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Overview
If you’re shopping for car insurance for a new vehicle or to find lower premium rates on current vehicles, you might wonder how much coverage you actually need. Your car insurance coverage levels, the types of coverage you purchase, and several other factors all significantly impact your auto insurance premium rates.
Getting clear on what coverage you need, what’s nice to have, and how much coverage is enough (but not too much) can save you hundreds of dollars a year.
Do I Need Car Insurance?
First, let’s explore the basics: Every state plus Washington D.C. requires drivers to carry basic liability coverage, typically for bodily injury and property damage, with one notable exception.
New Hampshire drivers do not have to carry insurance, but do need to show they have sufficient liquid funds available to cover damage and injuries. The New Hampshire Insurance Department highly recommends that drivers carry insurance to protect their financial interests and driving privileges in case of an accident.
Understanding Liability Insurance Requirements
The minimum liability insurance requirements vary by state. Property damage coverage requirements range from $5,000 up to roughly $25,000 per accident, while bodily injury and personal injury protection, where required, start at $10,000 and go up from there.
It might make sense to carry more than the minimum coverage, especially in states like Pennsylvania and New Jersey, where property damage liability coverage starts at just $5,000.
Uninsured / Underinsured Motorists Protection
Some states also require that drivers carry uninsured/underinsured motorist coverage. This pays for your injuries and property damage if you’re hit by a person who has no insurance or whose insurance limits are below the costs of your injuries or property damage. It also protects you financially if you experience a hit-and-run accident.
Supplemental Spousal Liability Coverage in New York
In the state of New York, married couples are signed up for supplemental spousal liability coverage, part of the bodily injury portion of the insurance policy. This coverage allows an injured spouse to file a claim on the driver’s insurance policy. This law adds between $20 to $84 to an annual policy in New York, but couples can opt out of the coverage in writing, according to PropertyCasualty360.com.
Coverage Limits, Explained
An auto insurance policy is often described in terms of the liability coverage limits. This series of dollar amounts describes the maximum amount an insurance company will pay under different circumstances. For instance, a $100,000 / $300,000 / $100,000, or 100/300/100 policy will cover a maximum of:
$100,000 per person for bodily injuries in a single accident
$300,000 for bodily injuries per accident
$100,000 in property damage per accident
In other words, if there’s a car accident and you’re deemed at fault, each person in the other driver’s car may collect payments for bodily injuries and loss-of-work up to $100,000, but only up to $300,000 in total for the accident.
These limits only apply to the driver and passenger in the other driver’s car – not the person responsible – and their property or vehicle.
Personal injury protection (PIP) is additional coverage that pays for injuries and loss-of-work for the driver who is at fault and any passengers in their car. In no-fault states, drivers file a claim against their own policy under their PIP insurance to cover injuries to themselves and any passengers in their car.
No Fault vs. At-Fault States
When you’re choosing your coverage limits for insurance, it’s important to understand whether you live in a “no-fault” or “at-fault” state.
What’s the difference?
In an at-fault state, the driver responsible for the accident and any injuries is required to cover bodily injury and property damage for the driver and passengers in the vehicle they hit. In a no-fault state, each driver’s insurance pays for their own injuries and the injuries of passengers in their car.
The driver responsible still pays for any damage to the other driver’s vehicle. There are only 9 full no-fault states in the U.S., while Kentucky, New Jersey, and Pennsylvania allow drivers to purchase no-fault coverage.
Additional Insurance Coverage for Financed Vehicles
If you have a lease or a loan on your vehicle, you’re likely to need additional coverage.
Collision Coverage
Collision coverage pays for any damage to your vehicle if you are responsible for the accident, up to the cash value of your vehicle. If you have a car loan, your lender requires this coverage to protect their investment. Likewise, you’ll need collision coverage if you lease a car – and you’ll want to make sure to have the damage repaired to avoid excessive damage fees when you return the vehicle.
Comprehensive Coverage
Like collision coverage, comprehensive coverage protects lenders or lessees financially if your car is damaged. Comprehensive coverage pays for vehicle theft and damage caused by vandalism, fire, weather, and other covered perils. Read your policy to see what’s covered in your comprehensive insurance, since it may vary.
Gap Coverage
Collision and comprehensive insurance cover your car up to its cash value. But if you have a lease or a loan, the amount you owe might be greater than the vehicle’s value, especially in the first few years. If your car is totaled, which means the insurance company agrees to pay full cash value for your car, gap coverage will pay off the balance of the loan or lease that’s not covered by collision or comprehensive insurance.
Additional Types of Coverage
In addition to basic liability and any coverage required by your lender or lessee, you might opt to purchase glass coverage, towing and roadside assistance, rental car insurance (to rent a vehicle while yours is being repaired after an accident), or rideshare insurance if you work as an Uber or Lyft driver.
Should You Buy More Than the Minimum Required Insurance?
The amount and types of auto insurance coverage you need depends on the type of car you drive, whether you own the vehicle outright or not, and your personal financial risk tolerance if you are in an auto accident.
Experts typically recommend carrying 100/300/100 liability coverage. As far as required coverage, states have much lower limits. Liability coverage of 25/50/25 is common, but some states have higher or lower limits.
The Point
Drivers in every state should carry car insurance to protect their financial interests in case of an accident. Knowing how much insurance you need and the types of coverage available can help you save money on your next insurance policy.
by your friends at The Daily Navigator
