How much car insurance do you need?

In a nutshell

How much car insurance coverage you need depends on factors, including your vehicle, your state’s minimum coverage requirements, and your budget.

• Some car insurance coverage is mandated by your state, and some coverages are optional.
• Optional coverages add to your insurance cost but could save you much more money if you are in an accident.

Car insurance by coverage type

While there’s no one-size-fits-all approach to car insurance coverage, you should consider purchasing more than the minimum required coverage amounts in order to protect both yourself and your vehicle. Types of insurance coverage for your car include:

• Liability insurance coverage.
• Uninsured or underinsured motorist coverage.
• Personal injury protection.
• Comprehensive insurance coverage.
• Collision insurance coverage.
• Gap insurance.

Must-have car insurance coverage

Depending on what state you live in, you may need to meet minimum requirements for liability coverage, UM and UIM, and PIP insurance coverage.

Liability coverage

Liability coverage includes both bodily injury liability and property damage liability. Bodily injury liability covers the cost of medical bills if you injure another person while driving, while property damage liability covers the cost to repair or replace any property damaged in an accident, for example, the other vehicle.

Most states require a minimum amount of liability coverage. While requirements vary by state, it’s usually a good idea to exceed these requirements in order to properly protect yourself in the case of an accident. When it comes to liability coverage, a good general rule of thumb is the 100/300/100 rule. This rule recommends $100,000 per person, $300,000 per accident in bodily injury liability coverage, and $100,000 per accident in property damage liability coverage.

If you can’t afford to abide by the 100/300/100 rule, it still makes sense to purchase as much coverage as you can reasonably afford. Without proper insurance coverage, the financial ramifications of an accident can be severe.

UM or UIM coverage

Depending on where you live, your state may also require you to purchase uninsured motorist coverage or uninsured motorist coverage. Even if your state doesn’t require it, this type of coverage is still a good idea. UM or UIM coverage protects you in the event that you get into an accident with an uninsured or underinsured driver. Since they don’t have the proper insurance coverage to foot any medical or car repair bills, this type of coverage will cover the cost of bills that another driver’s insurance would otherwise pay. In some cases, UM or UIM coverage will also cover accidents like hit-and-runs, where you’re unable to obtain insurance information from the other driver.

Like liability coverage, UM and UIM coverage requirements vary by state, but it’s still a good idea to stick to the 100/300/100 rule. This means $100,000 per person, $300,000 per accident in UM/UIM bodily injury liability, and $100,000 per accident in UM/UIM property damage liability.

PIP coverage

Personal injury protection insurance, or PIP, is also sometimes known as no-fault insurance and covers medical bills regardless of who is at fault. In some cases, PIP may also be able to cover lost wages or even funeral expenses. This type of insurance coverage only covers injuries sustained by yourself or others and does not cover damage to your vehicle or another person’s property.

Not all states require PIP and those that do often have different minimum coverage requirements. How much PIP coverage you should purchase depends on a variety of factors, including your state’s requirements as well as your own personal health insurance coverage. If you already have a robust health insurance policy, you may want to only purchase the minimum amount of PIP coverage. On the other hand, if you could be facing significant medical bills in the event of an accident, you may want to purchase more PIP coverage than is required by your state.

What states require additional PIP and UM coverage?

While almost all states require liability coverage, not all states require UM/UIM or PIP coverage. Twenty-two states plus the District of Columbia require UM or UIM:

• Connecticut.
• Illinois.
• Kansas.
• Maine.
• Maryland.
• Massachusetts.
• Minnesota.
• Missouri.
• Nebraska.
• New Hampshire.
• New Jersey.
• New York.
• North Carolina.
• North Dakota.
• Oregon.
• Rhode Island.
• South Carolina.
• South Dakota.
• Vermont.
• Virginia.
• West Virginia.
• Wisconsin.
• D.C.

13 states require PIP:

• Delaware.
• Florida.
• Hawaii.
• Kansas.
• Massachusetts.
• Michigan.
• Minnesota.
• New Jersey.
• New York.
• North Dakota.
• Oregon.
• Pennsylvania.
• Utah.

Optional car insurance coverage

In addition to liability coverage, UM/UIM coverage, and PIP coverage, which many states require, there are several other types of optional coverage you should consider adding to your policy, including comprehensive coverage, collision coverage, and gap insurance coverage. While these types of coverage are not required, they’re still usually a good investment and can help to protect you in case anything happens to your vehicle.

Comprehensive coverage

Comprehensive coverage is a type of optional car insurance that covers damage to your vehicle that is not the result of an accident. For example, comprehensive coverage could apply to events including:

• Theft or vandalism.
• Falling objects, such as tree limbs.
• Natural disasters like flooding or hail.
• Hitting animals.
• Damage to your windshield or windows.

Comprehensive coverage does not cover normal wear and tear on your vehicle. When purchasing comprehensive coverage, you’ll need to decide both an appropriate coverage limit and deductible for your situation. The coverage limit refers to the total amount that an insurance company will pay in order to repair your car, while the deductible refers to the amount you’ll have to pay before coverage kicks in.

The coverage limit is often the same as the cash value of your car. When choosing a deductible, it’s a good idea to go with as low a deductible as you can comfortably afford. For example, with a $0 deductible, you won’t have to pay anything for covered repairs—your insurance will cover the bill. Comprehensive coverage is often relatively low-cost, especially if you have an older car.

Collision coverage

Collision coverage covers damage to your vehicle as a result of an accident. For example, if you’re in a fender bender, collision coverage can cover the cost of repairing your car after the accident. If you lease your car or are still paying off your car loan, collision coverage may be required by your lender. Otherwise, collision coverage is usually optional, but it’s still a good investment for most drivers.

In addition to accidents between two vehicles, collision coverage may also cover accidents in which you are the only party, such as if you slip on an icy patch of road or hit a pothole and collisions in which the vehicle is parked and is hit by another car, including hit-and-runs. Collision coverage tends to be expensive. Like comprehensive insurance, the coverage limit for your vehicle is usually the same as the value of your car. The lower your deductible, the higher your premium will be.

While collision coverage can be expensive, it’s still worth investing in. The cost of collision coverage is usually much less than the cost of replacing your car in the event that it’s totaled after an accident. If you have a new or luxury vehicle, collision coverage is especially important, but you may want to forgo collision coverage if you have an older vehicle that’s not worth as much.

Gap insurance

Gap insurance, also known as guaranteed asset protection insurance, is a type of insurance for new vehicles that covers the gap between the depreciated value of your vehicle and the amount that you owe before you pay off your car loan. Gap insurance is typically required if you lease your vehicle but may be optional if you finance your new car.

Once you drive your car off the lot, the value of your vehicle begins to depreciate. This means that there’s a period of time when the value of your car is actually less than the amount you owe on your auto loan. Gap insurance can help to cover the difference if you get into an accident and your car is totaled shortly after purchasing a new vehicle.

If you’re leasing your car or have a high auto loan balance, gap insurance may make sense for you. It’s usually not very expensive and can help to provide peace of mind in the event that there’s an accident that totals your new car. That said, if you’ve already paid off a substantial portion of your auto loan or own your car outright, gap insurance isn’t necessary.

The AP Buyline roundup: Shop around to get the right auto insurance policy

The best auto insurance policy for you depends on several factors, including where you live, your vehicle, your driving history, and other personal factors like your age and credit score. In order to accurately compare offers, it’s a good idea to get personalized quotes from several different car insurance companies. You may even be able to secure a discount on your car insurance policy for demonstrating a history of good driving or for bundling policies.

When deciding how much coverage you need, you should consider factors including the age and value of your car, your risk tolerance, and your budget. In general, it’s a good idea to err on the side of caution and purchase more than the minimum amount of required coverage. In the event that you get into a car accident, a robust car insurance policy can help to lower the cost.