One of the most common questions our clients ask us is “how much auto insurance do I need?” or “do I have enough auto insurance?” It’s a smart question, because not having enough auto insurance could turn one instance into a financially devastating situation. One accident could change for your life forever, or at least for the foreseeable future. Auto insurance is definitely not something you want to skimp on.
The basics are that you want your auto insurance to cover:
- State requirements
- Lender requirements
- Your personal assets
- Your unique driving needs
In this article, we’ll help think through just how much auto insurance you’ll want to discuss with your insurance agent to help ensure you’re protected.
What happens if you don’t have enough auto insurance?
In most states, it’s illegal to not carry auto insurance. If you get a traffic violation, the police officer will ask for your registration and insurance. If you don’t have insurance, they can write you a ticket and even have your car towed from the scene. You may even need to make a court appearance to get your car back or appeal your ticket and/or points on your license.
We always recommend you carry at least the state requirements for auto insurance. But what if that isn’t enough for your situation (and oftentimes it’s not)? How much is “enough” auto insurance?
Bodily injury liability
How much: cover all your assets
This is the most important part of your auto insurance, so you definitely want to make sure you have enough. Bodily injury liability can help protect you if you are found at-fault for an accident that causes physical harm to another party or parties. If you cause the accident, you could be responsible for the other parties’ medical bills, physical therapy, pain and suffering, and funeral costs, as well as your own legal fees.
Most states have a minimum requirement for bodily injury liability insurance, typically no lower than $15,000. However, state minimums are usually the lowest possible amount you’ll want to consider. We typically recommend much higher liability coverage than the state minimums, depending on your situation.
That’s because if someone is injured or, God forbid, dies in an accident you caused, their bills could be hundreds of thousands of dollars. Without proper insurance, you could be responsible to pay all of that out of pocket. In fact, the injured party could come after everything you own including your home, savings accounts, college funds, and even your future earnings. Learn more about the importance of auto liability coverage here.
Thus, we recommend you get enough bodily injury liability to cover your net worth and all your assets. If your insurance company doesn’t offer high enough limits to cover your assets, consider shopping around or purchasing a supplemental umbrella policy. Umbrella insurance provides high levels of liability coverage for auto and other instances at a low cost. Check out our Umbrella Learning Center for more information about this supplemental liability coverage.
Note: You’ll often see auto liability written like this: 250/500/250. This means you have $250,000 in bodily injury per person, $500,000 per accident, and $250,000 for property damage.
Property damage liability
How much: cover the price of an expensive car
Property damage liability can help cover expenses if you are found at-fault for another person’s property damages, like damages to their car, due to an accident. It can also help if you damage other types of property, like if you ran into their fence or ran over their plants.
Unlike bodily injury liability, the other party can’t sue you for pain and suffering or “unending” medical bills. At most, they could sue you for the entire cost of their car if their car was totaled in the accident.
The average cost of a car is $50,000, so a lot of people opt for this limit. However, if you totaled a Ferrari and only had $50,000 in property damage, you could be on the hook for another $150,000+ more. That’s why we typically recommend getting enough property damage coverage for an “expensive” car, often around $250,000.
Comprehensive and collision
How much: cover the price of your car
Comprehensive and collision insurance can help cover damages to your own car. Collision helps cover auto expenses related to a collision, regardless of who is at fault. Comprehensive helps cover instances “other than collision” including natural disasters, falling objects, theft, vandalism, fire, explosions, etc.
You want enough collision and comprehensive insurance to cover what it would cost for you to fix or replace your car in full. If your car is stolen or totaled in an accident, for example, you’d want your limits to pay for the value and/or replacement of your car in full.
There are two types of pay outs when it comes to collision and comprehensive insurance. Actual cash value gives you the amount your car is worth at the time of its loss. Since cars start depreciating the moment they drive off the lot, the actual cash value is almost always much lower than what you paid for it, and it may not always be enough to replace the car. Replacement cash value pays enough to replace the lost car today. This is usually a larger payout than actual cash value, so the monthly auto insurance premiums are higher. We recommend you talk to your InsuraMatch agent about deciding which payout value works best for your car, budget, and financial needs.
Note: Let’s say that your car is old and on its way out the door. If it’s only worth $5000, you’d get $5000 from your insurance company if it were totaled in a covered event and you have “actual cash value”. In some instances, it may not be worth it to hold collision or comprehensive insurance as the premiums and deductibles may outweigh the cost you would be paid out. For some folks, collision and comprehensive insurance don’t make sense based on the value of their car, but this isn’t a common situation.
Uninsured/underinsured motorist insurance
How much: cover the price of your car
One in eight motorists drives uninsured. You do not want to be that “one.” Not having enough insurance could land you in financially devastating situations that can have serious long-term impacts on your family, assets, and income.
But what happens if you get into an accident with someone who doesn’t have insurance or doesn’t have enough insurance? You can sue them if they are at-fault, but lawsuits can be drawn out and the other party may not have the money to pay right now. You may not get paid out for months if not years after the incident.
Uninsured and underinsured motorist (UM/UIM) coverage can help protect your costs and your own car’s damages if a driver causes an accident and doesn’t have enough insurance (or if you are involved in a hit and run). Like collision/comprehensive, you want enough insurance to cover the cost of your car if it were completely totaled in an accident with an uninsured driver.
This performs a similar function as collision insurance in that it can help cover your own car’s expenses in the case of an accident, regardless of who is at fault. Uninsured/underinsured motorist coverage is required in some states, and you may be able to forgo collision if you have enough UM and UIM coverage. Talk to your agent to make sure you’re fully covered between these two types of coverage. Not sure? Give us a call at (844) 819-2221.
The above coverage types are part of a standard auto insurance policy. You can also purchase optional coverage based on your unique needs. We’ll go through the basics and how much you may need of each coverage type, but you can also learn more here: Optional Auto Insurance Coverage to Consider
MedPay: Medical Payments coverage can help provide “reasonable medical expenses” for you and your passengers, associated with an auto accident, regardless of fault. This usually works in tandem with your health insurance, so you’ll want to compare coverage options and limits to see if this is the right choice for your auto plan.
PIP: Personal Injury Protection is similar to MedPay but it’s more encompassing with higher coverage limits (and higher premiums). It may also have a deductible, as it works similarly to health insurance. It covers medical expenses, physical/occupational therapy, some lost wages, funeral costs, and other related expenses after an auto accident. PIP is required in 22 states. Since this works in conjunction with health insurance, you’ll want to compare the two with an insurance agent to make sure you have enough.
GAP coverage: Gap coverage covers the gap between what you’re paid out on your insurance and what you still owe on your car’s loan in the case of a total loss. Let’s say you financed your new car, like a lot of us do. Your car is stolen after a year. You’d still have to pay off the remainder of your car loan, even if the vehicle is not in your possession anymore. You have “actual cash value” auto insurance and it doesn’t equate to the market value of the car (because your car starts depreciating the moment it drives off the lot). That means there’s a gap between what your insurance will pay out and what you still owe on the loan. Gap insurance helps cover that “gap,” so you don’t get stuck with a bill for something you don’t even have in your possession.
There are other coverage options you can consider as well. The limits for these are usually consistent based on your carrier.
- Rental reimbursement: This helps cover the cost of a rental car while yours is being repaired due to a claim that’s covered by your insurance. This is a common add-on to prevent additional expenses after an incident.
- Mechanical breakdown: Often, your insurer will pick or “approve” where your car is repaired. Mechanical breakdown insurance lets you choose where your car is repaired (with a licensed mechanic). This might be worth it if you’re really loyal to a mechanic or you have a specialty car that requires unique service.
- Roadside assistance: This covers the cost of roadside assistance, like changing a flat on the side of the road or towing your car to a mechanic. You may not need this coverage if you already have AAA or roadside assistance on your credit card. If you’re not covered another way, though, roadside assistance can prove invaluable when you’re stuck in an unexpected jam.
- Custom equipment: If you have aftermarket or performance parts (including a custom paint job, stereo system, etc.) on your car, your insurance likely won’t cover this gear unless you have custom equipment insurance. This coverage allows your custom upgrades to be included on your insurance payout in the case of a covered claim.
- OEM endorsement: Original equipment manufacturer parts ensures that you are covered with parts that are built and safety tested by the manufacturer. A lot of insurance companies will use “aftermarket” parts to save money on repairs, but OEM makes sure you get the higher value parts if you’d like them.
- Glass coverage: Replacing or fixing the windows and windshield on your car can be surprisingly expensive. It’s one of the most expensive “minor” fixes for a vehicle. However, sometimes the cost and deductible (if they have one) overpower the benefits and costs. So, run the numbers with your insurance agent to see if glass coverage makes sense for you.
- Forgiveness coverage: This is also referred to as “accident forgiveness.” If you have just one at-fault accident, it can raise your premiums by more than a third. Forgiveness coverage can “wipe the slate clean” by forgiving one at-fault accident, so your premiums won’t go up after one accident. Not all insurers offer this and the terms vary (like the amount of non-accident years required for eligibility), so make sure you inquire with your insurance agent if this is a coverage type you’re interested in.
- Pay-per-mile-coverage: If you don’t drive a lot, your insurer might offer a pay-per-mile plan. They’ll typically install a GPS device in your car and you’ll be billed per mile, rather than an annual estimate. This isn’t very common, but you can still inquire about it if you drive infrequently.
What your agent needs to know
Some things you’ll need to tell your insurance agent so they can make sure you find the right policy and the appropriate amount of auto insurance coverage for you:
- The age, make, and model of your car
- All the drivers you’ll include on your policy (anyone who drives the car should be listed on the policy)
- If your car is leased and/or financed and you still owe money on it (to determine gap insurance)
- If you use your car for business and personal use (even if it’s a side hustle)
- Your primary goals and financial concerns when it comes to insurance
- If you have a garage, any safety features installed, etc.
Also let your agent know if any of this applies, as it could help you qualify for a discount. Getting enough auto insurance can sometimes be pricey, so it never hurts to get some good discounts!
- If you own a home or rent, you could bundle and save
- If you’re married
- If your teen driver has good grades
- If you or any listed drivers have completed a defensive driving course
- If you have any anti-theft devices in car or garage
- If you opt in for paperless billing and/or autopay
- If you or anyone in your family has been in the military
Also check out these 16 auto insurance discounts.
Have a conversation with your insurance agent
The best, and really the only, way to ensure you have enough auto insurance is by chatting with an insurance agent who knows you, your needs, and the ins and outs of a good policy.
Our licensed InsuraMatch advisors know all the right questions to ask to make sure you have enough auto insurance, at the right price for your budget. Don’t let unforeseen circumstances impact your lifestyle, finances, or family. Something unexpected could happen tomorrow, so don’t wait.
Call an InsuraMatch agent at (844) 819-2221 now to review and find the perfect auto insurance policy for your needs. We’re here to help you find your auto insurance match!
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