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How Much Car Insurance Coverage Do You Really Need?

Updated
Ryan Wilcox
Author: Ryan Wilcox
Ryan Wilcox
Ryan Wilcox

Ryan is a full-time Personal Finance Writer at Motley Fool Money. He’s been covering topics like credit cards and savings since 2022, when he began his writing career at The Points Guy. He later joined Motley Fool Money, where he continues helping people who are new to the world of personal finance. Outside of work, you’ll find Ryan reading, writing, listening to music or obsessively updating his Letterboxd account.

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Buying car insurance isn't just about checking a box of requirements. The amount of coverage you choose can shape how well you're protected in the event of an accident, and how much you could end up paying out of pocket.

Every state has its own rules, and most only require the bare minimum in coverage. One serious accident, though, could wipe out your savings or put you in debt if you don't have enough coverage in place.

On the other hand, as someone who's been paying car insurance for a decade, I can attest that your monthly payment, or "premium," is an important consideration too.

This guide breaks down what kind of car insurance is required, what's recommended, and how to choose the right level of protection for your situation.

What the law requires

At the very least, almost every state requires drivers to have liability insurance. For example, I live in North Carolina, where I'm required to have liability coverage of at least $50,000 per person for bodily injury, $100,000 per accident for bodily injury, and $50,000 per accident for property damage.

In other states, the required amounts vary, but sometimes they're quite low -- as little as $25,000 per person for bodily injury. In a major accident, that won't go far.

Some states also require uninsured or underinsured motorist coverage, which kicks in if the driver who hits you doesn't have insurance (or doesn't have enough). If you live in a no-fault state, you'll likely also need personal injury protection (PIP), which covers your medical expenses regardless of who caused the accident.

It's important to understand what your state requires, but that should be your starting point, not your goal.

Why more coverage is usually better

Minimum car insurance coverage might be cheaper in the short term, but it can leave you dangerously underinsured. For example, if I cause a serious accident and the costs exceed my liability limits, I could be held personally responsible for the remaining amount. That could mean dipping into my savings or even facing legal action.

To stay protected, I recommend increasing your liability coverage to at least $100,000 per person and $300,000 per accident for bodily injury, and $100,000 for property damage -- often written as 100/300/100.

It costs more, but it can save you from financial disaster if you're ever involved in a major accident.

Should you get full coverage?

The term "full coverage" typically means your policy includes both collision and comprehensive coverage. Collision pays for damage to your own car if you crash, even if it's your fault. Comprehensive pays for non-collision damage, like theft, fire, vandalism, or weather events.

Lenders require full coverage if you're leasing or financing your car. Even if you own it outright, full coverage might still make sense -- especially if your car is worth more than a few thousand dollars and you can't afford to replace it. I have full coverage because I value the peace of mind and security it provides.

On the other hand, if your car is older and not worth much, it may not be worth paying for full coverage. In that case, you might be better off saving the money or raising your deductible to lower your premium.

Other coverages to consider

Depending on your situation, it might also make sense to add some optional protections:

  • Uninsured/underinsured motorist coverage: A good idea if you live in a state with many uninsured drivers
  • Rental reimbursement: Helps cover the cost of a rental car while yours is being repaired
  • Roadside assistance: Useful if you drive long distances or live in rural areas
  • Gap insurance: Covers the difference between your car loan balance and the car's value if it's totaled

These extras add to your premium, but they can be worth the cost depending on your risk level and budget.

Balancing cost and coverage

Car insurance is all about risk management. More coverage means better protection, but it also means higher premiums.

If you're trying to save money, one option is to raise your deductible -- the amount you pay out of pocket before insurance kicks in. Just make sure it's an amount you could realistically afford in an emergency.

Ready to get started? We've done the hard work for you. Check out our favorite car insurance providers to find the coverage that's right for you today.

FAQs

  • Each state sets its own minimum car insurance requirements. Check with your state's DMV or insurance department to confirm the limits you need.

  • Most experts recommend at least 100/300/100 in liability coverage to protect your assets in a serious accident.

  • It's a good idea if your car is new, valuable, or financed. If your car is older and worth less than the cost of coverage, you might consider dropping collision and comprehensive insurance.

  • You could be held personally responsible for any costs that go beyond your policy limits, including medical bills and legal fees.