How Much Car Insurance Do I Need?

If you’re a vehicle owner and you’ve been driving without insurance, you’re putting yourself at risk of fines and criminal charges. You might be wondering, "how much car insurance do I need?" as you try to get coverage.

Almost every state requires that you carry at least a certain level of liability coverage. However, you might want to go above your state’s minimum requirements to add additional protections to your insurance policy. The right coverages for your needs will vary depending on your budget, the value of your car and where you live. 

Determine How Much Car Insurance You Need

Here is a step-by-step guide to figuring out how much auto insurance coverage you need.

1. Check State Car Insurance Laws

Before getting car insurance, you need to know what the minimum requirements are for the state you live in. Almost every state requires liability car insurance, but most require an amount that is much lower than the minimum you should actually get for yourself. States like California and Pennsylvania only require coverage for as little as $5,000 worth of property damage. This means that you only receive coverage for damages that are less than this amount.

If you get into a collision that results in the other driver having their property damaged, once the coverage meets its limit of $5,000, you will be held responsible for covering the remaining damages out-of-pocket. Only getting car insurance that meets the minimum required amount in your state may be the cheapest option, but it may not be the smartest choice — especially if you don’t currently have an emergency fund.   

2. Collision, Comprehensive or Liability Coverage?

A car insurance policy actually comes as a package consisting of various types of insurance. One of the most common types of optional coverage is collision insurance. Collision coverage will cover the cost to repair or replace your car in case you get into an accident. This type of insurance is not required by state governments — however, if you’re leasing your vehicle or you’re paying back an auto loan, your lender might require that you maintain at least a certain level of collision insurance coverage.

To determine whether you should get collision coverage or not, consider your car’s current value. The price that you’ll pay for collision insurance will vary depending on the value of your car. If you own a higher value car, it may be costly to replace or repair in the case of a collision. With collision coverage, you would only need to pay the deductible that was determined when you bought the policy. Collision coverage can be an excellent add-on protection to ensure the value of a car you’ve recently invested in. However, you may want to drop the coverage as your car begins to depreciate to less than a few thousand dollars. 

Another type of insurance that can come in the policy package is comprehensive coverage. This coverage is also not required by state law but may be required by a lender. It covers damages caused by an incident other than a collision. Damage from situations like car theft, a fire or a falling tree would be covered with comprehensive insurance. Similar to collision coverage, to determine if you should get comprehensive coverage, consider the value of your car and if it’s worth the cost of the insurance.  

Liability coverage comes in two forms — bodily injury and property damage. Bodily injury covers any physical injuries that may occur to someone else from a collision with you. Property damage covers the repairs for any other person’s property when damaged by your vehicle. Most states require that you carry both bodily injury and property damage liability coverage as a condition of operating a motor vehicle. Keep in mind that liability coverage won’t provide you with any coverage for your own vehicle — it only helps pay for damage that you cause to other drivers or property owners. 

3. Check the Deductible

Your policy deductible is the amount of money you will pay out-of-pocket in the event that you need to use your coverage and file a claim. The premium is the amount you pay each month to maintain your insurance coverage, similar to any other type of insurance policy you take out. The higher the deductible that you pay, the lower your monthly premium will be. 

While you may be tempted to raise your deductible to a higher amount in order to get a lower premium, you need to remember that you will have to pay that deductible if something happens to your car. Some drivers raise their deductible in order to pay a lower premium each month, but then they get stuck paying a large amount of the cost for damage. Don’t assume that a higher deductible is always the best option for your needs because it comes with lower monthly premiums. Take your personal finances and emergency fund into account when balancing monthly costs with out-of-pocket costs if you need to file a claim. 

4. Do a Cost Analysis

The best way to determine how much car insurance you need is to first determine your state’s minimum coverage, then compare the cost of collision and comprehensive coverage to the actual value of your car. The final step is to calculate the amount of liability insurance needed in order to cover the total value of your net worth. Consider how much money you make and the expenses you have each month and then consult with an insurance agent to see what the best coverage would be for you.  

It’s also important to reiterate the fact that you can drop your collision coverage (if you have it) once the car starts depreciating significantly. This action will reduce the money you pay monthly for insurance, and you won’t have to worry about getting slapped with a hefty damages bill. You can also lower coverage if you have paid off your car or paid off your auto loan. However, if you never plan to replace that vehicle, you shouldn’t lower the coverage. Most people intend to get a new car eventually, which means that when your car depreciates to a certain extent, it makes more financial sense to drop excess coverage and begin putting that money towards the purchase of a new vehicle. 

5. Gap Insurance

Gap insurance is coverage for the difference between the insured value of your car and the outstanding loan or lease balance. For example, if you still owe $10,000 on your car, but you total it and the insurance covers only $8,800, you still need to pay the outstanding $1,200 to your lender. However, if you have gap insurance, your coverage will handle the outstanding $1,200 bill on your behalf. 

Gap insurance is not required by any state, but some lenders require you to have this type of insurance depending on the car you're leasing. Lenders may expect it for cars that depreciate in value more rapidly than the average car, such luxury sedans. If you finance a car, the car immediately is worth less than the balance of the loan as soon as you drive it out of the lot. Gap insurance ensures that you aren’t left paying on a loan balance for a car that you can no longer use if you’re involved in a serious accident.

Best Car Insurance Providers

Searching for the right car insurance doesn’t need to be a month-long endeavor. Consider starting your search with a few of our favorite insurance providers below. 

Get the Car Insurance Coverage You Need

No one wants to think about the possibility that they could be involved in an accident — so it can be tempting to purchase only your state’s minimum required level of car insurance. Unfortunately, the truth is that an accident can occur at any time, and you’ll need to be financially prepared to cover any type of damage that you cause. In order to balance protections and coverage costs, we recommend getting a quote from at least 3 competing car insurance providers offering policies in your area before you choose which company to work with.

Frequently Asked Questions