from its implied volatility. Read on to learn what historical volatility is, how historical volatility works, and how to calculate historical volatility.

What Is Historical Volatility?

Historical volatility is a statistical measurement of the price dispersion of a financial security or index over a period. Investors calculate this by determining the average deviation from an average price. Historical volatility typically looks at daily returns, but some investors use it to look at intraday price changes.

Analysts can use any number of trading days when calculating historical volatility, but typically options traders focus on a time period between 10 and 180 days. Options traders use historical volatility and implied volatility when analyzing trading ideas.

Investors typically express historical volatility as a percentage reflecting the standard deviation from the average price, based on past price behavior, but there are also other methods they can use to determine an asset’s historical volatility. Unstable daily price changes often result in high historical volatility readings.

How Historical Volatility Works

Historical volatility takes past price data to calculate an annualized standard deviation value that measures how much past prices deviate from an average price over a given period. When a stock sees large daily price swings compared to its history, it will typically have a historical volatility reading. Historical volatility does not measure direction; it simply indicates the deviation from an average.

When a stock’s historical volatility is rising or above average, it means daily price changes are larger than normal. When it is lower than average, a stock or index has been relatively calm.

How Historical Volatility is Calculated

The historical volatility formula is typically a standard deviation measurement. It takes a stock’s daily price changes and averages them over a period. There are several steps to calculating historical volatility:

1.    Collect historical prices

2.    Calculate the average historical price over a period

3.    Find the difference between each day’s price change versus the average

4.    Square those differences

5.    Find the sum of those squared differences

6.    Divide those differences by the total number of prices (this finds the variance)

7.    Calculate the square root of the variance

The historical volatility formula is a tedious step-by-step process, but most brokerage platforms automatically calculate it. Many brokers even offer historical volatility charts. With a historical volatility chart, you can easily compare changes through time. For example, if a stock reacted sharply to an earnings release, the historical volatility charts will show a jump immediately after the earnings date while implied volatility might drop sharply after the earnings report.

How to Use Historical Volatility

Traders sometimes use historical volatility to help set stop-loss levels. For example, a day trader might take three times a stock’s daily average range – a measure of historical volatility – to set a stop price. This is known as volatility ratio trading.

Traders also use historical volatility when analyzing a stock, fund, or index to get a sense of its riskiness. High or low historical volatility stocks are not inherently bullish or bearish. Day traders might seek high historical volatility stocks as candidates for high-profit trading opportunities (but they also come with high loss potential).

You can also use historical volatility to help determine whether a stock’s options are expensive to help determine an options trading strategy. If implied volatility is extremely high when compared to a stock’s historical volatility, traders may decide that options are undervalued.

Historical vs Implied Volatility

Like historical volatility, it measures fluctuations in an underlying stock or index over a period, but there are key differences between the two indicators. Implied volatility is a forward-looking indicator of a stock’s future volatility.

The higher the historical volatility, the riskier the security has been. Implied volatility, on the other hand, uses option pricing to arrive at a calculation and estimate of future volatility. If implied volatility is significantly less than a stock’s historical volatility, traders expect a relatively calm period of trading, and vice versa.

Typically, when implied volatility is low, options pricing is low. Low options prices can benefit premium buyers. Sometimes investors will use a graph to determine how an option’s implied volatility changes relative to its strike price, using a volatility smile.

The Takeaway

Historical volatility is a useful indicator for both institutional and retail investors looking to get a feel for the level of recent fluctuations in a stock or index has been in the recent past. It measures a security’s dispersion of returns over a defined period. Implied volatility is a similar tool, but it is forward-looking and uses option pricing to arrive at its output.

Options trading and the use of historical volatility is helpful for some advanced traders. If that sounds like you, an options trading platform like SoFi could be worth considering. Its intuitive and approachable design offers investors the ability to place traders from the mobile app or desktop platform. Plus, there are educational resources about options available in case you want to answer a question or learn more about a certain topic.

FAQ

What is considered a good number for historical volatility?

It depends. While one stock might have a high historical volatility reading, perhaps above 100%, another steady stock might have a low figure around 20%. The key is to understand the securities you trade. Historical volatility can be an indicator of a stock’s volatility, but unforeseen risks can turn future volatility drastically different than the historical trend.

What is a historical volatility ratio?

The historical volatility ratio is the percentage of short-to-long average historical volatility on a financial asset. You can interpret the historical volatility ratio by looking at short versus long historical volatility. If short volatility on a stock drops below a threshold percentage of its long volatility, a trader might think there will be a jump in future volatility soon.

This is similar to analyzing volatility skew in options. It is important to remember that the interpretation and technical rules of historical volatility can be subjective by traders.

How is historical volatility calculated?

Historical volatility calculations require finding the average deviation from the average price of an asset over a particular time. An asset’s standard deviation is often used. Historical volatility is usually stated as one standard deviation of historical daily returns.

Many trading platforms automatically calculate historical volatility, so you don’t have to do the calculations manually.

Photo credit: iStock/Eva-Katalin

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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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