Car Insurance Coverage: How Much Do You Need?

September 26, 2022

Buying car insurance is often more confusing than buying a car. You have to think about the type of insurance you need, the amount of coverage, and the deductible you can afford.

Not every driver needs EVERY type of insurance, though. There are laws you must meet (liability insurance) but beyond that, the rest is up to you.

This doesn’t mean you should skip any ‘extra’ coverage, because many people shouldn’t, but you should know what you’re getting.

Car Insurance to Meet Law Requirements

 Most states require some type of car insurance, especially liability insurance (both property damage and bodily injury). Many states also require uninsured and underinsured driver insurance.

Liability insurance ensures you can pay for damages from an accident you cause. If you were to drive and cause serious damage to property or a person and had no insurance, it would cause serious financial liability for those involved. Carrying liability insurance gives you the right to be on the road and potentially put others in danger.

Is Comprehensive and Collision Insurance Necessary?

Most states don’t require comprehensive or collision insurance, but that doesn’t mean you don’t need it. If you lease or finance your car, the bank or leasing company will require it.

Always check with your bank or leasing company to determine how much coverage they require. If you buy the car outright (no financing) you don’t need comprehensive or collision insurance, but still may want it.

Here’s why.

If you cause an accident and your car is totaled, but you only have liability insurance it only covers the people and property damaged. It doesn’t cover your car. In this case, you’d have no car and need to come up with the funds to buy a new one.

If you have collision insurance, it would cover the cost of the new car, or at least as much as the value of your car and/or coverage.

Comprehensive coverage pays for damage to your car that occurs due to anything except an accident. For example, storm damage or theft.

Is Buying More than the Minimum Required Coverage Necessary?

Whether more than the minimum required coverage is necessary depends on your needs and the value of your car.

Sometimes paying for more than the minimum isn’t necessary if your car isn’t worth much. For example, if you’ll get a few thousand dollars for your car if it’s totaled, is it worth paying hundreds of dollars a month for insurance?

Instead, you can skip the extra coverage and save the money for a down payment on a new car instead. But, if you drive a car that’s worth more than you can afford, then yes buying more than the minimum required coverage is something you should consider.

How to Tell if you Should Buy Collision Insurance

Collision insurance almost always has a deductible. Usually, it’s between $500 – $1,500. This is the amount you must cover before your insurance covers anything.

You’ll need the deductible plus the total premiums for six months for collision insurance to determine if it’s worth it. Next, you’ll need your car’s value.

Total the deductible plus the car premiums and subtract it from the car’s value. If it’s a number higher than your car’s value, you know it’s not worth it. If it’s only a small amount, it still may not be worth it because cars depreciate. If there’s a large difference, it’s well worth it.

How Much Car Insurance Should you Buy?

The amount of car insurance you should buy varies by your location, the car you drive, and what you can afford.

Car insurance premiums and deductibles add up quickly. While you can get a lower premium if you take a higher deductible, it’s not always affordable. Don’t take a high deductible and then be unable to afford it, as that would only put you in a financial bind.

Talk to your insurance agent and look at your financial situation carefully when deciding how much car insurance you should buy while ensuring you stay within the state guidelines.