How Much Car Insurance Do I Need?
Car insurance is a major cost of owning a car. But plenty of Americans buy more than they need. Here is now to find out what you should really pay for—and where to save.
The average American driver now spends around $190 per month on auto insurance, up 4% from $182 in the past year, according to the Federal Reserve.
Common types of insurance include liability, uninsured motorist coverage, personal injury protection, as well as comprehensive and collision insurance, to cover everything from hurting another driver in an accident to storm damage to your car.
But, depending on your vehicle and your financial situation, you may not need all of these types of coverage. Reducing your coverage amounts and cutting back on optional coverage types like collision and comprehensive can lower your monthly premiums.
We’ll guide you through how to decide what car insurance works for you––making sure you get the coverage you need without breaking the bank.
Types of car insurance
A typical auto insurance policy includes several different types of coverage, some of which are optional and some of which are required. These include:
- Liability insurance covers injury to other people or damage to their property and is required in almost all states
- Uninsured or underinsured motorist coverage protects you if you’re in an accident with a driver with no or inadequate insurance and is required in some states
- Personal injury protection covers your medical bills after an accident, regardless of who is at fault, and is required in some states
- Comprehensive insurance coverage covers non-collision damage to your vehicle, such as from theft or natural disaster
- Collision insurance coverage covers collision damage to your vehicle
How much liability insurance do I need?
Liability insurance, which costs about $60 per month for minimum coverage, has two main components: bodily injury, which covers you if you hurt someone else in an accident, and property damage, which covers you if you damage their car or other property.
When you purchase liability coverage, you purchase a bodily injury coverage limit “per person,” which is the limit that will be covered for each individual person in an accident who gets injured. For example, if you’re in an accident with another car with a driver and one passenger, with a $100,000 per person coverage limit, your insurance company will pay up to $100,000 for each person injured in the accident.
You also have to decide on a bodily injury coverage limit “per accident.” If you select a $300,000 coverage limit per accident, that’s the maximum number that your insurance company will pay, regardless of how many people are injured. Property damage coverage limits are also priced per accident.
Liability insurance coverage limits are often expressed with a ratio. For example, the state of New York requires drivers to carry $25,000 in bodily injury liability insurance per person and $50,000 per accident, as well as $10,000 in property damage liability insurance coverage, expressed by the ratio 25/50/10. That said, you may want to have more coverage than your state-mandated minimum—a longstanding rule of thumb has been coverage limits of 100/300/100.
- How much to get: Consider 100/300/100 coverage
- Considering cutting costs if: While its possible to lower your premium by carrying less liability coverage, most experts say there are better places to save
Most experts say the industry’s 100/300/100 rule of thumb is a good place to start. Those levels are well above the average bodily injury liability claim of $22,700, since you will be covered up to $100,000 per person and $300,000 per accident.
If you can easily afford to, it may make sense to buy extra liability insurance—typically enough to protect your net worth, including your home, savings and other valuable possessions, since you may make an inviting target for a lawsuit. “Think about your assets and what needs to be covered,” recommends Marty Sansone, vice president of insurance at insurance comparison site The Zebra.
But even if you have little or no net worth to protect, skimping on liability coverage is still risky—and for most drivers there are far better places to cut back. “Even someone with few assets can be sued and have wages garnished for many years,” cautions Cameron Magnuson of Magnuson Insurance.
How much Uninsured or Underinsured Motorist insurance do I need?
So-called UM and UIM coverage protect you if you’re in an accident with a driver who is uninsured or underinsured. Drivers without insurance are less likely to be able to cover costs like medical bills and car repairs, so UM and UIM provide coverage in the event that the other driver can’t pay up.
Some states require both types of coverage, while some states require only UM. Required coverage amounts vary by state, but often match the minimum liability insurance coverage requirements.
- How much to get: Match your liability coverage
- Considering cutting costs if: You have collision insurance (as well as health insurance)
According to the Insurance Research Council, around 1 in 8 drivers on the road are uninsured nationwide. This means that, if you get into an accident with another driver, they may not have the necessary coverage to pay for your medical bills or damage to your car. UM/UIM covers damage to your car and any potential medical costs.
Of course, assuming you have health insurance, your doctors’ bills will already be covered. But UM and UIM policies can still pick up out-of-pocket costs like your deductible and any copays. It also covers medical bills for any of your passengers, and lost wages.
Because UM and UIM coverage is relatively affordable, with an average cost of around $4 to $6 a month, Sansone recommends carrying enough to match the bodily injury limits of your liability insurance.
At the same time, if you have collision insurance (more on this below) and a low deductible on your health insurance plan, this insurance could be largely redundant—and you may well be safe with your state’s minimum.
How much PIP insurance do I need?
Also referred to as no-fault insurance, PIP covers your medical bills after an accident, as well as those of any passengers, regardless of who is at fault. It also covers expenses like lost wages.
PIP, or personal injury protection, isn’t available in all states, and only a few states require it.
Minimum coverage amounts vary by state. For example, New York requires that drivers carry $50,000 in PIP insurance per person, while Massachusetts requires only $8,000 per person.
- How much to get: Enough to cover your health insurance deductible
- Considering cutting costs if: You’re comfortable paying your health insurance deductible
There are a lot of variables that determine how much PIP costs, with typical costs ranging from $8 to $33 per month. If you don’t have health insurance, carrying PIP may be critical.
Even if you do, PIP may help fill in gaps such as paying your deductible and medical bills for any passengers. But if you have health insurance and are looking to lower your auto costs, this type of insurance is probably safe to skip.
How much collision insurance coverage do I need?
Collision coverage covers damage to your own vehicle in the event of an accident. This can include damage sustained in a crash with another vehicle, including hit and runs, or an object like a tree or guard rail.
Collision coverage—which is optional if you fully own your car, but usually required if you lease or have a car loan—costs an average of $25 a month, according to the Insurance Information Institute, a trade group. The coverage limit is typically the cash value of your car, and drivers must choose a deductible. The average is about $500.
- How much to get: The cash value of your car
- Considering cutting costs if: Your vehicle is worth less than 10 times the insurance premium
This type of insurance makes the most sense if you have a new car, or if you’d have a hard time paying for a big repair out of pocket.
One way to save on collision coverage is to raise your deductible, which can dramatically reduce your monthly bill, while still protecting you in the case of a serious accident. For example, according to Progressive, a $100 deductible costs an average of $70 a month. But for drivers willing to risk raising that to $2,000, the average monthly premium drops all the way to $22.50.
If your car is older, so that it’s not worth much on the resale market—and if you can commit to paying out of pocket for any repairs—it may make sense to skip collision coverage altogether.
How to tell? An industry rule of thumb says that if your car is worth less than 10 times your annual collision insurance premium, it may no longer be worth it, according to Mark Friedlander, spokesman for the Insurance Information Institute, a trade group.
How much comprehensive insurance coverage do I need?
Comprehensive covers damage to your vehicle from theft, natural disaster, or other causes not covered by collision insurance. For example, it might cover repairs if someone steals your catalytic converter, or if a tree branch falls on your car.
Like collision, comprehensive is typically required if your car is leased or financed, but otherwise almost always optional. It typically costs about $14 a month, according to the National Association of Insurance Commissioners.
Also just like collision insurance, the coverage limit for comprehensive insurance is typically the cash value of your car. Drivers must choose a deductible when purchasing this type of coverage. The average deductible is around $500.
- How much to get: The cash value of your car
- Considering cutting costs if: You have an older, less valuable car
The value proposition for comprehensive coverage is much the same as it is for collision, according to experts.
Your vehicle likely doesn’t need collision coverage if “you can replace it without putting a substantial dent in your budget,” suggests Paul Moss, founder of auto insurance comparison tool HeyDriver!
The advice, recommendations or rankings expressed in this article are those of the Buy Side from WSJ editorial team, and have not been reviewed or endorsed by our commercial partners.
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