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How much insurance should I carry?


How much insurance you should obtain and carry depends on various factors including your state's insurance laws and your own personal and financial situation.

Insurance minimum requirements vary from state to state depending upon the state insurance or financial responsibility laws, however, most states require you have liability coverages of bodily injury and property damage so that you have insurance that will cover the damages you cause to others in an accident.

While you need at least the minimum insurance limits that your state mandates, it's usually in your best interest to buy liability insurance with higher limits. The insurance industry as a whole recommends that you buy as must insurance as you can afford.

This is because if you damage a car that is worth a lot and your state's minimum property damage limit is only $5,000 then you may end up paying out of pocket $10,000 or more to repair or pay out actual cash value for the car if you totaled the vehicle.  This leaves you and your assets at risk.

If you select limits that are too low, you could be putting yourself at risk financially. For example, if either you or a driver covered by your policy cause a serious injury where damages exceed your bodily injury liability limits, you will be held responsible for the amount above your limits. To make that payment, you could be forced to liquidate property, savings, and other assets, or your future earnings could be attached. By purchasing liability limits to account for both your current assets and future net worth, you can help protect yourself against this risk.

Generally, it's recommended by the insurance industry to purchase liability limits of 100/300/50. This would cover one person you hurt up to $100,000 and all people you injured in an accident up to $300,000 and property damage liability of $50,000.  These amounts should be high enough so that your personal assets, such as your home, are not at risk.

You can never buy too much insurance though so if you can afford even more insurance and have a lot of assets that you do not want to be at risk or gone after in a lawsuit than you may even want higher limits. For example, the Insurance Information Institute (III) recommends that if your net worth is more than $300,000 you consider buying additional liability insurance. You may also consider purchasing an umbrella or excess liability policy.

Property damage (PD) liability insurance covers damage to another person's vehicle or property when you are at fault. Again each state has minimum requirements but it is recommended to get coverage above that amount so that your personal assets are not at risk. Between $50,000 up to $100,000 per accident is considered good coverage.

Uninsured and underinsured motorist bodily injury coverage is for bodily injuries sustained by the insured and members of the insureds' household from an accident caused by a driver who does not have enough insurance or is uninsured. Experts in the insurance industry recommend buying at least $100,000 per person and $300,000 per accident (100/300).

You also need to consider placing physical damage coverages of collision and comprehensive on your vehicle so that it has some insurance protection on it. Collision covers damage to your car when your car hits, or is hit by, another vehicle, or other object. Comprehensive covers your car for this other than collision (OTC) which would include situations such as theft, fire, falling objects, missiles, explosion and flood.

Comprehensive and collision coverage are required on most loans or lease contracts, and are essential if you own an expensive car. On the other hand if you own your vehicle and it is older and the cost of collision and comprehensive is not cost effective to have since the deductible would be almost the worth of the car you may decide these coverages are not needed.  (See "Is it time to drop comp and collision?")

Depending upon your personal health insurance, financial situation, etc. you may need more or less car insurance than what the insurance industry recommends. Just remember to purchase as must as you can afford so that you are not left paying out thousands from damages sustained in a car accident or putting your personal assets at risk.

Before you purchase any type of auto insurance coverage, be sure to study your other insurance policies so you do not end up paying for something you already have coverage for and do not need to pay extra for.

If you have a good health insurance plan than you may not need to get uninsured motorist, PIP or medical payments (if your state doesn't require you to carry some of this coverage as part of your insurance policy). Some medical insurance providers though specifically exclude injuries resulting from a motor vehicle accident in their policy so carefully check your health insurance before turning down car insurance coverages that would cover your medical expenses.

Also, keep in mind that health insurance will not pay for pain and suffering while some car insurance medical coverages would, so decide what you feel is important in regards to this issue.

For more information on car insurance coverages check out our articles such as "How much car insurance should you buy" and "12 ways to double-check your savings."  You can also use our Insurance Coverage Calculator which helps inform you about the auto insurance coverage that is right for you. Answer a few short questions and we will give you some car insurance guidance on limits, deductibles and what kind of coverage you need.


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