How Much Car Insurance Do I Need?
Too little, and you’re vulnerable; too much, and you’re overpaying. So here’s NerdWallet’s guide on how much car insurance you need.
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Car insurance offers financial protection after an accident, so try to purchase enough coverage to protect your assets.
Liability coverage is required to drive in almost every state, but the minimum varies depending on where you live.
Look into optional coverage types to make sure you’ll be covered in any specific scenarios you might be worried about.
Most states require a minimum amount of car insurance coverage, so at the very least you need enough to legally drive. But how do you know if it’s enough to actually protect you financially if you cause an accident?
Choosing the “right” amount of coverage can be tricky. Yes, you’re obligated to get the minimum amount of car insurance required to drive in your state, but how much coverage you purchase largely depends on your own financial situation. To help you tell the difference between “not enough” and “too much,” let’s look at how much car insurance you need.
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Easily compare personalized rates to see how much switching car insurance could save you.How much car insurance do I need?
Put simply, you need at least the minimum amount of car insurance required to drive in your state. But state-required car insurance levels won’t always be high enough to cover every expense after an accident.
The main component of a car insurance policy — liability coverage — doesn’t cover your own expenses if you cause a crash. Instead, liability coverage pays for other people’s injuries, deaths and property damage if you are at fault. Your policy will only pay out up to your policy’s limits, and these are split into three subcategories often listed like “25/50/15”.
The first number, “25,” means your policy has a $25,000 bodily injury limit for each person’s injuries, even if multiple people are injured.
The second number, “50,” means your policy has a $50,000 combined bodily injury limit for all injuries in a single accident.
The third number, “15,” means your policy has a $15,000 property damage limit for the combined property damaged caused by a single accident.
In some states, the minimum amount of bodily injury liability coverage can be as low as $15,000. But a serious wreck can easily result in $50,000 or even $100,000 in medical bills. The average cost of a bodily injury liability claim in 2023 was $26,501, according to the Insurance Information Institute, and that amount is already higher than the minimum requirement in many states.
What is the recommended amount of car insurance coverage?
Start by considering how much you could stand to lose in a lawsuit after an accident, then choose liability limits that fit your needs. If your policy doesn't have a high enough limit to cover all of the injuries or damage you cause, you could face a lawsuit totaling tens of thousands of dollars.
The term “net worth” might seem like some extravagant or bougie idea, but it’s actually an important number to help determine how much car insurance you need. The most important thing is having enough coverage to protect what you already own, like your home, car and other assets. Having enough liability coverage can prevent you from having to sell these assets to cover accident-related costs after a wreck you cause.
To determine your net worth, add up all of your assets, including investment and retirement accounts, then subtract any debt you owe. You should make sure your car insurance policy has enough bodily injury liability coverage to match that amount. (If you're not sure what your net worth is, NerdWallet’s net worth calculator is a great starting point.)
Here’s an example: You hit another car and injure the driver and a passenger, causing $18,000 in property damage and $40,000 of medical bills for each person. Your liability limits are 25/50/20, so your policy will cover the property damage because $18,000 is less than your limit.
However, you don’t have enough bodily injury liability coverage. Your policy will only pay $25,000 for each injured person, which means you owe the driver and the passenger $15,000 each to cover their medical expenses. This is all in addition to having to pay for your own car repairs and medical bills out of pocket.
Umbrella coverage increases your coverage limits
Getting insurance equal to your net worth means your policy should be able to cover the full cost of an accident without putting your home and other assets at risk. However, 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 an umbrella insurance policy. These policies add additional liability coverage for both your car and home, often in $1 million increments. But if you don’t have any assets to protect besides your car, you’re probably OK skipping umbrella insurance and only purchasing liability coverage.
What to look for in car insurance policies
Liability coverage can help you deal with another driver’s bills if you cause an accident, but what about your own expenses? What if your vehicle is totaled in a crash and you need to replace it?
The term “full coverage insurance” typically describes an auto insurance policy with liability coverage as well as collision and comprehensive coverage. 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 the accident.
Comprehensive coverage pays for damage to your car from situations outside your control, like vandalism, theft or hitting a wild animal.
Both of these types of coverage are optional unless you lease or finance a car. However, if your car has low cash value or you’re willing to pay to replace it, you’re probably better off skipping these types of coverage and paying for repairs out of pocket.
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, so make sure you choose an amount you could afford to pay after an accident.
See what you could save on car insurance
Easily compare personalized rates to see how much switching car insurance could save you.Optional coverage types may be worth it
With so many types of car insurance coverage to choose from, it can be difficult to figure out which you need and which to skip. Each driver’s situation is different, but one of the more common car insurance coverage types is uninsured motorist coverage — in fact, uninsured motorist coverage is actually required in some states.
About 1 in 7 drivers didn’t have car insurance in 2022, according to 2023 data from the Insurance Research Council. So if you’re hit by someone without insurance, you may be out of luck unless you have uninsured motorist coverage on your policy.
Similarly, if you’re hit by a driver who has minimum insurance but not enough coverage to pay for your car repairs and medical bills, you’d need underinsured motorist coverage on your policy.
Insurers offer a variety of useful but optional coverage types. Here are some examples.
Personal injury protection, also called “no fault insurance,” pays for your or your passengers’ medical expenses, lost wages and other expenses no matter who is at fault. (It may be required in your state.)
Medical payments coverage will pay for your or your passengers’ injuries after an accident and can be useful to cover health insurance deductibles too. (Some states require this type of coverage.)
Roadside assistance will send help your way if you need a tow or jump start, although some companies may charge you out-of-pocket for services in addition to the regular premium.
