6 Steps to Determine How Much Auto Insurance You Need
When choosing the minimum car insurance you need, consider state laws and other crucial factors.BLACKWHITEPAILYN / Shutterstock
When shopping for car insurance, determine how much coverage you're legally required to have and how much, if any, you need beyond that. If you don't get the minimum amount required or purchase enough coverage, you could be held financially liable in the event of an accident. If you buy more car insurance than you need, you could be wasting money on something you'll never use.
Follow these six steps to determine how much car insurance you need and how much coverage is right for you.
1. Look into your state's laws
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Every state except for New Hampshire and Virginia has laws on the books that dictate the minimum amount of car insurance coverage and the type of car insurance coverage you need. For example, in California, you must have $15,000 worth of bodily injury liability insurance per person, $30,000 worth of bodily injury liability insurance per accident and $5,000 worth of property damage liability coverage.
Uninsured and underinsured motorist coverage may be required or optional in your state. It will cover your accident expenses if a driver who caused an accident doesn’t have insurance or does not have enough coverage, so even if it’s not required, it’s an option you should strongly consider.
2. Consider optional coverage you may need
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While not required by law, you'll likely need collision coverage if you lease your car or are making payments on an auto loan. You might also want to look into rental reimbursement coverage or transportation expense coverage, which will provide you with a rental car or other transportation if your vehicle is being repaired using a covered insurance claim. Gap coverage will cover you if your car is totaled or stolen and you owe more money on it than what the insurance company will payout. If you drive for Uber, Lyft or another ridesharing company, you'll need ridesharing coverage to pay for an accident that occurs when you're using your car for business purposes.
When you're shopping around for coverage, you can check with your car insurance provider to determine the minimum amount of insurance you need for your state, as well as optional insurance you may want to consider purchasing.
3. Decide how much you can afford
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Let's say the minimum amount of bodily injury liability insurance coverage you need per person is $50,000 like it is in Alabama. But perhaps you think that isn't enough. You could always increase it, but it's going to cost you more.
Determining how much you can afford to pay in premiums is crucial when shopping around for insurance. The average cost of car insurance in the U.S. for full coverage is $1,424 per year and $898 per year for 50/100/50 liability coverage. If you are having trouble affording your insurance, you may be able to get a good driver discount or a discount if you pay your bill every month using autopay. Make sure to ask your car insurance provider about further discounts.
4. Compare rates among providers
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Another way to save money on your car insurance and determine how much you need is to compare rates from different providers. Let's say Company X provides full coverage, which is collision insurance and comprehensive insurance combined, for $140 per month. However, once you compare rates, you see that Company Y provides it for $120 per month. In that case, you may be able to get full coverage, or whatever type of coverage you want, for less per month.
Keep in mind that the most common type of car insurance that most people get is liability insurance, which is also called third-party insurance. Having at least $500,000 worth of liability insurance coverage for bodily injury liability and property damage liability is recommended. You will then be able to pay for an accident that was your fault and cover the other driver's medical bills, lost wages and car repairs.
5. Explore 100/300/100 coverage
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Even though you may be able to get away with having a 50/100/50 policy with up to $50,000 worth of bodily injury sustained by a single person or $100,000 per accident would be covered, it may not be enough. Medical bills can be shockingly high. If you get into an accident with another vehicle where you’re at fault and catastrophic injuries occur, your coverage might fall short of covering the damages and you could be responsible for paying out of pocket.
In the short term, 50/100/50 coverage may save you money, but you may be taking a risk if you get into an accident. Instead, consider paying for 100/300/100 coverage, which would cover up to $100,000 in bodily injuries for one person or up to $300,000 total for bodily injury.
6. Make sure you’re not overinsured
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Being overinsured means you're paying too much for car insurance and don't need all the coverage for which you're paying. While it's essential to have personal liability insurance, if you drive an older vehicle that may only be worth a few thousand dollars, carrying comprehensive or collision coverage may not be necessary. If you can afford another car if your current vehicle needs repairs or is totaled, then it's probably not worth it to get comprehensive or collision coverage as well. Your insurance provider will only pay for costs up to the Kelley Blue Book value anyway, which may be next to nothing if your car is older.
Additionally, you may not need the optional coverage, like towing and roadside assistance, which your provider might try to offer you. Instead, you could always sign up for AAA in case anything goes wrong on the road.
Getting the best car insurance coverage you need
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Armed with the knowledge you need to answer the question of how much car insurance you need, you can start getting quotes from several companies and shopping around for the best rates. While it’s tempting to pay as little as possible for car insurance, it’s crucial that you have enough insurance to protect yourself and your finances in the event of a car accident. Once you’ve got the best car insurance for your needs that offers good coverage at a cost you can afford, keep your rates down by avoiding traffic tickets and accidents, driving a car that’s affordable to insure and paying your premiums on time.
Writer Kylie Ora Lobell is a freelance copywriter, editor, marketer and publicist.