If you're thinking about buying a car, you may also be wondering, "Is car insurance required?" and "How much auto insurance do I need?" The answers depend on the minimum car insurance that your state requires and what additional coverage matters to you. Here, we'll go through the type of insurance you definitely need in most states and how to choose the right coverage to meet your needs.
Nearly every state requires drivers to carry liability insurance. The minimum amount of coverage you must carry depends on your state. To find out what your state requires, go to your state's department of motor vehicles website. Alternatively, you can talk with an insurance agent who works in your state.
When it comes to coverage, snagging low cost car insurance is not the only thing that matters. It's important to purchase enough coverage to feel financially secure if you happen to be part of an accident.
As you shop for auto insurance, you'll see requirements that look like this: 25/50/25. Here's what they mean:
First number: The first number (25) represents $25,000, the amount of bodily injury liability coverage per person required.
Second number: The second number (50) represents $50,000, the amount of bodily injury liability coverage per accident required.
Third number: The last number (25) represents $25,000, the amount of property damage liability coverage per accident required.
Liability policies are designed to compensate other parties if you cause an accident that leads to property or bodily damage. That means if you hit another car or someone walking across the road, liability insurance will cover it. If you run off the road and crash into someone's fence, liability will cover that type of incident too.
Imagine that you hit another car carrying two passengers. Both are hospitalized and their bills amount to $500,000. There is $10,000 in property damage to their vehicle. Let's say the minimum liability coverage for your state is 25/50/25. That means the maximum your insurance company will cover is $25,000 in bodily injury per person, $50,000 in total bodily injury per accident, and $25,000 in property damage.
If that's the case, your liability insurance would be enough to cover property damage to the car. But, because of the liability limit, you'd be $450,000 short in bodily injury liability coverage. The passengers in the other car do not have to accept the $50,000 in bodily injury supplied by your insurer as full coverage. It is likely that they will sue you for the rest.
Before shopping for car insurance, you must ask yourself if you can afford to be sued following a serious accident. If not, the amount of liability insurance you carry should reflect that fact.
Think about what you own, including property and money in the bank. The amount of liability insurance you carry should be enough to protect those assets. You may have to shop around for a company that carries enough to make you comfortable, as many policies have a coverage limit of $300,000 or $500,000.
The recommended car insurance coverage begins with the coverage you are required to have. Minimum requirements for auto insurance coverage are mandated by each state. Here are some types of coverage that your state may require:
Some form of personal injury protection (PIP) is required in 15 states. PIP coverage is similar to medical payments coverage, with the difference being that it covers things like loss of income, house cleaning, and childcare expenses while you recover from an accident. If someone dies due to an accident, PIP even covers funeral expenses.
Some states require uninsured and underinsured motorist coverage. If you're hit by a driver who does not carry automobile insurance and you get hurt, uninsured motorist coverage will cover your medical expenses. In some states, it will also cover damage to your vehicle. If you're hit by a driver who is underinsured, this coverage will help make up the difference, paying for things the underinsured driver's policy does not.
Some states also require medical payments coverage, while it is optional in others. This coverage pays medical expenses like hospitalization, surgery, and medical tests if you, a passenger in your car, or anyone driving your vehicle is hurt in an accident.
The next step in figuring out your recommended car insurance coverage is looking at the various coverage options. Even if you live in a state that only requires liability coverage, you owe it to yourself to choose a type of coverage that makes you feel financially secure at the lowest insurance cost you can find. Besides the coverage required by your state, here are some more options:
Comprehensive coverage takes care of issues not covered by other policy types. For example, if a tree falls on your car, you're in a flood, or a deer runs out in front of you, you're covered. Comprehensive insurance goes with you -- even if you're driving someone else's car. Comprehensive coverage is typically optional unless you're leasing a car.
If you're someone who wants as much security as possible, shop for a comprehensive plan. As you compare car insurance companies you will find that their rates for comprehensive coverage vary wildly. It pays to take your time and compare all options.
Collision coverage is less expensive than comprehensive but does not cover as much. Collision insurance pays up to the cash value of your vehicle, minus your deductible. Let's say you hit black ice, slide off the road, and total a car worth $3,500. If you have a deductible of $1,000, your insurer will pay out $2,500.
If your vehicle breaks down on the side of the road, roadside assistance and towing covers the costs to tow you to a repair shop. It can also cover things like the cost to send someone out to charge a dead battery, fix a flat tire, or help you get into your car after a lock-out.
Some policies automatically throw these services in as a perk of your policy.
Rental reimbursement pays a set amount each day for a rental car or public transportation while your vehicle is being repaired after a claim.
In the event your car is totaled, Gap insurance helps pay off your car loan without you getting stuck with a big bill.
If your car is totaled in an accident, insurance only covers the current value of the car. This may not cover your total loan costs. If you owe more for the car than its current value, you will have to pay the rest not covered by insurance. Gap insurance will help cover that difference between the current value of your car and what you owe on it.
This type of coverage is for vehicles that are at least 25-30 years old. There are typically limits on how many miles you can drive a vehicle with classic car insurance, but if you only bring it out on weekends or drive it to car shows, this may be the perfect level of coverage. Classic car insurance can also be purchased for high-value vehicles, like muscle cars.
This fills the gap between your personal insurance policy and the policy provided by ridesharing services like Lyft or Uber. Your personal insurer does not cover your vehicle while it's being used for business, and the policy provided by the ridesharing service may not cover you while you're waiting for a ride request, according to the National Association of Insurance Commissioners (NAIC). For example, if you're available for hire, but waiting for a ride request, you may not be covered by either policy. Having rideshare insurance can cover the gaps left by both policies.
Auto insurance coverage recommendations first depend on the state you live in. With each state having its own minimum coverage requirements, it's important to check the rules of your state when you buy a car or become a new resident.
There are two easy ways to find the current minimum coverage for your state. One is to check your state's department of motor vehicles website. The other is to ask an insurance agent who operates in your state.
Here are a few of the differences in state insurance requirements that struck us as interesting:
What's right for one driver may not be right for another. These five steps should help you narrow down policies until you find the one that's perfect for you.
Step 1: Ask yourself, "How much auto insurance coverage do I need?" While you must meet the minimum requirements set by your state, decide on the level of coverage you're most comfortable carrying.
Step 2: Work with your budget to decide how much you can afford to pay for an insurance policy.
Step 3: Think about which policy type is best for your vehicle. For example, if you drive a new car, you may want gap insurance coverage. If you take a classic car to auto shows, look at classic car coverage. And if you have an old beater that you drive around your property and won't miss if it's gone, consider liability insurance coverage only.
Step 4: Don't be shy about checking online rates or calling an insurance agent. The right auto insurance policy is based on state requirements along with a combination of enough coverage to make you feel secure behind the wheel and a car insurance rate you can afford.
Step 5: Ask questions until you feel comfortable settling on a policy. If a term is confusing to you or you feel like you're being "sold" coverage you don't need, ask even more questions. The more you know about one policy type, the better you can compare it to the average monthly car insurance cost of other policies.
While auto insurance coverage is not an expense anyone particularly enjoys paying, it's there for your protection. In addition to helping you get back on the road, a good insurance policy can get you back on your feet following an accident and help protect your bank account.
A good deductible is one you can afford to pay in the event of an accident. It's a balancing act, though, because the lower your deductible, the higher your monthly premiums.
This kind of insurance provides up to $100,000 in bodily injury coverage for one person in an accident and up to $300,000 for total bodily injuries, no matter how many people are involved in the accident. How much you can afford to cover in the event of an accident determines whether you need 100/300.
No state requires full coverage, but if you're concerned about inadequate coverage or have a valuable vehicle to insure, full coverage is a good idea.
The average cost of auto insurance in the U.S. is $199 per month. Your cost may be more or less, depending on the type of vehicle you drive, your driving record, and the coverage you desire.
Yes, if you have a newer vehicle and don't have the resources to make repairs or buy a new car in the event of storm damage, theft, or another unexpected occurrence. Comprehensive car insurance could pay for itself with just one claim.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.