Insurance » Auto Insurance » How Much Car Insurance Do You Really Need?
Advertiser Disclosure

This website is an independent, advertising-supported comparison service. The product offers that appear on this site are from companies from which this website receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This website does not include all card companies or all card offers available in the marketplace. This website may use other proprietary factors to impact card offer listings on the website such as consumer selection or the likelihood of the applicant’s credit approval.

This allows us to maintain a full-time, editorial staff and work with finance experts you know and trust. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impacts any of the editorial content on The Smart Investor. While we work hard to provide accurate and up to date information that we think you will find relevant, The Smart Investor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof.

Learn more about how we review products and read our advertiser disclosure for how we make money. All products are presented without warranty.

How Much Car Insurance Do You Really Need?

Deciding the accurate car insurance coverage you need may be complex and confusing. Here are the main things you should know when calculating

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Our opinions are our own.

Table of Content

With the cost of gas rising, many motorists are looking at how they can save money. One of the ways you may be able to cut the costs of your vehicle is by trimming any unnecessary car insurance coverage.

So, here we’ll examine how much car insurance do you really need.

Is Car Insurance Necessary?

Car insurance is a requirement in most states, but there are a number of reasons why it is necessary. Your coverage will provide financial protection in the event that you are involved in an accident.

The basic coverage ensures that if there is damage to another’s vehicle or they incur medical bills, your insurance will kick in to cover the costs. It can also help to pay for your legal fees if you are taken to court as a result of the accident.

If you cause an accident, it is likely that you will be held responsible for any associated costs. This may include medical expenses, legal fees and even lost income if the person’s injuries leave them unable to work.

Without basic liability coverage, you would need to pay for these costs out of your own pocket. These costs can run into tens of thousands of dollars, so would you be able to find the money if you didn’t have car insurance?

Largest Auto Insurance Companies (Market Share)

What’s the Minimum Car Insurance I Need?

The minimum amount of insurance necessary depends on a number of factors including the state you live in. Liability coverage is a requirement in almost all states.

Only New Hampshire and Virginia do not require liability insurance, but you need to prove that you are able to meet the New Hampshire minimum financial responsibility requirements should you be involved in an accident.

Every state has different laws for liability insurance requirements. Some states only require that you hold uninsured motorist cover or personal injury protection, while others require property damage and bodily injury liability.

In the United States, the age of the driver is one of the factors that determine auto insurance rates. Data from ValuePenguin shows that young adults at age 18 years pay the highest auto insurance of $7,396 on average. However, as they mature, they become better drivers, which reduces their risks, consequently attracting lower insurance cover fees. Drivers aged 25 pay the lowest premium of $3,348.
Chart: Average Car Insurance Expenditure in the U.S. 2021, by Age (in USD)

How Much Protection Do You Require?

Although the requirements may be different, there is a common basic purpose; to prevent being financially harmed by another’s negligence on the road. You will need to keep up to date on the laws and regulations in your state to ensure that you meet the minimum requirements.

Of course, there are additional auto insurance cover options which may be necessary depending on your vehicle and circumstances. For example, if your vehicle is financed, your lender may require that you hold comprehensive and collision coverage.

Since the lender holds a lien on your vehicle until you have made all of your agreed payments, these insurance coverages can help to protect their investment, as it can help to repair or replace the vehicle if it is damaged as a result of a covered loss.

What Does 100/300/100 Mean?

At the least, you need to meet the minimum car insurance requirements in your state, but the state minimums tend to be inadequate and will not cover the repair bills for your own vehicle. So, if you want to improve your coverage, you will need to buy more than just the minimum requirements.

The best liability coverage adheres to the 100/300/100 rule. This refers to $100,000 per person, $300,000 per accident in bodily injury liability and $100,000 per accident in property damage liability.

If you want to have full protection in the event that you cause significant damage in an at fault accident, you will need to look for the highest level of PIP (personal injury protection) cover, uninsured motorist insurance and other coverages that are required in your state by law.

Bear in mind that while collision and comprehensive coverage may not be required by law, it doesn’t mean that you may not need them. If you have finance on your vehicle, your lender is likely to require these coverages.

It may also be a good idea to consider other coverage such as gap coverage or windshield insurance, which can provide you with financial protection in a scenario where your vehicle is written off, but the current value is less than the outstanding loan amount.

Types of Common Insurance Coverage

We’ve already touched on some of the types of insurance coverage, but many people find the choice of insurance products to be a little intimidating, as they are not really sure which type of insurance covers what events. So, here we’ll break down the types of common insurance coverage in more detail.

  • Liability: Liability coverage will pay for other’s injuries or property damage if you’re at fault for the card accident. It will also cover your legal costs to defend you if you’re sued as a result of the accident. For example, liability cover will apply if you rear end another vehicle, you crash into a neighbor’s fence or the other driver suffers injury for any at fault car accident.

As we mentioned above, Liability is a requirement in all states except New Hampshire and Virginia, but there are some liability requirements under some conditions. You need to carry a minimum liability amount of coverage.

  • Uninsured Motorist: Uninsured motorist and underinsured motorist insurance will pay for your medical bills if someone else is at fault for an accident and they don’t have sufficient liability insurance. In some states, uninsured motorist coverage is required, while it is optional in others.

If the coverage is optional, you can usually reject the coverage. However, it is a good coverage option, as it can pay for medical expenses for anyone in your vehicle, lost wages, pain and suffering and in some states, car damage.

Suggested Video From Our Channel

 

  • Comprehensive and Collision: These two types of insurance are often sold together, but it is possible to buy them separately. They can cover a variety of problems such as car theft, collisions with animals, vandalism, fire, hail and flood damage, failing objects and car accidents. This insurance will cover the costs of repairing or replacing your vehicle if it is damaged by a covered incident.
  • Personal Injury Protection: Often referred to as PIP, this insurance will cover the medical bills for you and any of your passengers regardless of who is at fault for the accident. It can also pay for other expenses such as lost wages and replacement services that you are unable to do due to your injuries, such as child care or cleaning services. Some states require PIP, but it is an optional coverage in other states.
  • Medical Payments: MedPay is similar to PIP in that it pays for medical bills, regardless of fault, but it is a requirement in some states. For example, in Maine, New Hampshire and Pennsylvania, Med Pay is required.

What is The Best Coverage Level?

Determining the best coverage level for you will depend on your circumstances. However, a good guideline is to adhere to the 100/300/100 rule we discussed above.

You should aim to carry the highest liability coverage you can afford and then consider the additional coverages you may need to protect your vehicle including gap coverage and comprehensive and collision insurance.

You should check the minimum requirements in your state and then look at how you can tailor the coverage to meet these requirements and provide sufficient financial protection for your specific needs.

Extra Coverage Options

While the basic insurance can provide a foundation for your financial protection, there are extra coverage options that can fill in the gaps.

  • Gap Insurance: If your car is written off due to a car accident or other event, gap insurance will cover the difference between the outstanding amount on your loan or lease and the actual cash value of the vehicle. For example, if your car value is now $12,000, but you still have $15,000 outstanding on your loan, your gap insurance will pay the $3,000 difference.
  • Roadside Assistance: If your vehicle breaks down or there is another incident such as locking your keys in your car, this coverage will pay for services such as a tow truck, locksmith or fuel delivery.
  • Rental Reimbursement: If your car is in for repair due to a covered incident, your rental reimbursement insurance will pay for a rental vehicle or substitute transportation such as public transit fares during the repair period.
  • Non Owner Insurance: If you drive occasionally, but don’t own a car, this is an optional insurance product that can provide liability coverage.
  • Usage Based: This is an insurance product that allows your car insurance company to record your driving information and offer discounts according to your driving habits such as mileage and speed. This can not only provide a discount on your overall car insurance package, but it can encourage you to become a better driver.
  • Umbrella: This is another type of insurance coverage that is helpful if you have concerns that the highest levels of property damage and bodily injury liability will be sufficient to protect your assets if you have a severe accident. Umbrella coverage can provide at least $1,000,000 in liability coverage, well beyond standard auto insurance liability limits.

Will Gap Insurance Be Necessary?

This will depend on your circumstances and vehicle. If you own your vehicle outright, gap insurance is not necessary. It is only needed if you have concerns that your vehicle may depreciate and be lower than the amount of outstanding finance.

This is particularly true if you’ve purchased a brand new vehicle which can depreciate by as much as 30% in the first year. This means that if you paid $20,000 for the car from the lot. By the end of the first year, you may still owe $17,500 but if your vehicle is written off in an accident, it may have an actual market value of $14,000. So, there is a $3,500 difference that would be covered with gap insurance.

Video You May Like

 

Why Do the Requirements Vary Between States?

You may already be aware that the rates and requirements for car insurance can vary a great deal from state to state. As with most aspects of car insurance, the rates and state requirements are set according to driving data. In states where the average cost of an accident is higher, the minimum liability tends to be set higher.

For example, in New Jersey, the minimum requirements are $5,000 property damage liability and $15,000 for personal injury liability. While in Ohio, the requirements are $25,000 for bodily injury per person, $50,000 bodily injury liability per accident, and $25,000 property damage per accident.

As we discussed earlier in the article, even the higher minimum requirements are woefully inadequate if you’re involved in a serious accident. Imagine if you were at fault for an accident and a person in the other vehicle had significant injuries that prevented them from working for months, the medical bills and lost wages could add up to tens of thousands of dollars.

So, even if your state minimum requirements are low, it is well worth considering the amount of coverage you really need to enjoy adequate protection.

Which Deductible Should You Choose?

A deductible is the amount you will need to pay out of pocket towards your vehicle claim. While there is no deductible on liability cover, you can usually choose your preferred deductible level on your other types of car insurance.

Generally, you can select a deductible of $100 to $1,000. Bear in mind that while the higher the deductible, the lower your premium, you will still need to have that cash ready in the event of a claim.

The reason for this is that a larger deductible shares a larger portion of financial responsibility with your insurer. It’s like putting down a larger deposit on your home when you apply for a mortgage or providing security for a loan. You’ll be viewed as a lower risk, and this is reflected in your premiums.

So, when you need to specify your deductible, you do need to think about not only the cost of your insurance premiums but also the amount you can afford to pay out of pocket.

Although it may be tempting to go for the lowest possible insurance cost, if you would struggle to save up and keep a larger deductible amount to one side, it would be better to choose a lower deductible.

Tips for Choosing Car Insurance Coverage

While it can seem a little overwhelming to choose your car insurance coverage, there are some tips that can help you.

  • Assess Your Requirements: The first thing you need to do is assess the minimum requirements in your state. You can then work out the minimum coverage you need to buy. However, you can also use these minimums to assess your specific requirements. This means that you will need to consider the level of risk you are prepared to take.

It is a good idea to opt for the highest possible liability coverage, but you don’t need to max out on all your other coverage. Consider the current value of your vehicle, whether you still have outstanding finance and if you are prepared to handle the financial burden of uninsured incidents.

  • Comparison Shop: Once you’ve settled on the amount and types of coverage you would prefer, don’t assume that your current insurer will provide the best deal. It is always worth comparing rates to see who can give you the best price. There are lots of comparison tools online, but be sure that you are comparing like for like with your preferred levels of coverage.
  • Look for Discounts: Although you may think you are an average Joe driver, you may be pleasantly surprised at the discounts that are available with various insurers.

From safe driving to being a good student, there are lots of discounts, so make sure you look at the details as these could significantly reduce your premiums. It is also worth considering bundling your car insurance with your home and other insurance policies to get a bigger discount.

  • Set a Reasonable Deductible: As we discussed earlier, the right amount of deductible will depend on your preferences and financial circumstances. However, it is worth playing around with the deductible settings on your car insurance comparisons. You will need to see if it is worthwhile paying a higher deductible with a significantly lower rate. For example, if increasing your deductible from $500 to $1,000 reduces your premium by $2,000 per year, it is well worth it. However, if the same increase only reduces your premium by $500, you’re not really gaining anything.

How to Get Car Insurance?

Most insurers allow you to apply online or by phone for an insurance quote. As we mentioned above, it is a good idea to get multiple quotes, but be sure to choose platforms which will not conduct a hard pull on your credit report each time, as this could have credit score implications.

You’ll need to have some important details on hand including your vehicle details, your driver’s license information, and a record of any accidents, claims, or driving offenses you’ve had in the last three to five years. Try to be as honest as possible, as inaccurate information during a quote will result in a higher policy cost when you decide to proceed.

Once you have a few quotes for similar cover, you can assess which one is the best for you. This could come down to the discounts or perks on offer, the customer service or even the financing terms. However, once you have made a decision, you simply need to contact the appropriate company and they will walk you through the process.

FAQ

Your credit rating can have a massive impact on the cost of your car insurance. So, if you have good credit, you want to ensure that you make the most of it with an insurance company that will give you the best rates.

While Erie only offers coverage in a limited number of states, it does have highly competitive rates, particularly if you have good credit. There are several standard coverage options and the insurer has a network of 13,000 local agents, so you can enjoy personal service for all your insurance needs.

Geico is well regarded for offering some of the cheapest car insurance deals. Although the coverage options are a little limited, there are plenty of discounts available including for good students, federal employees, completing a defensive driving course and bundling your policies.

Finally, Amica is known for its affordability and reliability. You can customize your policy and there is a list of discounts to get an even better deal. Amica also offers dividend policies which have the potential for up to 20% of your premium back at the end of your policy.

Insurance policies for older cars that lack safety features are typically more expensive. The likelihood of theft and the cost of repairs will also increase the cost of the insurance policy.

When you buy car insurance, you must provide proof of residency. If you live in a dangerous or densely populated area, you may find that you pay more for insurance than those who live in quiet residential areas.

Your insurance is also affected by where you live. Living in a larger city increases your chances of being involved in an accident and will cause you to pay more for insurance.

o get the best deal on car insurance, you must shop around before deciding on one. Most businesses allow you to request a quote, which allows you to quickly enter your information and see how much the company might charge you per month.

Make sure you enter all of your car's information correctly because many companies will give you discounts based on the safety features your vehicle has. Some companies may also offer promotional discounts at certain times of the year in which you can agree to certain terms and conditions in exchange for a lower insurance price.

It only takes about 30 minutes to apply for car insurance. Unlike health insurance, you can enroll in car insurance at any time of year. You can also complete the entire process online. All you have to do is scan in copies of everything they ask for. They will verify your identity and send you the policy information and insurance cards once you have submitted everything.

They may ask for additional documents regarding your proof of address or other questions a few weeks or days after you receive the insurance.

If you're a new driver, you might find that your car insurance is a little higher than for older drivers. New drivers are regarded as risky because they lack a solid driving record or proof that they can drive safely.

If you are a new driver, you can try to get a car with extra safety features to lower your premium. Teenagers can also enroll in driver's education classes and then submit the necessary paperwork to the insurance company when applying for a policy.

Most companies will give new drivers a discount if they took formal driving classes rather than being taught solely by a parent or relative.

Video You May Like