With the multitude of options available, it can be difficult to determine how much car insurance you need. Several factors need to be considered when determining the level of coverage you need as the cost of repairing or replacing your car can be a significant financial burden, as well as a great inconvenience. The right insurance policy will cover these costs and protect you, your family and your property without putting your budget at risk.
So how much car insurance do you need? Here are the variables you should consider when making that decision.
Familiarize yourself with the state minimum
Only two states do not require drivers to buy car insurance: New Hampshire and Virginia. All other states require car owners to purchase some type of car insurance. But whether auto insurance is mandatory or not, there are too many potential risks that you should not carry. Here is an overview of the different insurances you should consider.
Liability insurance
Liability insurance pays you if you have an accident and it is determined that you are at fault for property damage and injury to others. This includes the expenses of others, but not your own. This is mandatory coverage in the vast majority of states.
Uninsured and underinsured drivers
Even if a state has insurance requirements, not everyone follows the rules. In fact, about one in eight motorists don’t buy auto insurance according to the Insurance Research Council’s 2021 report. This is when uninsured motorist insurance comes in handy. Also, when the at-fault party’s insurance isn’t enough to cover the cost of an accident, underinsured motorist insurance saves time! 22 states require insurance for uninsured motorists and 14 states require insurance for uninsured motorists.
Personal Injury Protection (PIP) or Medical Payments (MedPay)
Both PIP and MedPay cover medical expenses for you and your passengers following an accident, no matter what the fault. The main difference between PIP and MedPay is that PIP also covers lost wages and childcare. PIP is required in 12 states and MedPay is required in two. You will find an update on what states require what online.
Each state has a minimum amount of car insurance that drivers must purchase. However, it may be a good idea to purchase a higher coverage limit than is required by the state. Sometimes the total cost of an accident can exceed the coverage limit. In the event that you are at fault and the damage exceeds the amount in the contract, you must pay these costs.
Buying the minimum helps you circumvent the law, but may not provide enough protection to avoid financial ruin. In some cases, the court may seize property and forfeit wages to pay for damages you cause in an accident. Review the value of your property, which may include your income, savings, assets, and business ventures to help you determine how much car insurance to buy to keep your belongings protected. fully in the event of a lawsuit. Purchasing enough liability insurance to protect the full value of your property will protect you from financial ruin should you be at fault in a more serious accident. The cost difference between limits higher than a state’s minimum is usually not much. This is also why you should have some type of car insurance even if your state doesn’t require it.
Think about your car’s value
Depending on the value of your vehicle, you may need more or less insurance. For cars with a low cash value, liability insurance may be sufficient. However, for more expensive cars, consider purchasing comprehensive coverage and collision coverage. Be careful, even small repair costs can surprise you. There are websites designed to help you estimate auto repair costs like Kelly Blue Book or AAA.
Collision insurance
Collisions include damage to your car in crashes with other cars or inanimate objects, no matter what or what fault you hit.
Comprehensive insurance
This coverage continues as collision coverage decreases and adds an extra layer of protection against non-collision accidents, such as weather events, animal accidents, theft. or destructive. Consider whether you live in a disaster-prone area that could damage your car. For example, car owners who live in areas with a lot of flooding or wildfires can benefit from having comprehensive insurance.
The 10% Rule
As the first step to figuring out how much insurance you need, you’ll want to determine the value of your car and whether you can afford to replace it out-of-pocket. Many people follow the 10% rule when deciding if they need comprehensive and collision coverage. The 10% rule instructs people to drop comprehensive and collision coverage when the cost of the policy exceeds 10% of the vehicle’s cash value. The premise behind this rule of thumb is that the most you can get to repair your car is the car’s book value, so pay 10% or more for insurance. The danger is diminishing returns. For example, if your car has a book value of $4,000, 10% of its value would be $400. If premiums for comprehensive and collision coverage exceed $400 a year, you should waive them.
Does your lender require insurance?
For those with auto loans, their lenders may have coverage requirements that exceed the state minimum. Lenders typically require comprehensive and collision coverage, with some lenders also asking for gap insurance. Because the lender legally owns the vehicle, requiring additional insurance provides them with financial protection in the event of an accident.
How much can you afford?
If you can afford the higher limits, you can rest easy and have an extra layer of protection from the unexpected. Auto accidents are expensive, and out-of-pocket expenses quickly add up without insurance or with minimal coverage. Always remember that car insurance serves a purpose beyond protecting your medical and car repair costs after an accident. It will also help protect your other assets if you are embroiled in litigation after an accident. Don’t be as wise and stupid as they say. Get as much liability insurance as possible, especially if you have a high net worth.
Other assets to protect means other insurances to consider
Everyone has their own insurance needs depending on their entire circumstances and finances. Think about your needs and consider purchasing the following types of car insurance.
Umbrella policy
This supplemental policy provides additional liability coverage once you have exhausted other liability coverage limits. If you don’t think the highest level of liability insurance available will be enough to protect your property in a serious accident, consider purchasing an umbrella policy.
Coverage gap
If your car is financed, this type of insurance covers the difference between the car’s cash value and the balance on your loan if it’s totaled. Gap coverage is valid for those financing a newer vehicle. No wonder your lender may require you to carry this type of insurance on your car.
Roadside assistance
This type of insurance covers the cost of locksmith services, tow trucks, or basic roadside repairs. If you regularly drive, use your car to get to work, or make long journeys, roadside assistance is a good way to make sure you don’t get stuck in an emergency.
Rent refund
Rent reimbursement paid for a rental car if your vehicle is in the workshop because of an accident. You may or may not be covered for rental costs when another driver leaves you stranded and at fault. But for real peace of mind, like with roadside assistance, this can be a good insurance to buy.
Non-owners insurance
For those who don’t own a car but still drive occasionally, a non-owner insurance plan offers liability coverage in the event of an accident.
It’s hard to gauge with money the sense of security that having the right car insurance policy can provide. But you can gauge repair and replacement costs based on the car you drive. So start there. The amount of insurance you need depends on a multitude of factors, including the state you live in, the amount of coverage you can afford, your lender’s requirements, the value of your vehicle, and your total net worth. Friend. Your lifestyle and reliance on your car are also factors to consider when determining how much car insurance you need.
