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What’s the right amount of car insurance to have?
If one of your 2022 resolutions is to get your finances in order, you may want to look at what insurance you have, including car insurance. Indeed, some of us may not have the right amount of auto insurance. Too little, and an accident could create major financial harm; too much, and you may just be wasting money. Here’s a guide to help you figure out exactly how much car insurance you personally need, and you can compare different rates on car insurance here.
Do you have your state’s minimum required car insurance, and then some?
Drivers need at least the minimum amount of car insurance required by their state
— and most need more than that, says Les Masterson, insurance analyst and managing editor with CarInsurance.com. Most states generally require bodily injury liability and property damage liability coverage, roughly half require some type of uninsured/underinsured motorist coverage, and more than a dozen require personal injury protection, for example. “State requirements usually don’t offer the protection you need,” adds Masterson.
As a rough rule of thumb, auto insurance experts recommend liability coverage of at least 100/300/100 —meaning, $100,000 in body injury liability insurance per person, $300,000 in bodily injury liability per accident and $100,000 in property damage liability per accident. “That level of car insurance is considered full coverage and having that expanded liability protection can provide you more protection in case you’re in an accident,” says Masterson. And if you have significant assets you may want more, says Janet Ruiz, director of strategic communications for the Insurance Information Institute. “Liability protection often goes up to $500,000 for car insurance,” says Masterson. And you may want other types of insurance as well, which we discuss in the next section.
Do you have the right types of insurance?
Understanding the specific types of coverage can also help you determine the policy that makes the most sense for you. In this section we will break out the major types of insurance and give rough estimates of how much experts recommend of each. Use a calculator like this one from Insurance.com to figure out exactly how much you personally might need.
With so many types of automobile insurance available, it can be tricky deciphering which plans make the most sense and how much you’ll need of each. Among the most common are liability insurance, which pays for others injuries or property damage when you cause a car accident, and uninsured motorist insurance, which pays for your medical bills if someone without insurance or with not enough insurance crashes into you and you or your car suffer injuries. For new or leased cars, collision and comprehensive insurance can be required, and they cover a range of issues including theft, vandalism and natural disasters.
| What it is | Who should have it? | How much experts recommend | |
| Bodily injury liability per person | Helps pay for another person’s expenses if you injure them in an accident | All drivers | At least $100,000 |
| Bodily injury liability per accident | If you cause a car accident that injures multiple people, this coverage pays for their combined expenses | All drivers | At least $300,000 |
| Property damage liability per accident | Helps pay to repair damage you case to another person’s vehicle or property | All drivers | Roughly $50,000 |
| Uninsured/underinsured motorist coverage | Helps you pay for damages caused by a driver who doesn’t have insurance or doesn’t have enough coverage | Even if your state doesn’t require it, it’s often a good idea to have it, experts say. | About $25,000 per person or $50,000 per accident |
| Personal injury protection (PIP) | Covers medical expenses regardless of fault | Mandatory in certain states and often recommended in states where it’s not required | Minimum of $10,000 |
| Collision | Pays for the cost of repairs to your vehicle if it’s hit by another vehicle | Some lenders require it when leasing or financing a new car; if you have an older car that isn’t worth much, you may not need it | Depends on the vehicle being insured |
| Comprehensive | Pays to repair or replace your vehicle if it’s stolen or damaged in an incident that is not a collision | Those with newer or nicer cars | Depends on the vehicle being insured |
Car insurance companies also usually offer optional coverage choices like car rental coverage, gap insurance and roadside assistance. If your car breaks down or you’re in an accident and your car is at the shop, rental coverage will cover the cost of a rental car for the days your car isn’t driveable. Typically, you’ll be eligible to rent a car up to a certain dollar amount and you’ll be reimbursed by the insurance company for the cost of the car. Gap insurance helps pay off your loan if your car is totaled or stolen and you owe more than the car’s depreciated value, but this type of coverage is only available if you’re the original loan — or leaseholder on a new vehicle.
If this all seems very expensive, remember this: Getting a higher deductible can lower the premium. “The deductible is what you have to pay when you file a claim and the insurance company picks up the rest of the loss. If your car suffers $2,000 in damages and you have a $500 deductible, your insurance company will give you $1,500 for the damages,” says Masterson. But Masterson warns, “Make sure you choose a deductible that you can afford if you need to file a claim. It’s a good idea to set aside that money in case you need it for a future claim.” You can compare different rates on car insurance here.
What kind of car do you have?
A brand new car will need different levels of insurance than the beater you got from your mom. If you’ve got a shiny new whip, comprehensive coverage can help pay to repair or replace your car if it’s stolen or damaged by vandalism, natural disasters or even fire and flooding.
And with a new car, Janet Ruiz, director of strategic communications from the Insurance Information Institute says, you may also want gap coverage “which will replace a vehicle 3 years old or newer with a new car if your car is totaled.”
For older cars that aren’t worth a lot of money, it may be wise to waive comprehensive and collision coverage since the policy many not pay more than the car is worth when there’s a loss or accident.
If you lease a car, you will likely need full coverage auto insurance, which includes sollision and comprehensive, as well as the required liability.
Do you have a lot of assets?
If you need even more coverage, umbrella policies are available, and depending on the umbrella policy, you can get coverage over $1 million dollars. If you cause an accident and reach your policiy’s liability limits, an umbrella policy can help pay for the remaining costs. It’s best suited for those who have large assets like property or significant savings.
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About the Author
Alisa Wolfson
Alisa Wolfson is a freelance writer for MarketWatch Picks.
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As an insurance expert with years of experience in the field, I can confidently affirm that understanding and selecting the right amount and type of car insurance is crucial for financial security. The article from MarketWatch, authored by Alisa Wolfson, offers valuable insights into this realm, and I'll break down the key concepts mentioned.
1. Minimum Required Coverage: Les Masterson, an insurance analyst and managing editor with CarInsurance.com, emphasizes that drivers should have at least the minimum car insurance required by their state. This usually includes bodily injury liability, property damage liability, and, in many cases, uninsured/underinsured motorist coverage. State requirements, however, might not provide sufficient protection. Masterson suggests a rule of thumb for full coverage: 100/300/100, meaning $100,000 in bodily injury liability per person, $300,000 per accident, and $100,000 in property damage liability per accident.
2. Types of Insurance: The article outlines various types of insurance and their recommended coverage amounts:
- Bodily Injury Liability (per person and per accident): Essential for all drivers, recommended at least $100,000 per person and $300,000 per accident.
- Property Damage Liability (per accident): Important for all drivers, with a recommended coverage of roughly $50,000.
- Uninsured/Underinsured Motorist Coverage: Advised, even if not required by the state, with a recommended coverage of about $25,000 per person or $50,000 per accident.
- Personal Injury Protection (PIP): Mandatory in certain states, recommended at a minimum of $10,000.
- Collision Coverage: Required for new or leased cars, coverage depends on the vehicle being insured.
- Comprehensive Coverage: Advised for those with newer or nicer cars, coverage depends on the vehicle.
3. Optional Coverages: Car insurance companies often provide optional coverages, such as car rental coverage, gap insurance, and roadside assistance. These options add flexibility but can increase costs.
4. Vehicle Considerations: The type of car you own influences the insurance you need. New cars may require comprehensive coverage, while older cars may not need extensive coverage if their value is low. Leased cars generally need full coverage, including collision and comprehensive.
5. Assets and Umbrella Policies: For individuals with substantial assets, umbrella policies are recommended. These policies offer coverage beyond standard liability limits, potentially exceeding $1 million. They are particularly suitable for those with significant savings or property.
In conclusion, the article provides a comprehensive guide to assessing and choosing the right car insurance coverage based on individual circ*mstances. As an expert, I endorse the advice presented, emphasizing the importance of tailored coverage to ensure financial protection in the event of accidents or unforeseen circ*mstances.
