Finding out how much auto insurance you need is important — because you never know what’s going to happen.
Some idiot rear-ends your car after tailgating you for miles.
That hailstorm your weather app told you wasn’t coming decided to show up after all.
Or maybe you’re just not as good as doing donuts in the Publix parking lot as you thought?
Okay, maybe that’s just me.
But getting good auto insurance can be confusing, fraught with esoteric terms and confusing numbers.
And you need to make the most informed decisions as possible in order to get the best deal for you and safeguard against the unexpected.
I want to show you how to do that.
First, let’s outline what exactly makes good car insurance, introduce you to some terms you’ll want to know, and then I’ll show you exactly how much auto insurance you need for your vehicle.
What makes good auto insurance?
Auto insurance coverage is made up of several policies that help safeguard you in various ways. Put together, it forms your whole auto insurance plan.
Here are the types of policies you can have for your insurance:
- Liability. Protects you when you’re at fault for an accident. This policy will cover costs such as auto repair or medical costs sustained by a third party — as such it’s probably the most important policy you’ll have (more on this later).
- Collision. This coverage typically protects your vehicle against collisions with other motorists or objects. Good if you’re prone to accidentally backing up into the mailbox.
- Comprehensive. This coverage tends to cover the whole gamut of things that might happen to your car such as hail, water, and fire damage; if it gets stolen; vandalism; or total destruction. I wouldn’t suggest getting this coverage if your car is already pretty old or isn’t worth much.
- Uninsured motorists. Some states require you to be insured to protect against uninsured motorists. This coverage helps you in the event that you get into an accident with someone who isn’t insured and can’t pay for your car repair and/or medical bills.
- Medical costs. If you’re injured in an accident, the insurance company will pay some or all of your medical bills (depending on the coverage and how much the bill is).
- Personal injury protection. Like uninsured motorists coverage, some states require you to get this as a minimum. This pays for any medical expenses or lost wages you might encounter due to a collision.
When it comes to the type of auto insurance you get, I highly suggest getting at least liability, collision, and comprehensive. Those will cover the likeliest of events that will occur for you — so they’re very important to have.
How much auto insurance do I need?
Answer: It depends.
Legally, you’re only obligated to get liability insurance. After all, if you’re at fault for an accident, you might have caused the third-party car damage, or worse, injury or even death.
Most U.S. states — besides New Hampshire and Virginia — require you to get car insurance as well as a certain amount of liability coverage you need.
When it comes to the amount of liability that’s required, you’ll typically need to find coverage in three areas:
- Bodily injury (per person). This is the amount that is covered for each person who gets hurt during an accident.
- Bodily injury (total). The most an insurance company will cover for bodily injury per accident.
- Property damage (total). This does not include your own property. This amount only covers the damage sustained to the property of others.
The full amount of the minimum coverage varies from state-to-state.
Here’s a comprehensive list of car insurance minimum coverage requirements for each state (e.g., Alabama requires $25,000 for bodily injury per person).
|
STATE |
BODILY INJURY (PER PERSON) |
BODILY INJURY (TOTAL) |
PROPERTY DAMAGE (TOTAL) |
|
AL |
$25,000 |
$50,000 |
$25,000 |
|
AK |
$50,000 |
$100,000 |
$25,000 |
|
AZ |
$15,000 |
$30,000 |
$10,000 |
|
AR |
$25,000 |
$50,000 |
$25,000 |
|
CA |
$15,000 |
$30,000 |
$5,000 |
|
CO |
$25,000 |
$50,000 |
$15,000 |
|
CT |
$20,000 |
$40,000 |
$10,000 |
|
DE |
$15,000 |
$30,000 |
$10,000 |
|
FL |
$10,000 |
$10,000 |
Not required |
|
GA |
$25,000 |
$50,000 |
$25,000 |
|
HI |
$20,000 |
$40,000 |
$10,000 |
|
ID |
$25,000 |
$50,000 |
$15,000 |
|
IL |
$25,000 |
$50,000 |
$20,000 |
|
IN |
$25,000 |
$50,000 |
$10,000 |
|
IA |
$20,000 |
$40,000 |
$15,000 |
|
KS |
$25,000 |
$50,000 |
$25,000 |
|
KY |
$25,000 |
$50,000 |
$10,000 |
|
LA |
$15,000 |
$30,000 |
$25,000 |
|
ME |
$50,000 |
$100,000 |
$25,000 |
|
MD |
$30,000 |
$60,000 |
$15,000 |
|
MA |
$20,000 |
$40,000 |
$5,000 |
|
MI |
$20,000 |
$40,000 |
$10,000 |
|
MN |
$30,000 |
$60,000 |
$10,000 |
|
MS |
$25,000 |
$50,000 |
$25,000 |
|
MO |
$25,000 |
$50,000 |
$10,000 |
|
MT |
$25,000 |
$50,000 |
$20,000 |
|
NE |
$25,000 |
$50,000 |
$25,000 |
|
NV |
$15,000 |
$30,000 |
$10,000 |
|
NH* |
$25,000 |
$50,000 |
$25,000 |
|
NJ |
$15,000 |
$30,000 |
$5,000 |
|
NM |
$25,000 |
$50,000 |
$10,000 |
|
NY |
$25,000 |
$50,000 |
$50,000 |
|
NC |
$30,000 |
$60,000 |
$25,000 |
|
ND |
$25,000 |
$50,000 |
$25,000 |
|
OH |
$25,000 |
$50,000 |
$25,000 |
|
OK |
$25,000 |
$50,000 |
$25,000 |
|
OR |
$25,000 |
$50,000 |
$20,000 |
|
PA |
$15,000 |
$30,000 |
$5,000 |
|
RI |
$25,000 |
$50,000 |
$25,000 |
|
SC |
$25,000 |
$50,000 |
$25,000 |
|
SD |
$25,000 |
$50,000 |
$25,000 |
|
TN |
$25,000 |
$50,000 |
$15,000 |
|
TX |
$30,000 |
$60,000 |
$25,000 |
|
UT |
$25,000 |
$65,000 |
$15,000 |
|
VT |
$25,000 |
$50,000 |
$10,000 |
|
VA** |
$25,000 |
$50,000 |
$20,000 |
|
WA |
$25,000 |
$50,000 |
$10,000 |
|
D.C. |
$25,000 |
$50,000 |
$10,000 |
|
WV |
$25,000 |
$50,000 |
$25,000 |
|
WI |
$25,000 |
$50,000 |
$10,000 |
|
WY |
$25,000 |
$50,000 |
$20,000 |
*(Coverage is optional but this is the minimum if you purchase it)
**(Required if you choose to purchase coverage. If not, you must pay a $500 uninsured motorists fee)
When looking at policy options, you’re going to see them expressed with those three numbers.
For example, if you have a 100/300/50 policy, this means that your coverage will pay:
- $100,000 per individual bodily injury
- $300,000 total bodily injury
- $50,000 total property damage
For an even more comprehensive look at what your state might require for car insurance, be sure to check out your state’s department of transportation website.
IMPORTANT NOTE: This is just the minimum required amount of insurance you need to get from your insurer. In fact, you should get much more liability insurance than the minimum.
Why? Because if you cause an accident that exceeds the amount of coverage in your policy, you’re going to have to pay out of pocket to cover the rest of the costs. And that can be an absolute nightmare for your finances — one that’s easily avoided with a comprehensive policy.
Good rule of thumb: Make sure you have enough in your insurance policy to cover your total assets (savings, home, etc.).
Say you have a total of $200,000 worth of assets. You’ll want to have $200,000 worth of policy split up amongst the three areas of coverage (individual bodily injury, total bodily injury, and property damage).
The more liability insurance you have, the more you end up saving too. That’s because it’ll show your insurer that you’re a low-risk driver and are likely more responsible. That means lower premiums (i.e., how much you have to pay for insurance) and less strain on your pocket.
What about collision and comprehensive coverage?
Like liability insurance, how much you spend on these policies depends on your financial situation.
If you attained a car loan or financing to buy your vehicle, chances are your lender will require you to get both comprehensive and collision policies.
But even if that’s not the case for you, you’ll want to make sure you’re insured for your car so you don’t have to pay exorbitant out-of-pocket fees when shit hits the fan.
The maximum amount of coverage you can get amounts to the total cost of your car minus the cost of your deductible.
Say your car is worth $10,000 and your deductible is $400 — and a piano falls on it in the middle of the night destroying the entire vehicle. Your insurance company will give you a total of $9,600 to replace it (and hey, free piano!).
The policy you get ultimately depends on you and your aversion to risk though. So talk to your insurance agent. See what they have to offer you and your vehicle for collision and comprehensive coverage. And pick the policy you’re most comfortable with.
The importance of good car insurance
When I bought my first car at 22, I knew I had to get insurance for it.
I also knew I didn’t want to pay a ton of money each month for insurance.
So I ended up getting it from an insurer with amazing rates because I wanted to save as much money as possible.
They also turned out to be the worst insurance company in the known universe.
A few things they did:
- Lost track of my paperwork
- Overcharged me “on accident”
- Constantly sent me mail I didn’t need/want
So I decided to drop them like a bad habit and change insurers.
After calling a bunch of places and negotiating with different insurers, I found a company that saved me nearly $200 every six months (almost $400 a year).
If I would have compared and negotiated from the start, I would have saved hundreds of dollars and lots of headaches.
My point? Insurance is not a commodity. If you go with the cheapest insurer and it turns out that they “accidentally” overcharge you and — worst case scenario — can’t even fulfill your claim, then it’s your fault.
That’s why you want to pick a reputable company, even if that means paying $50 or so more each year. And negotiating a great rate with these companies isn’t that complicated either. Check out my article on the topic to help you negotiate with your car insurance company today.
Once you’re done there, I want to give you a system to do two important things:
- Pay for your car insurance premiums painlessly
- Save for any disaster that might befall you
Introducing The Ultimate Guide to Personal Finance.
The money you save on lowering your car insurance is great, but it’s small compared to everything you can save when you optimize your personal finances.
That’s why I’ve outlined my entire system in this no-BS guide on how to make your personal finances work for you.
And it’s all for FREE.
Put your info in the box below and I’ll send you a free PDF of the Ultimate Guide. You’ll be one step closer to living a Rich Life.
The perfect policy: How much auto insurance do I need? is a post from: I Will Teach You To Be Rich.
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