How Much Car Insurance Do You Need?
Almost every state mandates that drivers carry a certain amount of car insurance. If you've just bought a new car, you're probably wondering, "How much car insurance do I need?" You may also need to determine what type of car insurance coverage you require in order to legally drive. This is covered in this article. In this article, we'll look at the various types of car insurance to help you determine the best car insurance coverage for you at an affordable price.
Types of car insurance coverage
Your car insurance policy is divided into six major sections, and you can also add optional coverages to your policy. Here's a rundown of what a standard car insurance policy looks like.
Liability insurance
Most states in the United States require liability insurance. It is divided into two sub-categories. The medical expenses incurred by anyone else involved in your accident will be covered by bodily injury liability. Property damage liability, which covers the costs of compensating others for damage. If you go off the road, you may be required to repair your vehicle or another person's property.
Personal injury protection
PIP coverage pays for any medical expenses incurred by you or your passengers in the event of an accident. It may also cover expenses if you lose your job due to an accident or have to pay for additional child care. It is not available in all states.
Uninsured motorist/underinsured motorist coverage
This insurance protects you if you are in an accident with another vehicle whose driver does not have insurance or does not have enough to cover the costs of the accident. If you are injured in a hit-and-run accident, you are also covered by uninsured motorist coverage. It is not usually required, but it is worth considering even if it is not because it can be a lifesaver in some situations.
Collision insurance
Collision insurance is an optional policy that covers damage to your car in an accident that you caused, such as if you hit another car or hit a pothole. It is not required, but if you have a car loan, your lender may require you to have collision insurance.
Comprehensive insurance
Accidents are not covered under comprehensive insurance. It covers damage from a wide range of other covered perils, including falling trees, theft, and storm damage. It is not required, but if you have a car loan, your lender may require it.
Gap insurance
If your car is totaled and you have a car loan that is worth more than the car's value, this optional coverage can be extremely beneficial. The moment you drive it off the lot, it begins to depreciate. When you lease a car, gap coverage is usually included in the monthly payment.
Additional options
Glass coverage: This is becoming more common, and many policies include a no-deductible option for glass repair, which makes sense given that the repairs are frequently less than the deductible amount.
Medical payments coverage: also known as medical expense coverage, covers the medical expenses of you and your passengers regardless of who caused the accident. It differs from PIP in several ways: it does not cover child care or lost wages; it is available in states that are not “no-fault” (PIP is available in no-fault states); and, unlike PIP, it is always optional.
Ride-sharing coverage: Due to the popularity of companies such as Lyft and Uber, insurers have developed a new type of insurance that covers you if you use your car for business purposes, which regular car insurance does not. Your ridesharing company may provide insurance, but these policies typically have high deductibles and may leave you liable if someone is injured or your vehicle is damaged while providing drive services. You're better off getting insurance from your own company.
Transportation reimbursement coverage: If your car is in the shop for any length of time after an accident being repaired, this coverage will reimburse you for car rental or public transportation costs. It's also known as rental reimbursement coverage or rental car insurance.
New car replacement coverage: If your relatively new car is totaled, you could be out several thousand dollars or more because depreciation happens quickly. This option is becoming more popular, though it is not available from all insurers. If you total a car that is two years old or newer, it will generally pay to buy you a new car rather than give you the depreciated value.
Classic car insurance: When paying a claim, this coverage considers the intrinsic value of a collectible car. You'll need to speak with your agent to see if your vehicle falls into that category; requirements vary from company to company.
Towing and labor coverage: This is similar to what auto clubs like AAA provide. If your car breaks down, you can get free or low-cost towing to a service station, and it may pay for things like gas delivery, a jump start, or unlocking your locked car. This isn't meant to be used after an accident, but rather for those all-too-common situations where your "check engine" light comes on or you're stranded on the side of the road with a dead battery.
What is the minimum car insurance I need
Before purchasing car insurance, it is critical to understand the minimum amount of coverage required by your state. Most states require bodily injury and property damage liability coverage, but the amount of coverage required varies by state. Personal injury protection (PIP) insurance is required if you live in one of the 12 no-fault states.
When shopping for car insurance, keep in mind that most coverages, such as collision and comprehensive insurance, are optional. Although these coverages are very common, states do not require them. Full coverage car insurance includes collision and comprehensive coverage, which is more than the state minimum.
What to consider getting car insurance coverage?
Car insurance is not a one-size-fits-all product. Based on some personal factors, each driver requires a different type of car insurance and a different amount of car insurance. Here are a few things to think about when shopping for car insurance:
- The car you drive: To begin, consider the vehicle you drive. New cars and high-end vehicles require significantly more insurance coverage than used cars or vehicles that are nearing the end of their useful life. If you were in an accident, it would be more expensive to repair a brand new car with all the bells and whistles than it would to repair a 20-year-old car with 150,000 miles.
- Where you live: Your state will compel you to carry a certain amount of insurance. However, it is a good idea to increase your coverage limits above the bare minimum. If you were in an accident, there is no guarantee that the bare minimum of coverage would be sufficient to cover the resulting damages. In that case, you'd have to pay the difference yourself.
- Your financial situation: Car insurance premiums can be expensive, but it is less expensive to pay for insurance than it is to use your savings to pay for vehicle damages or legal fees following a collision. If you cannot afford to repair or replace your car out of pocket, you must obtain adequate car insurance to cover potential damages. Otherwise, you may find yourself in debt as a result of a loss.
Deciding how much car insurance you need
How much car insurance is required in your state?
When it comes to car insurance, your first responsibility is to learn what the state minimums are. These minimums are written in easy-to-understand shorthand. For example, in New York, the minimum is 25/50/10. That means the state requires a minimum of $25,000 in bodily injury insurance per person, $50,000 in bodily injury insurance per accident, and $10,000 in property damage insurance per accident. You are not permitted to drive legally if you have less than this amount of insurance.
How much liability insurance do you need for your car?
If you cause an accident that results in losses, liability insurance can help pay for another driver's medical bills or property damage. In almost every state, drivers are required to carry bodily injury and property damage liability insurance. When you buy car insurance, the minimum liability requirements are displayed in the following format: bodily injury liability coverage per person/bodily injury liability coverage per accident/personal property liability coverage per accident.
For example, in New York, the minimum is 25/50/10. That means the state requires a minimum of $25,000 in bodily injury insurance per person, $50,000 in bodily injury insurance per accident, and $10,000 in property damage insurance per accident. You are not permitted to drive legally if you have less than this amount of insurance.
The most significant advantage of liability insurance is that it safeguards your personal assets in the event of a lawsuit. If another driver takes you to court, your liability insurance will cover your legal fees, court costs, and settlements. If you do not have liability insurance, the other driver may sue you and seize your assets if you do not have enough money to repay them for the damage you caused.
Lender requirements
If you paid cash for your car, the legal minimums are the fundamentals that your state requires. However, if you have a car loan, your lender may require additional insurance, such as collision or comprehensive coverage. To learn more, speak with your banker.
Financial protection
Car insurance is critical because it provides financial security. If you don't have insurance, you'll be liable for compensating another driver's losses if you cause an accident. A serious accident can cost thousands of dollars or more in vehicle damage, medical bills, and property damage, all of which would come out of your pocket.
When deciding how much insurance to purchase, it is beneficial to have a good insurance agent with whom you can discuss the available coverages. Consider carrying more than the bare minimum if you can afford it.
Carrying insufficient insurance is a risk. If you've been in an accident, you know how quickly medical bills can pile up and how frustrating it is to receive a repair bill that is higher than your insurance will cover. Do your homework before deciding on a car insurance provider to ensure you're not paying more than you need to. Most businesses will provide you with a free online quote, which is excellent information to begin with. Furthermore, most companies offer discounts that can save you a significant amount of money on premium costs. You can also save money by not purchasing collision insurance or by lowering your insurance coverage. Drivers with older vehicles may forgo this insurance because the vehicle isn't worth as much as a newer vehicle and isn't worth much more than the deductible.
What if I don’t have car insurance?
We do not recommend that you drive a car if you do not have insurance. In most states, this is illegal, and if you are a repeat offender, you may lose your driver's license, face other penalties, and even face jail time. The penalties vary by state, but they are typically severe.
If you cause an accident and do not have car insurance, the consequences vary depending on the state. If you live in one of the 12 no-fault states, you must submit your claim to your insurance company regardless of who is at fault. Except in limited circumstances, the other driver cannot name you as a defendant if you caused the accident; however, you are responsible for all of your medical and other costs. The other driver will be reimbursed for their own expenses through their own uninsured motorist coverage.
If you live in one of the ten “no pay, no play” states, you have fewer options for compensation if you are injured in an accident but lack insurance, even if the other driver is at fault. You may be able to sue for economic damages such as lost wages or medical bills, but not for pain and suffering or other punitive damages.
If you are in an accident and do not live in one of the states listed above, you are in a “tort” state. If this is the case, when you cause an accident, you are liable for all costs, including car repairs, medical bills, and pain and suffering, which can be greater than the sum of the other costs.
Virginia, which does not require car insurance but does charge a $500 fine if you drive uninsured, and New Hampshire, which states that you will be held legally responsible for bodily injuries or property damage, are exceptions to these rules.
The amount of car insurance you require is a legal as well as a personal decision. Examine these factors to ensure that you are satisfied with your coverage.