How Much Auto Insurance Should You Buy?

How much car insurance should I buy? It’s a question on the lips of countless drivers, especially those climbing behind the wheel for the first time. It’s a tricky question, as there are many elements to consider, from state minimum requirements to whether or not you need those optional extras and, if so, how far you can go?

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State Minimum Coverage

Firstly, the bare minimum car insurance requirements are set according to state law and dictate how much auto insurance you need to be legally insured. If you want to be fully covered (and you should, as you could face fines and penalties if you’re not) then you will need to meet these minimums.

We have covered all minimum state auto insurance requirements elsewhere and won’t get into that again here, but generally, you need to have the following types of coverage:

Bodily Injury Liability Insurance

Two types of body injury liability insurance are needed: per person and per accident. This cover will be fixed to a maximum amount, which means the insurer will pay all money up to that point. In most states, the minimum cover is $25,000 per person and $50,000 per accident.

Bodily injury insurance provides cover when individuals (not you) are injured in a car accident.

Property Damage Liability

Property damage liability insurance is required in most states and is often a minimum of $25,000. While bodily injury covers the individuals, property damage covers the vehicle.

Personal Injury Protection (PIP)

PIP covers you for medical expenses if you are involved in an accident and can also cover you if that accident results in a loss of work. With PIP, you don’t even need to be the driver, as it will cover you if you are a passenger in someone else’s car.

Underinsured/Uninsured Motorist Coverage

An estimated 13% of US drivers don’t have insurance, leading to all kinds of legal and financial problems if they are ever involved in an accident.

With uninsured and underinsured motorist cover, the insurer will cover the costs that stem from being in an accident with an uninsured driver, while also paying the difference if they don’t have enough insurance.

Medical Payments

Although rare, some states also require medical payments coverage. This works in a similar way to PIP, but there are many more exceptions and it focuses specifically on medical costs. 

The requirements for this type of cover are often much less. In Maine, for instance, the minimum is $2,000, while in New Hampshire it is $1,000, and in no state does it exceed $5,000.

How Much Cover Should You Buy?

The state minimums are important but may leave a lot to be desired if this is the only cover you have. The recommendation is that you either purchase a 25/50/25 split or a 100/300/100 split depending on your situation and your vehicle.

The 25/50/25, in most cases, will be the minimum requirement. This is ideal for drivers with cheaper/older cars, as well as those on a budget that don’t drive a great deal, such as students and seniors. In fact, drivers in this demographic may find themselves being quoted high insurance premiums because of the increased risk, so keeping to these liability limits and skipping additional coverage can help.

As for middle-income earners with some savings and an expensive or new car, the 100/300/100 rule, which means $100,000 for bodily injury per person, $300,000 per accident, and $100,000 for property damage, may be the better options.

This is a significant increase from the minimum liability but doubling the cover doesn’t mean you will double the premiums, and once you get those minimums out the way, additional liability cover is much cheaper than you might think.

Additional Car Insurance Coverage

Once you get the minimum liability cover out of the way, you need to start thinking about optional coverage. As discussed above, some of this is also required by the state, but even if it’s not, there are times when it should be considered:

How Much Collision Coverage and Comprehensive Coverage?

Collision insurance covers you in the event that you hit another vehicle, a tree, a guardrail, and a number of other objects (it does not, however, including collisions involving animals). Comprehensive coverage, on the other hand, covers you for everything else, including vandalism, weather damage and accidents involving animals. 

No state requires a minimum amount for either of these options and it’s entirely up to you if you want to add them to your auto policy.

Generally, they should be considered if you have a relatively new car (less than 10 years old) that you can’t easily afford to replace or repair. Comprehensive coverage should also be considered if you live in a state with extreme weather and a risk of hurricanes or floods (New Jersey, California, New York) or a state with a lot of animal collisions (West Virginia, Michigan, South Dakota, Wisconsin, Montana, Iowa).

You will be required to pay a deductible on this type of cover, with a higher deductible leading to a lower quote. Just remember that if the cost of repairs is less than the deductible, you will be hit with the entirety of the bill.

How Much Uninsured/Underinsured Coverage?

On average, you can expect to pay just $70 to $90 a year for underinsured/uninsured motorist cover. If you are in an accident with an uninsured driver, it could help to cover your medical bills and, in such cases, may seem like a wise addition to your policy.

But it’s not essential in all states and it’s entirely up to you whether you want to add it or not. In some states, having health insurance and collision insurance will negate the need for underinsured/uninsured motorist coverage, but it can be a useful addition to your policy if you can afford it.

What About Medical Payments and PIP?

If you don’t have health insurance and can’t afford to take time off work following an accident, these additional options should be considered. PIP is especially important if an injury will lead to great financial stress, which is often the case for individuals who need to work to get paid, such as freelancers and contractors.

Medical payments coverage is generally very cheap and could cost you just $20 a year. PIP will cost around 10 times this much, so it’s something you need to consider carefully.

Bottom Line: Try to Save

As outlined above, the extent of cover you need will depend on your state, your income, the value of your assets, the value of your car, your demographic, and your monthly budget. In the end, what matters the most is that you get the best cover for the lowest possible price, so whatever option you choose, keep the following tips in mind:

  • Shop around; compare multiple insurance companies and speak with insurance agents.
  • Look into multi-car policies or bundling if they apply to you.
  • Consider raising your deductibles.
  • Look for car insurance discounts.
  • Save on roadside assistance by getting it from credit cards, bank accounts or membership clubs.