How Much Car Insurance Do I Need?
The amount of car insurance you need depends on your financial situation, where you live and whether you lease or finance your car.
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You need at least as much liability insurance as your state legally requires, but you’ll likely need more to be covered in the event of a bad accident.
Try to purchase enough car insurance to cover the value of your property and assets in case you’re held legally responsible for a serious accident.
You’ll need more coverage — comprehensive and collision insurance — if you have an auto loan or lease.
Consider optional coverages to make sure you’re fully covered from the unexpected.
How much liability insurance do I need?
To drive your car legally, you need at least the minimum amount of car insurance required in your state. But state-required car insurance levels aren’t generally high enough to cover every expense after an accident. To protect your finances, you’ll likely need more.
For example, almost every state requires you to have bodily injury and property damage liability coverage, which pay for other people’s injuries and property damage if you’re at fault. But while the average cost of a bodily injury liability claim in 2023 was $26,501, according to the most recent data from the Insurance Information Institute, that amount is already higher than the per-person minimum requirement in most states.
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If the liability insurance limits on your policy are low and you’re found at fault for a serious accident, you may end up owing the other driver thousands of dollars more than your policy will pay out.
Let’s say you have the minimum amount of insurance your state requires. For every accident, your car insurance policy will pay up to:
$25,000 for each person’s injuries
$50,000 in total for injuries, regardless of how many people are injured
$25,000 for property damaged in the accident
After you’re in an accident that causes a total of $75,000 in medical bills, and $30,000 of property damage, you would be responsible for paying for $25,000 of medical bills and $5,000 of property damage by yourself.
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What is the recommended amount of car insurance coverage?
NerdWallet recommends you get enough car insurance to protect your assets, including your house. Otherwise you risk having to give up your assets to help cover accident-related costs. To find out the exact amount you need, calculate your net worth.
To do this, add up the value of all of your assets, including physical property and investments, then subtract any outstanding liabilities or debt you owe. Make sure your car insurance policy has enough bodily injury liability coverage to match that amount.
Umbrella coverage increases your coverage limits
Your policy should be able to cover the full cost of an accident without putting your home and other assets at risk, but insurance companies limit the amount of liability coverage you can get in an auto policy.
If you max out your carrier’s liability limit and still want more coverage, you can purchase umbrella insurance. Umbrella insurance adds additional liability coverage for both your car and home, often in $1 million increments. If you don’t have any assets to protect besides your car, you’re probably OK skipping umbrella insurance and only purchasing liability coverage.
Do I need comprehensive and collision coverage?
Liability coverage can help you deal with another driver’s bills if you cause an accident, but it won’t help you repair or replace your own car.
The term “full coverage insurance” typically describes an auto insurance policy with liability coverage as well as collision and comprehensive coverage. Unlike liability insurance, these two coverage types pay for damage to your own vehicle, regardless of who is at fault.
Collision coverage: Pays for damage to your car when you caused an accident.
Comprehensive coverage: Pays for damage to your car from situations outside of your control, like vandalism, theft or hitting a wild animal.
No states require comprehensive or collision coverage, but you’ll need them both if you finance a car. Comprehensive and collision coverage are especially important if you couldn’t afford to replace your car yourself if it were totaled. But if your car isn’t worth much or you’re willing to pay to replace it, these types of coverage might not be worth their cost.
If you do buy collision and comprehensive coverage, pay attention to the deductibles associated with each type. A deductible is how much you'll be responsible for paying out of pocket before your insurance coverage begins paying for a claim. Collision and comprehensive deductibles generally range from $100 to $2,000. While higher deductibles mean lower monthly insurance bills, make sure you choose a deductible amount you could afford to pay after an accident.
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Optional coverage types may be worth it
You may choose to add other types of car insurance to your policy besides liability, comprehensive and collision coverage, though you may not need to. Here are some other common kinds of car insurance you might come across, and situations when it might be worth adding them to your policy.