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How much car insurance should you buy?

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Uninsured motorist coverageHow much car insurance should you buy?

There are two correct answers:

First, you need enough insurance to drive legally. (Click on "State Car Insurance" above to see a map of liability insurance requirements for every state.)

Second, you need enough insurance to protect your life from turning into a living hell if you have a car accident. That can be as easy as buying the minimum coverage mentioned above. Or it can be much more complicated.

Below we walk you through a guide on figuring this out, but you can also try our car insurance calculator.

Who should buy minimum levels of liability insurance?

If you own only the clothes on your back and a car on its last legs, you're probably what is known as "judgment-proof."  You may lose if someone decides to take you to court, but you have no real assets to take.  If you have savings or a home or even expensive jewelry, you are not judgment-proof.

We've created four liability insurance levels as a rough guide. 

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.

  • State minimum:  In most states this is not enough to pay for serious injuries or to replace a newer car. It is only enough to drive legally.
  • 50/100/50: As your net worth rises, increase your coverage to match. Your net worth is the value of what you own minus what you owe.  Assets would include your home’s current value, any other real estate, your car (do not count the value of a leased car, though), stocks, checking and savings, retirement accounts,  jewelry, household items and the cash value of a life insurance policy. Liabilities would include the outstanding balances on mortgages, car loans, student loans and credit cards.
  • 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. You may find the additional coverage will cost only a few dollars a month.
  • 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.

Levels of coverage offered will vary by state and by insurer. Liability insurance will not repair your own car.

Who should buy uninsured motorist coverage?

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.

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.

If you have your own health insurance and you have purchased collision coverage, you may be able to skip these coverages if your state allows. We think it is a good idea to keep both of them if you can afford to, because they can minimize your financial losses from deductibles and coverage caps.

Do you need comprehensive and collision coverage?

If you owe money on your car, your lender requires you to have collision and comprehensive coverage, which would repair or replace your car. Liability insurance pays only for others’ cars.

You must choose a deductible amount for collision and comprehensive coverages. Damage below this amount is your responsibility to fix. 

We recommend that you keep deductibles low while you are still making payments on a car. Once the car is paid off, build an emergency fund and raise your deductible to match it.

If you own your car outright, you can drop these coverages. There are many rules of thumb on when to drop these additional coverages.

Do you need medical payments or personal injury protection?

Your state, especially if it is a no-fault state, may require that you buy personal injury protection so that your injuries in a car accident are always covered up to your limits, no matter whose fault the accident was. It usually includes coverage for lost wages as well.

Medical payments coverage is required by a few states but is optional in most, paying medical expenses up to your limits.  If you don’t have your own health insurance coverage, you should consider this coverage. If you have a high-deductible health plan, medical payments may help pay the deductible. 

How should you save money on car insurance?

In order of impact and potential savings, we suggest the following steps for drivers trying to save money on their car insurance bills:

  • Shop around.  You will see that the rates major insurers charge the same driver in the same car can vary by hundreds, sometimes thousands, of dollars.
  • Look for car insurance discounts.  
  • Consider a named driver exclusion if a member of your household has a high-risk driver history.
  • Raise your deductibles.
  • Drop collision and comprehensive coverage altogether if you own your car outright.
  • Drop other optional coverages such as uninsured motorist or medical payments.
  • Reduce the amount of liability coverage you are buying.
  • Park the car, turn in your plates and cancel your insurance coverage.
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10 Responses to "How much car insurance should you buy?"
  1. Tina

    I am very interested in all this information. I really need to change insurance companies.

      Reply»  
  2. Average Net Auto Insurance

    I always wondered what the average auto insurance rates were. Thanks for the awesome share!

      Reply»  
  3. Mike jacy

    If the states require some car insurance ,then how come the law lets people drive without the insurance? When I purchased my license plate stickers in Illinois you had to have car insurance to get the sticker. My father-in-law was killed by an uninsured driver and got away without any penalty or settlement from the court.

      Reply»  
  4. CheapestCar InsuranceQuotein San Jose

    Great article with great information. Keep it up.

      Reply»  
  5. Money Saving Auto Insurance San Jose CA

    I really like this website. Thanks a lot for sharing this information.

      Reply»  
  6. Trailblazinlace

    Although everyone has their own opinion about too much or not enough asset protection on your auto limits coverage, there is one fact that needs to be realized or educated in most states (most insureds) is that even though you may be proven "judgement proof" your are NOT exempt from wage garnishments. Most states allow up to 25% of your earnings (SSI, welfare,or pensions are protected) to be garnished in the event of a fatal vehicle accident the insurance limit runs out. Any additional the lawyers get approved for settlement comes out of your earned wages for; however, many years it takes to pay in full. And so when your driving behind that wheel you are risking your future wages if you are not covered properly. In other words, if you hold a job with income being reported, it can be garnished.

      Reply»  
  7. Chris

    You should always have uninsured/underinsured motorist coverage. Medical insurance has co-payments and medical insurance will want their money back from the bodily injury liability. Look up the ERISA. Also, please remember all those people out there that do not follow the law and drive without insurance.

      Reply»  
  8. Jane

    You can, and should drop comp and collision, if it costs too much. I dropped comp and collision off my 12-year-old car and saved the money I would have paid in comp and collision premiums to put towards a new car -- and I live in Florida. If a car isn't worth much, don't pay premiums that are more than the the value the insurer would pay out.

      Reply»  
  9. Michael

    No one should drop comp or collision in Florida. That would be nuts.

      Reply»  
  10. Michael

    How can this article suggest if you own your car outright to drop comprehensive or collision. This is a really bad idea. Living where there are hurricanes and such here in Florida that is not wise.

      Reply»