How much car insurance do you need? The answer depends on a number of factors, including where you live, the value of your car, and other assets you need to protect. Here’s what you need to know.

How car insurance works

A car insurance policy is actually a combination of several types of insurance. The most common are:

• Civil liability for bodily injury
• Property damage civil liability
• Medical payments or injury protection
• Collision coverage
• Full coverage
• Uninsured/Underinsured Motorist Coverage

Depending on the state you live in, some of these coverages may be mandatory, while others may be optional. If you have an auto loan or lease, your lender may also have certain requirements. But beyond what your state or lender requires, you may want to purchase additional insurance to protect yourself. Here’s an overview of each type of coverage and how to determine how much you really need.

Civil liability for bodily injury

What it covers: Personal injury liability is the part of an auto insurance policy that will pay for injuries that you or your family members listed on your policy cause to someone else in a car accident.

How much you need: Virtually all states require drivers to carry bodily injury liability insurance, although the amount varies from state to state. On an auto insurance policy, your liability coverage is usually expressed as a series of three numbers, such as 25/50/20. The first number represents the maximum your insurer will pay per person if you injure someone in an accident – $25,000 in this example. The second number is the maximum he will pay per accident, in the event that more than one person is injured – $50,000 in this case. The third digit refers to property damage liability.

You will need to purchase at least the minimum amount of bodily injury coverage required by your state. For many states, that’s $25,000 per person and $50,000 per accident, though some states are lower or higher.

However, your state’s minimum requirements might not be enough, especially if you’re involved in a serious accident. You will need to consider your assets and determine if they would be adequately protected in the event of a lawsuit. For example, if you own your home or have significant savings, a costly accident could put them at risk. In this case, you will want to buy more coverage. The nonprofit Consumer Checkbook, among others, recommends buying at least 100/300/50 coverage, just in case. The difference in cost between this coverage and your state’s minimum probably won’t be that great.

You can buy even more coverage, say 250/500/100, if you have more assets to protect. You can also buy a umbrella policywhich will bring your auto and home liability insurance to $1,000,000 or more.

Liability for property damage

What it covers: Property damage civil liability covers costs when you or your family members damage someone else’s car or other property (like a tree or fence) in an accident.

How much you need: As with bodily injury liability, virtually all states require you to have some form of property damage coverage. It is represented on your policy as the third number in this sequence, so a 25/50/20 policy would provide $20,000 coverage. Some states require you to have as little as $10,000 or even $5,000 in liability for property damage, but minimums of $20,000 or $25,000 are the most common.

Again, you may want to purchase more coverage than your state’s minimum. But unless you end up in a collision with a Lamborghini or a Rolls-Royce, you probably aren’t at as much financial risk as you would in an accident in which people are seriously injured. A commonly recommended level of property damage coverage is $50,000 or more if you have significant assets to protect.

Medical Payments (MedPay) or Personal Injury Protection (PIP)

What it covers: Unlike civil liability for bodily injury, medical payments (MedPay) Where personal injury protection (PIP) covers the cost of injuries sustained by the driver and passengers of your car. In some cases, it will also cover any lost wages resulting from injuries sustained in an accident.

How much you need: Whether medical payments or PIP coverage are mandatory, optional, or even available will depend on your state. In states with no-fault insurance Laws, such as Florida and New York, require PIP coverage. In Florida, for example, drivers must carry at least $10,000. In New York, the minimum is $50,000.

If you and your family members already have good health insurance, you may not need to purchase more than the minimum required PIP coverage. If you don’t have health insurance, however, you might want to buy more. This is especially true in a state like Floridawhere $10,000 coverage may be insufficient in the event of a serious accident.

Collision coverage

What it covers: Collision insurance will pay to repair or replace your car if you are involved in an accident with another car or hit another object.

How much you need: States do not require drivers to have collision coverage. However, if you have a car loan or are leasing the car, your lender may require it. When you’ve paid off your loan or returned your rental car, you can opt out of coverage.

Although it’s not mandatory, you may want to purchase collision insurance. For example, if you’re struggling to pay a large repair bill out of pocket after an accident, collision coverage might be a good thing.

You will also want to consider what your car is worth. The price of collision damage waiver is based on the value of your car, and it usually comes with a deductible from $250 to $1,000. So if your car cost $20,000 to replace, you would pay the first $250 to $1,000, depending on the deductible you chose when purchasing your policy, and the insurer would be liable for $19,000 to $19,750 thereafter.

However, as the value of your car depreciates over time, you may want to consider removing collision coverage. Between the cost of your annual bonuses and the deductible you would have to pay out of pocket after an accident, you could be paying a lot for very little coverage. Even insurance companies will tell you that it makes sense to ditch collision insurance when your car is worth less than a few thousand dollars.

Full coverage

What it covers: Comprehensive insurance covers damage to your car caused by something other than a collision. This can be, for example, a fire, a flood or a falling tree. It also covers car theft.

How much you need: As with comprehensive coverage, states don’t require you to have collision coverage, but if you have an auto loan or lease, your lender may require it. And again, when you’ve paid off your loan or returned your rental car, you can drop coverage.

To decide whether to buy full coverage if it’s not needed, you’ll want to weigh your ability to pay out of pocket if your car is stolen and you need to buy a new one or damaged and you’re stuck with repair bills. . You’ll also need to consider the value of your car versus the cost of covering it year after year.

Uninsured/Underinsured Motorist Coverage

What it covers: Just because state laws require drivers to have liability coverage doesn’t mean all drivers have it. In 2019, it was estimated that 12.6% of drivers, or about one in eight, were uninsured. Many other drivers have insurance but not enough to cover the costs of a serious accident. This is where this type of coverage comes in. It can cover you and your family members if you are injured or your car is damaged by an uninsured, underinsured or runaway driver.

How much you need: Some states require drivers to have uninsured motorist (UM) coverage. Some also require underinsured motorist (UIM) coverage.

Maryland, for example, requires drivers to carry uninsured/underinsured motorist bodily injury liability insurance of at least $30,000 per person and $60,000 per accident. It also requires at least $15,000 in property damage coverage from uninsured motorists.

If your state requires uninsured/underinsured motorist coverage, you may purchase more than the required amount if desired. You can also purchase this coverage in some states that do not require it.

If you are not required to purchase uninsured/underinsured motorist coverage, you may want to consider it if the coverage you already have would be insufficient to pay the bills if you are involved in a serious accident . For example, if you don’t have adequate health insurance or medical coverage under your car insurance policy, it might be worth it.

Other types of coverage

When shopping for auto insurance, you may see other types of coverage that are completely optional. These may include:

• Roadside assistancesuch as towing
• Reimbursement of rentif you need to rent a car while yours is being repaired
• Gap insurancewhich covers any difference between the cash value of your car and what you still owe on a lease or loan if your car is a total loss

Whether or not you need it will depend on your other resources (like auto club membership) and how much you could afford to pay out of pocket if you had to.

The essential

An auto insurance policy is made up of several types of coverage, some of which may be required by your state or auto lender, while others are optional. The decision to purchase more than the minimum coverage required and the types of optional coverage to consider will depend on the assets you need to protect as well as how much you can afford to pay. Your state’s Department of Motor Vehicles website should explain its requirements and may offer further guidance specific to your state. A independent insurance agent who knows your state’s laws and can offer policy options from several different insurance companies might also be able to help.