How much auto coverage do I need?

How much auto coverage do I need?

Almost every state requires you to buy a minimum amount of liability coverage. Chances are that you will need more liability insurance than the state requires because accidents cost more than the minimum limits. If you’re found legally responsible for bills that are more than your insurance covers, you will have to pay the difference out of your own pocket. These costs could wipe you out!

You may want to talk to your agent or company representative about purchasing higher liability limits to reflect your personal needs. You may also consider purchasing an umbrella or excess liability policy. These policies pay when your underlying coverages are exhausted. Typically, these policies cost between $200 and $300 per year for a million dollars in coverage. If you have your homeowners and auto insurance with the same company, check out the cost of coverage with this company first. If you have coverage with different companies, it may be easier to buy it from your auto insurance company.

In addition to liability coverage, consider buying collision and comprehensive coverage. You don’t decide how much to buy. Your coverage reflects the market value of your car and the cost of repairing it.

Decide on a deductible—the amount of money you pay on a claim before the insurance company reimburses you. Typically, deductibles are $500 or $1,000; the higher your deductible, the lower your premium.

Who should buy minimum levels of liability car insurance?

  • Minimum liability is rarely advisable, but if you can’t afford more, it’s better than no insurance.
  • If you have no savings or assets, minimum liability coverage may suffice.

California state minimum liability requirement may not be enough to pay for serious injuries or to replace a newer car. It is only enough to drive legally.

If you own only the clothes on your back and a very old car, you can get by with just the minimum levels of liability mandated by your state. That’s because you’re probably what is known as “judgment-proof.” You may lose if someone decides to take you to court to pay for an accident you cause, but you have no real assets to take.

If you have savings or a home or even expensive jewelry and valuable collectibles, you are not judgment-proof. And you need more coverage.

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To help you decide how much liability insurance you need, we’ve created three liability insurance levels as a rough guide. Levels of coverage offered will vary by state and by insurer. Liability insurance will not repair your own car.

In the levels below:

  • The first two numbers refer to bodily injury liability, which pays the hospital bills of anyone you injure.
  • The first number is the per-person limit.
  • The second is the per-accident limit.
  • The third number is the property damage liability limit, which would repair or replace the car of anyone you hit.

 

50/100/50: This level of coverage is recommended for those who have an older car, few assets, don’t drive much and are on a tight budget, for instance college students and retirees who are downsizing.

100/300/100: This is the level most financial experts say is appropriate for middle-income earners with a typical level of savings, adequate in most circumstances. The cost of liability insurance, once you have bought the basic levels, does not increase exponentially. Moving to 100/300/100 will not cost twice as much as 50/100/50. In an analysis of rates, CarInsurance.com found that it costs just $96 more a year, on average.

250/500/100: If you own an expensive home or have saved diligently, you may be worth millions even though you do not consider yourself rich. We would suggest supplementing even this high level of coverage with an umbrella liability policy that extends your protection by $1 million or more. It’s relatively cheap.

Who should buy uninsured motorist car insurance?

  • If you have your own health insurance and you have purchased collision coverage, you may be able to skip uninsured motorist coverages if your state allows.
  • It is a good idea to keep uninsured motorist coverages if you can afford to, because they can minimize your financial losses from deductibles and coverage caps.

Your state may require that you buy uninsured motorist bodily injury coverage, which pays your hospital bills if you are hit by an uninsured driver. Your state may require only that you be offered this coverage but allow you to turn it down.

If you buy this coverage, it typically will come in the same amounts as your own liability coverage. 

Uninsured motorist coverage costs an average of $83 a year, according to a CarInsurance rates analysis.

A few states also require uninsured motorist property damage, which usually pays for some — but not all — of the damage to your own car. It doesn’t cover hit-and-run accidents in most states, though.