How Much Auto Insurance Do I Need?

auto insurance

Most people don’t look forward to shopping for auto insurance. We get it.

Auto insurance isn’t cut and dry. How much auto insurance you need and the type you need vary from one person to the next.

Add in the various factors that determine the quote you receive, and it’s no wonder people find the process of shopping for auto insurance a pain.

That may explain why so many Americans are uninsured.
According to a 2021 study by the Insurance Research Council (IRC), “In 2019, 12.6 percent of motorists, or about one in eight drivers, were uninsured.

Driving a vehicle without auto insurance is dangerous.

Not only is it illegal, but you will be on the hook for any damages or injuries sustained if you are in a car accident.

That’s not all.

IRC Vice President David Corum tells Bankrate, “Uninsured drivers increase the cost of insurance for those who comply with their state’s insurance requirements, and that’s not fair. Keeping auto insurance affordable is more difficult when a significant number of drivers refuse to carry their fair share of the costs.”

Even though shopping for auto insurance seems difficult, it must be done to protect your wallet and everyone else’s.

On the opposite end of the spectrum, there are many Americans who overspend on auto insurance.

A Value Penguin study found, “Americans are overpaying for car insurance by almost $37 billion per year.”

The same study found, “A driver looking for a state-mandated insurance policy — the minimum coverage required — overpays by an average of $330 per year.”

In this case, insurance companies take advantage of the confusing nature of auto insurance to sell consumers products they don’t really need or at rates that are higher than they should be.

You don’t want to be uninsured or underinsured, or pay too much.

The best way to ensure you don’t fall victim to being uninsured, underinsured, or paying too much for auto insurance is to do your homework.

Understand Your State Auto Insurance Coverage Limits

The starting point in determining how much auto insurance you need is your state requirements.

Most states require you to have 2 types of liability insurance: property damage and bodily injury.

All 50 states require property damage liability. And all states but Florida require bodily injury liability.

Therefore, you can expect to need at least these 2 types of auto liability insurance.

There’s a catch. Each state sets its own minimum liability coverage requirements.

For example, according to the South Carolina Department of Insurance, “South Carolina requires you to carry a minimum of $25,000 per person for bodily injury and $50,000 for all persons injured in one accident. […]

The minimum limit in South Carolina is $25,000 for all property damage in one accident.”

This is typically written as 25/50/25.

In addition to the minimum state coverage amount needed for auto liability insurance, your state may require you to have additional insurance.

[Related Read: Is Having Auto Liability Insurance Enough for My Vehicle?]

17 states require drivers to hold other types of insurance, including Personal Injury Protection (PIP) coverage and/or Uninsured/Underinsured Motorist (UM/UIM).

Check out the Insurance Information Institute’s Automobile Financial Responsibility Laws By State to see your state’s auto insurance requirements.

With that being said, it is important to understand that states only require the minimum amount of coverage.

Car and Driver explains, “Most U.S. states only require drivers to carry 25/50 insurance coverage. However, the 25/50 coverage is barely enough to cover the costs of repair and medical treatment needed after accidents.”

With liability insurance, your insurance will only cover up to your coverage limits, so if the cost of repairs or hospital bills exceeds the coverage amount, you will have to pay the excess costs out of pocket.

Hence the reason why many drivers choose to purchase more than their state’s minimum coverage.

While no states require 100/300/100 insurance coverage unless there are special circumstances, this type of coverage is a standard option for national auto insurance carriers.

The Types of Auto Insurance All Drivers Need

There are several types of auto insurance.

As discussed, you are required to have two types of auto liability coverage (unless you live in Florida).

Property damage coverage pays for costs needed to repair or replace another person’s property when you are legally responsible for a vehicle accident.

In addition to vehicle damage, it also covers damages to property, such as fences and mailboxes.

However, it only covers damage to the other vehicle and not your own.

Bodily injury liability coverage (not required in Florida) helps pay for expenses of injured drivers and passengers (like hospital bills and medical care) that you may be held responsible to pay if you cause an accident.

In addition to these two required types of auto insurance, some states also require drivers to have uninsured or underinsured coverage.

It protects you from paying for injuries from an accident that wasn’t your fault in the event the at-fault driver does not have insurance or is underinsured.

While these are the types of insurance recommended for all drivers, there are several other types of auto insurance, which you may want if you desire more comprehensive coverage.

Be informed. Check out Types of Auto Insurance and What They Mean.

Picking a Deductible That Is Right for You

The next thing you have to figure out is what deductible is right for you.

A deductible is an amount the driver is required to pay upfront before the insurance coverage kicks in.

For example, if you have a $1,000 deductible and your repairs cost $7,000, your insurance company will give you $6,000.

You get to choose the deductible when you purchase auto insurance; however, deductible rates can vary greatly.

According to Car and Driver, “Generally, drivers tend to have average deductibles of $500. Common deductible amounts also include $250, $1000, and $2000.”

The higher your deductible, the lower your premium.

MoneyGeek reviewed costs for an average 100/300/100 comprehensive and collision auto policy with different deductible amounts and found that “with a $1000 deductible, the driver would pay about $1348 compared to $1456 per year for a similar driver who chose a $500 deductible.”

Only having to pay a $500 deductible sounds appealing, but the monthly costs may add up.

Then again, the amount you save paying a higher deductible may not be worth it.

As WalletHub explains, “Picking a $1,000 deductible over $500 would save you $40 each month. […] Increasing the deductible lowers the premium. But notice how little you would be saving by jumping from a $1,000 to $2,000 deductible—just 6%.”

Take Everything into Account and Make the Right Decision

How much auto insurance do you need?

Use this information to make the decision that is right for you:

  • Consider your state’s minimum auto insurance requirements. Ask yourself if this amount is enough.
  • Research the different types of auto insurance. Besides the required auto insurances, are there other types of coverage that would make you feel safer
  • Weigh the costs of deductibles. How much can you afford? Do you have cash currently saved to cover the deductible amount?

Finally, once you have taken all this into account, shop around! Don’t simply settle for the first insurance company you get a quote from.

Get quotes from multiple insurance companies to get the best coverage at the best rate.

Even if you already have auto insurance, it is still wise to shop around. What was a great rate when you signed up with them may no longer be the best rate you can get.

Want More Information on How to Select the Best Insurance to Meet Your Unique Needs?

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