The amount of car insurance you need depends on your state’s minimum requirements, your threshold for risk, and your driving habits. Even if you’re a great driver, accidents happen. Another driver rear-ends you. You do not see a car turning left in front of you on a rainy night. Someone steals your car. A deer leaps across the road and you do not have time to swerve. In many cases, you could face thousands of dollars in hospital bills, auto repairs, or even a totaled vehicle.
Car insurance helps protect you in many ways. Depending on your coverage, an insurer can pay the medical bills for your injuries, those you cause, and repairs to your car. Find out more about whether car insurance is required, how much you need, insurance types, and how insurers figure out the rate to charge you.
Is Car Insurance Required?
The government requires car insurance in almost every U.S. state, but requirements vary by locality. However, to drive without legal repercussions, you must have insurance for the vehicle.
Specifically, these types of insurance may be required, depending on where you live:
- Bodily injury liability: Covers injury or death you cause others
- Property damage liability: Covers property damage you cause others
- Personal injury protection (PIP): Covers your injuries in “no-fault” states
- Uninsured/underinsured motorist: Covers expenses and damages caused to you by a driver who doesn’t have insurance or doesn’t have enough insurance.
How Much Car Insurance Do You Need?
You must buy at least your state’s insurance minimum to comply with the law. Beyond this, considering your threshold for financial and bodily risk helps you determine how much coverage you need.
For example, imagine you are at fault for an accident that causes $250,000 worth of hospital bills and damage. You carry minimum coverage that only covers $25,000 of those costs. Your assets — such as your home — could be at risk if the victim sues you for the difference. This situation may be unlikely, but still possible. With minimum insurance coverage, you might also not have enough coverage to repair your car after an accident or pay your medical bills.
A deductible is your portion of a claim and works much like a co-pay when you visit the doctor’s office. Typically, higher deductibles lead to lower premiums or car insurance payments. If you have very low deductibles, your monthly or annual insurance costs may be higher — but you also won’t be expected to come up with a large deductible at the auto body shop.
Minimum coverage is the lowest amount of auto insurance coverage legally possible in your state. State-mandated minimum coverage may include only bodily or physical liability insurance.
Minimum coverage is typically the least expensive insurance coverage possible, but carrying minimal coverage exposes you to severe risks. For example, if the medical bills resulting from an injury you cause cost more than your coverage amounts, you could be liable (held legally responsible) for paying the difference. Additionally, minimum coverage doesn’t cover damages to your car.
When most people say “full coverage,” they mean they want maximum auto insurance coverage for various situations that could happen on the road. However, what that looks like could vary by driver.
This coverage might include:
- High liability limits
- Uninsured motorist coverage
- Coverage for your car if in a collision or non-collision damage
- Personal injury protection and medical payments coverage
- Roadside assistance
This coverage typically costs more than liability insurance but you may offset the higher cost of full coverage insurance by requesting higher deductibles.
Types of Car Insurance
In an accident or incident, various insurance types protect you, your passengers, your car, and other drivers you share the road with.
All states require liability insurance or its equivalent. Car owners need liability coverage, as it pays for any deaths and damages you cause to other people and their property, up to the amount limit. You can’t buy less than the state minimums, but carrying more than the minimum is wise if you want additional protection.
Types of liability coverage include:
- Bodily injury liability for one person injured by you in one accident
- Bodily injury liability per accident, for all people you injure
- Property damage liability for damage you cause to someone else’s property
However, liability coverage doesn’t cover any damage to you or your car if you’re at fault in an accident. You’ll need another type of insurance listed below to cover those costs.
States do not require comprehensive coverage, but it can help protect you financially and may be mandated by auto loan providers. If your car gets damaged by a non-collision incident, such as fire, vandalism, hitting an animal, or theft, you can claim against your comprehensive coverage. Your insurance company helps pay for repairs after you pay your deductible.
You may be required to carry collision coverage if you have a leased car or a loan. However, if the car you have paid off is not worth much or costs more to repair than it is worth, you may be able to save money and cancel comprehensive coverage.
Like comprehensive coverage, most states do not require collision coverage. However, collision coverage helps cover the costs of repairing your car if you are at fault in an accident. If you do not have collision coverage, you will need to find money to pay for repairs quickly. You may be required to carry collision coverage if you have a leased car or a loan, but if your owned car is not worth much and would cost more to repair than the actual value of the car, you may be able to cancel collision coverage.
Uninsured Motorist Coverage (UM)
Uninsured and underinsured motorist coverage (UM/UIM) helps protect you if someone causes damage to you or your car but does not have insurance, or the insurance is too low to cover your costs. UM/UIM also helps cover hit-and-run damages. Uninsured/underinsured motorist coverage is a required coverage in some states.
Personal Injury Protection (PIP)
Personal injury protection covers your injuries as a driver and injuries to your passengers, funeral costs, and some lost wages, no matter who was at fault. Some states require drivers to carry PIP to help cover your injury-related medical costs as a driver and any passengers in the car. Other states require insurers to offer you PIP coverage, although you can decline it.
Medical Payments Coverage (MedPay)
MedPay or Med-Pay is usually not offered in every state. It could work similarly to PIP or differ slightly depending on the state offering it. For example, Medical Payments coverage may not cover lost wages in some states or may not be required, although PIP may be required and could cover lost wages. Some MedPay coverages may even cover your injuries as a pedestrian if a driver hits you.
What Factors Impact Car Insurance Rate?
To calculate your insurance premium, your insurer considers your driving history, the vehicle, location, driving frequency, and the drivers behind the wheel. Also, remember that each time you file a claim, you could see your rate go up.
When setting your car insurance rate, an insurance company considers how risky your vehicle might be. If you just bought a new, expensive car, it might cost more to repair after an accident. Additionally, it could be at greater risk of theft. The insurer could set the rate higher than an older vehicle that may not cost as much to repair and thieves overlook. High-performance vehicles may also cost more to insure because a powerful engine could lead to racing and other risky behaviors.
Insurers may offer you a discount if your car includes safety features and anti-theft devices.
The location of your car also dramatically impacts your rate. Rates vary widely between states due to different insurance regulations and requirements. Rates can vary between cities, depending on how often risks such as car accidents or thefts occur. Where you store your car (garage or street) and drive your car (to work daily or not often) can shift rates up or down.
For example, someone who rarely drives, stores their vehicle in a garage, and lives in a city with a low theft rate may pay less than someone who commutes daily, parks on the street, and lives in a place where accidents are common.
Your driving record heavily influences your insurance rate. The insurer will likely see previous driving incidents as warning lights regarding your risk. If you have speeding tickets, at-fault accidents, driving points, or driving under the influence (DUI) incidents on your driving record, the insurer may assume you are likely to have more incidents to pay out and so charge you more. Even one-car accidents or claims, such as vehicle rollover, can cause your rates to increase.
If you have a clean driving record, the insurer will likely charge less because it indicates that you are a safe driver unlikely to cause accidents or require costly insurance payouts. You may be able to reduce your rate by taking a defensive driving course to further show a proactive commitment to driving safely.
Teen drivers tend to have some of the highest rates because car crashes are the second-leading cause of death for teens, according to the Centers for Disease Control (CDC). Teens drivers between the ages of 16-19 are three times more likely to be in a deadly crash compared to a 20-year-old driver. Rates tend to drop with age and maintenance of a good driving record. Some insurers may give young drivers a discount for good grades of B or better.
Additional Car Insurance Coverage
Other coverages may provide extra financial security for unexpected car-related problems. Ask your insurer if they offer the following:
Car Rental Coverage
Car rental coverage does not cover you if you rent a car for a vacation or business trip. Instead, it covers the costs of a rental car at a set rate (for example, $35/day) while mechanics repair your vehicle after a covered loss.
Insurers gear gap insurance toward those leasing a vehicle or financing a new car. The car dealership or your insurance company could provide it. Essentially, it helps cover the “gap” between the vehicle’s value and the amount you still owe on it. For example, suppose you total a leased car you drove off the lot last week. Your insurance values the car at $12,000, but you owe $13,000. The gap insurance helps cover the remaining $1,000 after you pay your car deductible and the insurance company covers $12,000.
Roadside assistance covers towing or other situations where you need help, such as a flat tire, being locked out of your car or truck, a dead battery, or running out of gas. You may need to call a 1-800 dispatch number or get reimbursed later for costs you paid out of pocket.
Some people forgo this coverage for auto club insurance instead because if you file many roadside assistance claims, your insurer may decide to not renew your policy. An auto club policy that specifically offers roadside assistance may be a more cost effective way to still have coverage for these types of emergencies without affecting your primary auto insurance rate.
This coverage varies by insurer and may forgive one or multiple accidents when determining your insurance price for the upcoming period. Some insurers may require a period or certain behaviors, such as having no prior traffic tickets, to earn forgiveness. Other insurers may offer it immediately for an extra charge.
New Car Replacement
This coverage provides you with the funds for an exact replacement vehicle if your new car is totaled within a year of driving it off the lot or under a specific mileage. For example, if you paid in full for a brand-new car but then an accident totals your car six months later, new car replacement coverage would pay for a replacement with the same make, model, and year.