How Much Car Insurance do I Really Need?

How Much Car Insurance do I Need?

Many first time car owners deliberate over this question. Not only do you have your own financial considerations to look at, but also you probably have an insurance broker or agent suggesting a whole range of different insurance coverages. Of course then there are multiple other factors in the decision like your driving record, the age of the vehicle, the state you live in and more.

In this article, will help lay out all the issues that can come up in deciding on insurance and help you decide how much insurance you really need, before contacting a broker.

All About You

The very first item on the list is your own personal situation. Insurance premium algorithms are not something that either you will have access to or generally be able to understand. However, there are very large premium differences between a taxi driver and a stay-at-home teleworker. Along with all your other personal situations, this guide can help you decide what coverage and how many optional coverages you may need.


First and foremost, is your own personal financial situation. Most states have a mandatory insurance requirement or a form of financial responsibility that requires you to prove to the DMV (Department of Motor Vehicles) that you can personally pay for any damages in an accident that you may cause. This decision however, should not just be a simple question of what you can afford to pay each month. The decision to have adequate insurance should be made before you even commit to the financial burden of a vehicle. If you cannot afford your insurance premium quote after going through this guide, you may need to rethink your car buying decision or monthly budgeting.

This is because in most states and situations you cannot afford NOT to have adequate coverage. If you were to cause a serious accident in an at fault state, (while most no fault states still have the option for at fault lawsuits in serious injury cases) and found responsible and do not have adequate insurance you are personally liable for any damages over your insurance coverage. Injury lawsuits including pain and suffering settlements can run into the tens of thousands of dollars with the potential to cause financial ruin. Can you afford $10, $50 or $100,000 in damages?

Career & Lifestyle

Auto insurance premiums fluctuate between insurers and individuals even within the same location due to all the factors included in the algorithm. One is your career and lifestyle. Did you know EMS workers tend to pay more for insurance but airline pilots pay less? It is a simple weighting of statistics for insurers. EMS workers rush off to emergencies while pilots are driving a lot less than the average American and have lower accident rates. Your job may affect your insurance premium and how much insurance coverage you may need. If you drive less and in less stressful situations, you may need less overall coverage.

If you are struggling financially, have a poor credit rating and live in a high crime neighborhood, car insurance is the one place you will want to spend money in order to protect your ability to drive; especially if you require your car for employment. Have you taken graduated licensing and a driver’s education course? Having affective driving training can also weigh in on whether you need higher insurance coverage or less. Err on the side of caution and always get more, not less.

Vehicle and Driving History

Did you just buy a new vehicle? New vehicles cost more to replace than those 5 years old or older. If you purchase new, it’s better to get more insurance, especially in the first five years of its life. After 7 years or more, you may be willing to skip collision coverage, but it is paramount in the first five years. Depreciation of vehicles in this period and the cost of financing could inevitably have you owing the bank money for the wrecked car in the gap of its value and what’s left owing.

Also, you need to consider your driving history, especially if you have a history of poor driving, including multiple traffic violations and especially if you have a DUI. These affect your premium cost, but realistically they can be a guide if you should get insurance in the lower range or the higher range of what you should get.

All these issues are specific to every individual. Think of insurance coverage as a range from low to high. In the lower ranges, you may have an older car, a great driving record, drive less and live in a low crime area. However, if you have a poor driving record, a brand new vehicle, live in a high crime area and drive every day for work, you should consider always getting the high range of insurance.

Every Insurance Coverage Available

You need enough insurance for ever situation that could financially cause you more than one months’ disposable income. If you have $1000 disposable income a month, then maybe you do not need towing and labor and car rental insurance coverage. However, if you have minimal disposable income monthly, the extra few dollars a month for these “service” insurances can save you a financial disaster. Paying for a rental vehicle or towing and labor can easily cost in the hundreds to thousands of dollars if you are in an accident. For most people it is easier to find a few dollars extra a month then thousands of dollars all at once.

Truly this guide is for those without the means to self-insure. If you know a car accident could cost you thousands, it is much better to spread that cost out in very small monthly increments through insurance coverage than ‘hoping’ it never happens to you.

Every driver should at a minimum get Liability, Collision (for 7 years and newer vehicles), Comprehensive, Medical Payments, GAP (if you have a financed vehicle), rental car, and towing insurance coverages. The premiums for GAP, rental car and towing are very insignificant compared to their upfront costs. Collision and Comprehensive coverages is just smart insurance for anyone with a car newer than 7 years old. For collision and comprehensive be sure to get the lowest deductible you can afford, as paying out a onetime fee of $500-$1500 can still be onerous in these deductibles.

Liability is mandatory in most states, but be sure NOT to get the minimum coverage, as it usually does not even cover the average settlement within each state. A standard coverage amount for liability coverage is to get an amount equal to your assets. Add up your car, house and other major assets and get that amount of insurance, or 20% more than the average settlement or claim award within your state.

Another coverage that all drivers should get is Uninsured and Underinsured coverages that cover you if you are involved with another driver that does not have insurance or has the bare minimums. In these cases it is often difficult to get award claims paid back if the other driver has no assets or insurance does not cover the full amount. In this case, it is good to be able to ensure your accident coverage with your own insurance.

In at fault states, your bare minimum coverages should include Liability, Comprehensive, Collision, Uninsured and Underinsured and Medical Payments (especially if you do not have sufficient medical coverage). In no fault states, include the above as well as the mandatory Personal Injury Protection (PIP) coverages.

Get a Discount

In order to assure you can get as many coverages as you can, be sure to discuss all the available discounts with your broker or agent. The discounts offered by insurers are many and varied and can usually be stacked together. Often you can save as much as 20-40% on your overall premium by ensuring all discounts are taken. Ask about every discount in this list:

Safe Car Discount
Passive Restraints
Anti-lock Brakes
Safe Driver
Anti-theft device
Low mileage driver
Multi-car, Multi-policy and pay in full
Pay online option
Military personnel
Affinity or group discounts
Buy early and save (before your current insurance expires)

Discounts can be the difference between getting the insurance you need to be safe or being underinsured and risk financial ruin.

State Specifics

When you start looking at insurance quotes, you will often see this: “10/25/10.” As most states are at fault states, whereby if you cause an accident you are on the hook for the expenses; this means that your insurance will cover $10,000 in single person injury accidents, $25,000 for multiple injuries in a single accident and $10,000 for any property damage caused by you. This is the state minimum requirements and is considered “Liability” coverage only for other parties. This insurance does NOT cover you when you cause an accident and are found at fault.

These 10/25/10 ratios differ in every state and can be as little as 10/20/10 as in Florida which is a “no fault” state and this includes a PIP protection plan or as much as 50/100/25 such as Arkansas and Maine both at fault states. Also, a large portion of states make Uninsured coverage a mandatory option on offered policies but this coverage can usually be declined in writing, although that would be ill-advised as discussed above. There are 12 states and 1 territory (DC) that are ‘no fault’ states that require you to carry PIP and Liability insurance.

Yet, just because a state is a “no fault” or “at fault,” there are a ton of factors that decide insurance premiums and some “no fault” states are below the national average cost, while others like Michigan which has a very comprehensive no fault coverage system is the most expensive insurance state.

In Summary

Remember to take these guidelines into consideration as you decide on “How Much Car Insurance do I need?” Generally you will need 100/300/50 in order to properly protect your assets and finances, but this is only one type of insurance. Be sure to assess all the extra coverage options for your personal situation and get all the coverages that protect your financial future.

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