How Much Car Insurance Do I Need?

Car insurance can be quite complicated, even more so than health or life insurance. Where is the line between preparedness and paranoia? Let’s take a look at the best ways to calculate just how much car insurance you really need.

What Kinds of Car Insurance Are Out There?

First, let’s look at what kinds of car insurance exist, and which ones are usually required (this depends on your state). 

Liability coverage. This applies to accidents that you are held liable (legally responsible) for. Every state (except New Hampshire and Virginia) requires minimum coverage for bodily injury per person (limited by the bodily injury total, which is the insurance company’s maximum payout). States also require liability coverage for any damage caused to the other vehicle, in a collision. 

Accident-related coverage. Liability coverage helps you deal with any expenses coming from legal responsibility in an accident. Other accident-related coverage helps you manage damage to yourself.

  • Coverage against uninsured motorists helps you pay for any medical bills or car repair bills after an accident, if the motorist has no liability coverage and cannot pay for your expenses. 
  • Coverage for medical costs helps you pay a certain amount of your medical bills in case of an accident that causes you physical damage. Specific insurance like this also helps you save your health insurance.

Collision-related coverage. This kind of coverage helps you in cases specifically related to collision with rocks, trees, mailboxes, and of course other motorists. 

  • Coverage for collision specifically deals with repairs to your own car after any kind of collision. (Remember that liability coverage only deals with repairs to the other party’s vehicle). 
  • Personal injury protection helps you pay for medical costs you have after a collision. You can’t make a tree pay for your medical bills, so this helps you protect your savings and health insurance after a collision.

Comprehensive coverage. This kind of car insurance deals with as many possible scenarios outside of an accident or collision that you might face. This includes everything from theft to riot-caused damage to flooding to hail. It’s not something you risk every day, but it’s an all-around shield that protects you from the costs of random repairs ranging from tiny to massive. 

How Much Car Insurance Do I Need?

First, how much car insurance are you required to get in order to legally drive? 

  • Liability coverage in all states except New Hampshire and Virginia. Every state, except New Hampshire and Virginia, requires a minimum amount of liability coverage for your car. Arizona also offers secondary options. This should be your first consideration, especially since it deals with what you might be legally required to pay. 
  • Coverage against uninsured motorists. Some states require this.
  • Personal injury protection. Some states require this.

After reviewing state requirements for minimum coverage, you can decide if you want to go beyond the minimum, or add other kinds of coverage, such as collision or comprehensive insurance.

Second, how much car insurance do you really need?

  • Instead of trying to get the minimum coverage of every kind of insurance, first calculate how much liability coverage you really need. These are the payments that could really drain your personal finances. 
  • Next, if you are still financing or paying off your car, calculate how much comprehensive coverage you are required to have (a usual part of the lease or contract). You may opt to keep this to a minimum.
  • Should your health insurance provide sufficient coverage for any accidents, you may want to waive medical costs insurance and related insurance.
  • Collision insurance helps you deal with personal car repairs if you end up in accidents with both motorists or trees, walls, etc. If your wallet can support a minimum on this, it would cover all your bases.

Third, how much is your car worth?

  • The older and less valuable your car is, the less insurance you might need (or even be willing to pay for). In this case, you can opt for the minimum amount of liability coverage, as you have less assets at risk. 
  • The newer and more valuable your car is, the more insurance you might require (or be willing to pay for). With more assets at risk, especially since you probably planned to use the car for a certain number of years, you might want to add more protection. 

A Question of Risk

Basically, the question is: How much risks are you willing to take with your car? The less insurance you have, the more risks you are willing to take. Choose what works best for you and your personal finances. 

James Donaldson

I like to blog about insurance, health and the great outdoors. Memphis born and raised.

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