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How Much Auto Insurance Do I Really Need?

February 24, 2021 · 7 minute read

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How Much Auto Insurance Do I Really Need?

Figuring out just how much auto insurance you really need can be a challenge.

At minimum, it’s important to ensure that you have enough auto insurance to meet the requirements of your state or the lender who’s financing your car.

Beyond that, there’s coverage you might want to add to those required amounts to be sure you’re adequately protecting yourself, your family, and your assets.

And then there’s the coverage that actually fits within your budget.

Finding a car insurance policy that checks all those boxes may take a bit of research—and possibly some compromise.

Here are some factors to consider:

How Much Auto Insurance Is Required by Your State?

One starting point, when deciding how much insurance you need, is to find out what your state mandates. Most states require car owners to carry some kind of auto insurance. But the laws that dictate how much and what types of coverage a policyholder must have can vary.

Here are some types of coverage your state may require:

Liability Coverage

Most states require drivers to carry auto liability insurance, which helps pay the cost of damages to others involved in an accident if it’s determined you were at fault.

Liability insurance doesn’t cover your costs, or the costs of the passengers in your car. Instead, it protects you by paying for the other driver’s car repairs, medical bills, lost wages, and other costs related to any accident you caused.

Each state sets its own minimum requirements for liability coverage. For example, in California, drivers must carry at least $15,000 in coverage for the injury/death of one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property.

But in Maryland, the amounts are much higher: $30,000 bodily injury liability per person, $60,000 bodily injury liability per accident (if there are multiple injuries), and $15,000 property damage liability per accident.

And some may want to go beyond what the state requires. If you carry $15,000 worth of property damage liability coverage, for example, and you get in an accident that causes $25,000 worth of damage to someone else’s car, your insurance company will only pay the $15,000 policy limit. You’d be expected to come up with the remaining $10,000.

Generally, recommendations suggest purchasing at least $100,000 in bodily injury liability coverage per person and $300,000 per accident.

Recommended: What Does Liability Auto Insurance Typically Cover?

Uninsured/Underinsured Motorist Coverage

Many states require uninsured motorist and underinsured motorist coverage, which is designed to protect you if you’re in an accident with a motorist who has little or no insurance. In states that require this type of coverage, the minimums are generally set at about $25,000 per person and $50,000 per accident. But the exact amounts vary from state to state. And you may choose to carry this coverage even if it isn’t required in your state.

If you’re seriously injured in an accident caused by a driver who doesn’t carry liability car insurance, uninsured motorist coverage could help you and your passengers avoid paying some scary-high medical bills.

Personal Injury Protection and Medical Payments Coverage

Several states require Personal Injury Protection (PIP) or Medical Payments coverage (MedPay for short). These two types of medical coverage help pay for medical expenses that you and any passengers in your car sustain in an accident. MedPay pays for medical expenses only.

PIP may also cover loss of income, funeral expenses, and other costs.

Some states require PIP coverage as part of their no-fault auto insurance laws. A dozen states have instituted no-fault laws for drivers—which generally means when you’re in a car accident, everyone files a claim with their own insurance company, regardless of fault.

Your state’s no-fault laws may require that you make smaller injury claims on your own PIP insurance. (For larger injury claims, you would still make a claim against the at-fault driver’s insurance.)

The state minimum requirement for this type of coverage might be anywhere between $3,000 and $50,000.

Recommended: How to Pay for Medical Bills You Can’t Afford

What Other Types of Coverage Should You Consider?

Though they aren’t required by any state laws, there are some other types of coverage you might want to add to your policy.

Some, like collision and comprehensive coverage, may be required by your lender if you’re financing or leasing your car—and they’re typically included in a full coverage insurance policy.

You also might want to look at other types of coverage that are more specific to your needs, such as Guaranteed Auto Protection (GAP), non-owner insurance, or ride-share insurance.

Recommended: Which Insurance Types Do You Really Need?

Comprehensive Coverage

Comprehensive insurance covers physical damage to your car that doesn’t happen in a collision, including theft, vandalism, a broken window, weather damage, or even hitting a deer or some other animal.

If you finance or lease your car, your lender will probably require it. But even if you own your car outright, you may want to consider comprehensive coverage. The cost of including it in your policy could be relatively small compared to what it would take to repair or replace your car if it’s damaged or stolen.

Collision Coverage

Collision insurance pays to repair or replace your vehicle if it’s damaged in an accident with another car that was your fault, or if you run into a fence, tree, building, dumpster, pothole, or some other inanimate object.

If your car is paid off or isn’t worth much, you may decide you don’t need collision coverage. But if you depend on your vehicle and you can’t afford to replace it, or you can’t afford to pay out of pocket for damages, this coverage may be worth having.

You also may want to keep your personal risk tolerance in mind when considering collision coverage. If the cost of even a minor fender bender makes you nervous, collision coverage could help you feel more comfortable when you get behind the wheel.

Guaranteed Auto Protection (GAP)

GAP insurance can help protect you as your car depreciates in value. If your car is stolen or totaled in an accident, it pays the difference between what you still owe on your car and how much it’s actually worth.

You’ll get the actual cash value plus whatever you still owe so you can pay off your loan or lease. GAP insurance is optional, and generally requires full coverage auto insurance to add it.

Non-Owner Coverage

You may think you don’t need car insurance if you don’t own a car. (Maybe you take public transportation or ride your bike most of the time.) But if you still plan to drive occasionally—when you travel and rent a car, for example, or you borrow a friend’s car—a non-owner policy can provide liability coverage for any bodily injury or property damage you cause.

The insurance policy on the car you’re driving will probably be considered the “primary” coverage, which means it will kick in first. Then your non-owner policy could be used for costs that are over the limits of the primary policy.

Rideshare Coverage

If you drive for a ridesharing service like Uber or Lyft, you may want to consider adding rideshare coverage to your personal automobile policy.

Rideshare companies are required by law in some states to provide commercial insurance for drivers who are using their personal cars—but that coverage could be limited. (For example, it may not cover the time when a driver is waiting for a ride request but hasn’t actually picked up a passenger.) This coverage could fill the gaps between your personal insurance policy and any insurance provided by the ridesharing service.

What Could Happen If You Don’t Have Insurance?

There can be serious penalties for driving a car without valid insurance. If an officer pulls you over and you can’t prove you have the minimum coverage required in your state, you could get a ticket and the officer might have your car towed away from the scene.

If you’re in a car accident, the penalties for driving without insurance could be far more significant. You will likely be fined, and you could have your license suspended or revoked.

If you caused the accident, you may be held personally responsible for paying any damages to others involved. And even if you didn’t cause the accident, the amount you can recover from the at-fault driver may be restricted.

How Do You Balance Need, Want, and Cost?

As you look into different types of insurance coverage, you may find there’s a big difference in the amount of coverage you have to have, how much you think you should have, and what you can afford.

That’s why it can help to know what your state and your lender might require, and then to move on from there. Keep in mind that having car insurance isn’t just about getting your car—or someone else’s—fixed or replaced. (Although that—and the fact that it’s illegal to not have insurance—may be motivation enough to at least get basic coverage.)

Having the appropriate levels of coverage also could help you protect all your other assets—your home, business, savings, etc.—if you’re in a catastrophic accident and the other parties involved decide to sue you to pay their bills.

Your state’s minimum liability requirements may not be enough to cover those costs—and you could end up paying the difference out of pocket.

How can you strike a balance between getting the right coverage and keeping the cost to a manageable amount?

Here are some things to think about:

Designing a Policy that Works for You

Your insurance company will probably offer several coverage options, and you may be able to build a policy around what you need based on your lifestyle. For example, if your car is paid off and worth only a few thousand dollars, you may choose to opt-out of collision insurance in order to get more liability coverage.

Choosing a Deductible

Your deductible is the amount you might have to pay out personally before your insurance company begins paying any damages. You may have two different deductibles—one for comprehensive coverage and one for collision.

Just as with your health insurance, your insurance company will likely offer you a lower premium if you choose to go with a higher deductible ($1,000 instead of $500, for example).

If you have savings or some other source of money you could use for repairs, you might be able to go with a higher deductible and save on your insurance payments. But if you aren’t sure where the money would come from in a pinch, it may make sense to opt for a lower deductible.

Recommended: Different Types of Insurance Deductibles

Checking the Costs of Added Coverage

Getting twice as much liability coverage won’t necessarily double the price of your premium. You may be able to manage more coverage than you think. Before settling for a bare-bones policy, it can help to check on what it might cost to increase your coverage.

Finding Discounts that Could Help You Save

Some insurers (including SoFi Protect) reward safe drivers with lower premiums. Bundling car and home insurance is another way to cut costs. Look for any discounts or packages that would help you save.

The Takeaway

Before you start shopping for auto insurance, it can help to know some basics, including what levels of coverage your state and your lender may require.

You also may want to research the types and amounts of coverage that would offer the best protection based on your specific needs. And it can be useful to know in advance how much you can afford to spend. That way you won’t be paying for anything you don’t need, and you may be able to get more of what you want.

Feeling uncertain about how much auto insurance you really need or what kind of premium you might have to pay to get what you want? Check out SoFi Protect, which uses the Root mobile app to measure your driving habits. The better you drive, the more you can save.



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