Understanding Car Insurance: How Much Coverage Do You Need?

When it comes to purchasing car insurance, determining the right amount of coverage can be challenging, especially if you’re on a budget. While most states mandate a minimum level of liability insurance, there are several other types of coverage you may need or want. Striking a balance between protection and cost is essential. Here’s a comprehensive guide to help you navigate the complexities of car insurance and find the right coverage for your needs.

How Much Car Insurance Do You Need?

Unfortunately, there isn’t a one-size-fits-all answer to how much car insurance you need. If you’re looking for the bare minimum, most states have specific requirements for liability coverage. For instance, it may be as low as $10,000 per person and $20,000 per accident for bodily injuries, and $10,000 for property damage—often represented as 10/20/10. You can check with your state’s department of insurance or department of motor vehicles to understand what’s required.

However, insurance experts generally recommend higher coverage levels, such as $100,000 per person and $300,000 per accident for bodily injuries, and $100,000 for property damage, or 100/300/100. Depending on where you live and whether you financed your vehicle, you may be required to have additional forms of coverage, but the coverage level is typically non-negotiable—you either need it or you don’t.

Types of Required Auto Insurance Coverage

Depending on your location and whether your vehicle is financed, the following coverages may be required:

Liability Coverage

Liability protection includes bodily injury and property damage protection. If you cause an accident or damage someone’s property while driving, this coverage helps cover the costs. The only state that doesn’t require liability insurance outright is New Hampshire, but you must prove you can afford the costs that liability insurance covers to get the requirement waived.

Collision and Comprehensive Coverage

Collision coverage helps cover damage if you’re involved in an accident with another vehicle or hit an object. Comprehensive protection covers damage from theft, hail, fire, or vandalism. These coverages are typically required if you have an outstanding auto loan, as they protect the lender’s investment. The amount of coverage depends on your car’s value, but you can select a deductible, usually ranging from $250 to $1,000. A higher deductible means lower regular insurance premiums.

Uninsured and Underinsured Motorist Coverage

If a driver without insurance or with insufficient coverage causes an accident, this protection can help pay your medical bills and, in some states, repairs to your vehicle. While not required in all states, these coverages offer significant protection in situations beyond your control.

Medical Payments Coverage or Personal Injury Protection

Medical payments coverage helps pay for medical costs if anyone in your vehicle is injured. Personal injury protection (PIP) is similar but may also cover lost income, childcare expenses, and more. Most states don’t require either of these coverages, and you can’t have both simultaneously. Coverage is typically capped at $10,000, though limits can vary by state.

Types of Optional Auto Insurance Coverage

Depending on your situation and insurance carrier, you may have access to additional optional coverages, including:

Rental Reimbursement

If you’re at fault in a claim and need a rental car while your vehicle is being repaired, this coverage can reimburse you for the rental cost up to a certain daily limit for a predetermined number of days.

Towing and Labor Cost

This coverage helps pay for roadside assistance costs if your vehicle breaks down, you get a flat tire, you’re locked out of your car, or you run out of gas.

Mechanical Breakdown

If you own or lease a newer vehicle, this protection can help cover the cost of mechanical repairs and replacement parts, typically with a deductible.

Disappearing Deductible

Also known as vanishing or diminishing deductible coverage, this can reduce your deductible each year or policy period in which you avoid accidents and moving violations.

Penalties for Driving Without Auto Insurance

The penalties for driving without insurance can vary by state but are often severe. Penalties typically include fines ranging from $100 to $5,000 and suspension of your license or registration. In some cases, the department of motor vehicles may impound your vehicle, confiscate your license plates, add points to your driving record, or require your insurance carrier to file an SR-22 form to prove you have coverage. You may also face increased insurance premiums, as SR-22 drivers are considered high risk. In some states, you may even face up to a year of jail time.

How to Choose Car Insurance Coverage

Here are some steps to help you determine the right amount of car insurance:

Know Your State and Lender Minimums

Depending on where you live and your lender, you may need to have at least a minimum amount of liability, collision, and comprehensive coverage, as well as other types of protection. Check with your state and lender to find out what’s required.

Consider the Age and Value of Your Car

If you’re driving an older car and own it outright, it may not be worth enough to get certain types of insurance coverage, such as collision and comprehensive protection.

Look at Your Budget

In an ideal world, you wouldn’t have to trade off coverage for a lower premium. But if you’re on a budget, you may need to have less coverage than you want. Take a look at how much you can afford in terms of monthly premiums, then work with your insurance agent to determine how much coverage you can get.

Consider Your Savings

If you have a sizable emergency fund, you may not need as much coverage as someone with less savings. In this scenario, you can effectively self-insure if something happens to your car, allowing you to choose a lower coverage amount or a higher deductible and save on monthly premiums.

As you consider these and other factors, don’t forget about the value of peace of mind. Even if you can afford to pay for certain costs out of pocket, it can still be stressful. Depending on your tolerance for risk, it could be worth paying for more coverage than the minimum you think you need.

Compare Car Insurance Quotes to Maximize Your Savings

Each insurance provider has its own criteria for determining rates, so it’s crucial to shop around and compare auto insurance rates from multiple carriers. This ensures you get the right coverage for the lowest price possible.

At O1ne Mortgage, we understand the importance of finding the right car insurance coverage. If you have any questions or need assistance with your mortgage needs, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate the complexities of insurance and find the best solutions for your unique situation.