Luis Pazos 
Key Takeaways:
Every state requires vehicle owners to have a minimum level of car insurance. This typically includes bodily injury liability, personal property liability, medical payments, and uninsured/underinsured motorist coverage. However, experts recommend purchasing higher limits to better protect yourself.
The amount of car insurance you need depends on factors like your car, outstanding loans, driving frequency, net worth, and more. Besides meeting state minimums, you should consider additional coverage types that align with your needs.
State requirements mandate specific insurance coverage levels, but you can opt for extras like collision, comprehensive, and gap insurance. Before buying a policy, evaluate how much coverage you need and choose the types that suit your lifestyle.
Why You Need Car Insurance:
Car insurance is essential as it protects you financially if you are involved in an accident or if your car gets stolen. This protection is in exchange for your insurance premiums, which the company uses to cover losses outlined in your policy. Without car insurance, you would bear all financial losses from accidents or theft.
Additional reasons include:
- Meeting State Requirements: Each state mandates a minimum car insurance level. Driving without it can lead to license suspension and hefty fines.
- Meeting Lender Requirements: If you have a car loan, your lender will likely require you to have adequate insurance to replace your car in an accident.
- Financial Protection: Car insurance covers repair costs, medical bills, and other expenses from accidents or claims, which can otherwise be overwhelming.
It’s evident car insurance is crucial, not just legally but also for financial protection against unexpected losses.
How Much Liability Insurance Do I Need?
Begin by checking your state’s minimum coverage requirements, usually focusing on liability insurance, which covers expenses when you’re at fault. State minimums might not be sufficient; for instance, Arizona requires $25,000 per person and $50,000 per accident in bodily injury liability, among others. Given the high cost of accidents, experts suggest higher limits—at least $100,000 per person and $300,000 per accident for bodily injury liability, and $100,000 per accident for property damage liability.
Additional Types of Auto Coverage to Consider:
Beyond liability insurance, consider other coverages:
- Collision Coverage: Repairs your car in an accident if you’re at fault, often required by lenders.
- Comprehensive Coverage: Covers non-collision damages like hitting an animal, hail, or vandalism, also typically required by lenders.
- Personal Injury Protection (PIP): Pays medical bills regardless of fault, required in some states.
- Uninsured/Underinsured Motorist Coverage: Covers costs if the at-fault driver lacks adequate insurance, recommended limits are at least $100,000 per person and $300,000 per accident.
- Gap Insurance: Covers the difference if your car is totaled and you owe more than its value.
- Umbrella Insurance: Provides additional liability coverage beyond your auto policy limits, costing around $200 to $300 per year for $1 million in coverage.
What Happens If I Have Insufficient Car Insurance?
Having only the state minimum may leave you exposed. Others involved in an accident can sue for losses exceeding your policy limits. Experts recommend liability coverage limits exceeding your net worth rather than opting for the cheapest policy. State minimums usually don’t include collision or comprehensive coverage, leaving you unprotected for many risks.
Deciding How Much Car Insurance You Need:
Consider your assets, state requirements, and current car ownership status. Here’s a simple approach:
- Calculate your net worth by adding up your home, cars, savings, and investments, then subtract your debts.
- Check your state’s Bureau of Motor Vehicles website for minimum coverage requirements.
- Review your lender’s insurance requirements, including collision and comprehensive coverage sufficient to replace your car if it’s a total loss.
- If you owe more than your car’s value, consider gap insurance for additional protection.
The Bottom Line:
Choosing the right amount of car insurance requires careful thought. Insufficient coverage can lead to long-term financial trouble. Shop around with multiple providers and opt for the highest coverage limits you can afford. More coverage is always better, especially when faced with an accident.
