How Much Car Insurance Coverage Do You Actually Need?

Car insurance is not only legally required in most states, but it will also protect you in case you’re involved in an accident. While it can be tempting to select the legal minimum to keep your premiums lower, it can also leave you at financial risk in case something happens.

WorkMoney put together a guide on how to select how much car insurance you actually need, and how you can save money on your policy during a time of rising premiums.

What Car Insurance Actually Covers

Car insurance policies have multiple parts to them, including liability coverage, uninsured motorist coverage, collision coverage, comprehensive coverage, and potential add-ons. 

Here’s what you need to know about each in the event you get into an accident.

Liability Coverage

Bodily Injury (BI): Covers the other driver and their passengers if you cause an accident. This includes medical bills, lost wages, legal fees, and long-term care costs.

Property Damage (PD): Pays for damage you cause to someone else’s car, building, fence, mailbox — anything that isn’t yours.

Why it’s the most important category: Liability coverage protects you from lawsuits, which can easily reach six figures after a serious crash. If your limits are too low, you’re personally responsible for the rest. Each state has its own requirements for how much coverage you must have. You can find those minimums here.

Uninsured/Underinsured Motorist (UM/UIM)

It’s estimated that roughly one in seven drivers on the road is uninsured. This means that if there isn’t a second insurance policy to kick in, meaning that you could leave yourself exposed to more liability. 

With uninsured motorist protection, this will cover anything that the other driver isn’t able to kick in. This coverage is required by some states, but not by others, so be sure to check with your insurance agent if you need to have it.

Collision Coverage and Comprehensive Coverage

Collision coverage pays to repair or replace your own car after an accident, no matter who was at fault. Whether you hit another vehicle, a guardrail, a building, or even a pothole, collision kicks in to cover the damage once you pay your deductible. It’s especially valuable for newer cars or vehicles worth more than a few thousand dollars, where repair costs can easily exceed what you’d want to pay out of pocket.

Comprehensive coverage protects your car from non-crash events — the things you can’t control. If your car is damaged by weather, stolen, or totaled by something other than a collision, comprehensive coverage kicks in. Together, comprehensive and collision create what’s often called “full coverage.”

Neither of these coverages is required unless the car is leased or has an outstanding loan on it. 

Optional Add-Ons

Personal Injury Protection (PIP): PIP covers lost wages and essential services in the case of an accident, and it’s required in some no-fault states.

Rental Car Coverage: This pays for a rental car while your vehicle is being repaired after a covered accident. It can potentially save you hundreds if you rely on your car.

Roadside Assistance: Covers towing, jump-starts, flat tires, lockouts, and other emergency services when you’re stranded. It’s a low-cost add-on that provides peace of mind, especially for drivers of older vehicles or frequent travelers.

Gap Insurance: Gap insurance pays the difference between what your car is worth and what you still owe on your loan or lease if the vehicle is totaled. It prevents you from being stuck making payments on a car you no longer have, making it especially valuable for newer or heavily financed vehicles.

How to Calculate the Coverage You Actually Need

How to Save Money Without Cutting Essential Coverage

Car insurance has become increasingly expensive in recent years. Premiums are up 55% since February 2020, according to data from the Bureau of Labor Statistics. This is an extraordinary rise due to inflation and the rising cost of vehicle maintenance. 

Here are a few ways you can potentially reduce your car insurance:

• Consider looking into state assistance programs: States like California and New Jersey have programs to help drivers afford car insurance. Look into potential funding to help you get the coverage you need.

• Look into pay-per-mile programs: Pay-per-mile insurance is exactly what it sounds like, you pay based on how much you drive. This could be a great idea for someone who works from home or has a minimal work commute.

• Bundle policies: Companies typically give discounts to customers who have multiple policies. So if you have homeowners/renters insurance, it may be wise to bundle it with car insurance to potentially save.

• Shop your insurance around: Insurify can help compare quotes from multiple companies so you can get the most coverage for the best price.

Final Thoughts

Car insurance coverage is essential to protecting yourself on the road. The hope is that you never have to use your insurance, and it ends up being a sunk cost in your monthly budget. But in the off chance you’re part of the roughly 30 million auto insurance claims filed per year, having enough coverage will keep you and your hard-earned assets protected.