How Much Car Insurance Do You Need?
Because almost every state requires you to own auto insurance to drive, you might assume that the legally-mandated amount of insurance is all you need. But all it takes is one fender-bender to demonstrate how expensive it can be to only have the state’s minimum insurance coverage.
CNBC Select explains how to determine how much auto insurance you need and the types of coverage you can get to protect what’s most likely one of your most valuable assets — your vehicle.
What we’ll cover
How to choose the right amount of auto insurance
There’s no single auto insurance policy that would work for every driver. Your individual circumstances will help inform the right amount of coverage for your car.
CNBC Select recommends Geico for affordable coverage as it offers the lowest average premiums for minimum and comprehensive coverage. Farmers Insurance is another great option if you’re looking to save since it offers a whopping 22 discounts on auto coverage — more than any other company.
Geico Auto Insurance
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Cost
The best way to estimate your costs is to request a quote
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App available
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Policy highlights
Geico coverage and services are available in all 50 states and the District of Columbia and there are 16 different types of discounts available. In addition to the standard coverage options, Geico offers various optional add-ons, such as emergency roadside assistance, rental car reimbursement and mechanical breakdown insurance.
Farmers Auto Insurance
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Cost
The best way to estimate your costs is to request a quote
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App available
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Policy highlights
Farmers sells car insurance in every state except Alaska, Delaware, Hawaii, Maine, New Hampshire, Rhode Island, Vermont, Washington, D.C., and West Virginia and offers a whopping 22 discounts.
Nationwide Auto Insurance
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Cost
The best way to estimate your costs is to request a quote
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App available
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Policy highlights
Nationwide offers near-nationwide availability and personalized services, such as On Your Side® Review, a free annual insurance evaluation to ensure you are adequately protected and are taking advantage of any discounts available to you.
Pros
- Available in 47 states and the District of Columbia
- Lowest average premiums for full coverage
Cons
- High average premium for minimum coverage
When it comes to determining what coverage you need from your insurer, your first priority is to meet your state’s minimum requirements. Most states require you to get at least $25,000 in bodily liability insurance per person and $50,000 per accident, as well as $25,000 in property damage liability.
However, these numbers can vary widely. For example, California only requires $15,000 in bodily injury liability coverage per person and $30,000 per accident, plus just $5,000 in property damage liability. Meanwhile, in Alaska, you need to carry $50,000 in bodily injury liability insurance per person and $100,000 per accident, while the required property damage liability coverage is $25,000. Some states also require additional types of insurance. For instance, in Hawaii, you must have personal injury protection of at least $10,000.
Further, if you’re financing your car, your lender might require that you maintain full coverage, meaning you’ll need a policy that includes collision and comprehensive insurance.
While state and lender requirements can help you determine the minimum amount of coverage you need, it’s unlikely to be enough to save you from serious financial distress if you get in an accident and are at fault. It’s best to tailor your policy to your specific situation to ensure you’re sufficiently protected.
Types of auto insurance
It helps to look into different types of coverage, learn how they protect you, and set the amounts you’re comfortable with without breaking the bank.
Liability insurance
Almost every state (except for New Hampshire and Virginia) has a minimum liability insurance requirement. This type of coverage pays in case of injuries and property damage suffered by others when you’re at fault. Liability insurance also covers your legal fees and any judgments or settlements if an accident lands you in court.
Liability insurance consists of bodily injury and property damage liability coverage. Bodily injury liability covers injuries to other drivers and passengers, as well as pedestrians. Property damage liability kicks in when you cause an accident and damage someone else’s property, including their vehicle.
For example, if you rear-end another car in traffic, damaging it, and the driver gets hurt, your liability insurance can cover the costs.
It’s best to have enough liability insurance to cover what you could owe in a lawsuit if you cause an accident. If you don’t, you’re risking your assets, including your property, bank accounts and even your future earnings.
Personal injury protection (PIP) and medical payments (MedPay)
PIP or MedPay is mandatory in some states, including Delaware, Florida, Hawaii and others. Unlike liability insurance, this type of insurance covers medical expenses for you and your passengers regardless of who’s at fault in the accident. Additionally, it can cover losses you incur as a result of the accident, such as lost wages and funeral expenses, and payments for services like child care or house cleaning that you can’t perform while recovering from the accident.
If PIP and MedPay are optional in your state and you have good health insurance, it might make sense to skip this coverage. That said, your health insurance policy won’t reimburse you for lost wages and replacement services.
Collision and comprehensive insurance
If you’re financing or leasing your car, your leasing company or lender may require that you have these two types of coverage. Often bundled together, collision and comprehensive insurance cover damage to your vehicle.
Collision insurance pays when your vehicle sustains damage in an accident with another vehicle or a stationary object (but not an animal), while comprehensive insurance covers the damage caused by almost anything else, such as theft, vandalism or weather.
Even if you’re not required to maintain these types of coverage, it’s usually wise to do so — especially if you live in an area with lots of traffic. Not many drivers can easily afford expensive car repairs or can replace a vehicle without help from insurance.
Just make sure to consider how much your car is worth before signing up for this coverage since you’ll have to meet a deductible before the insurance begins paying out. If your car’s value is only a couple thousand dollars and you have a $1,000 deductible, for example, it might not be worth paying that much to protect your vehicle— especially when you consider the cost of your annual premium.
Uninsured/Underinsured motorist coverage (UM and UIM)
Some states may also require UM or UIM, which pays for your medical expenses and other losses when another driver is at fault and has insufficient liability insurance (or none at all).
Some examples of what UM and UIM might help you cover include:
- Medicals bills for you and your passengers
- Damage to your vehicle
- Lost wages
- Funeral expenses
- Pain and suffering
If your state doesn’t require UM or UIM coverage, you might want to look into PIP first since it pays no matter who’s at fault. Plus, consider how much coverage you can get with your health insurance plan.
Other types of auto insurance
If you want even more protection for your vehicle, you can consider other optional types of insurance. These include:
- Rental reimbursement insurance which pays for a car rental or other transportation while your vehicle is being repaired
- Gap insurance which pays the difference between how much you owe on your auto loan and your vehicle’s value if your vehicle gets totaled
- Roadside assistance which covers services such as a tow truck, fuel delivery or jump-start if your car breaks down
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Bottom line
From getting rear-ended at a traffic light to having your car stolen, car troubles can quickly wreck your finances if you don’t have enough auto insurance. While having the minimum coverage required by your state and lender is crucial, that level of protection often isn’t enough to help you avoid a big bill. Make sure you get the coverage that will protect your pocketbook — and take your time to shop around for it to keep your premiums low.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every instance of insurance coverage is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of insurance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best insurance products.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
