How much car insurance and coverage do I need for my car?

How much car insurance and coverage do I need for my car?
April 08, 2022 | Jamie Smith

Having even minimum required car insurance can help pay for damages or bodily injuries that occur when you're at fault for an accident. However, if you'd like to have better protection, you can add various types of coverage to your insurance policy. Some states require these other types of insurance, and some auto loan lenders mandate you carry specific types of coverage until you’ve paid off your loan. Other types of coverage are often optional.

If you're wondering what coverage you need, the information below can help you navigate through the different types of car insurance.

Liability insurance

Most states require motorists to have some form of car insurance to legally drive a vehicle. This minimum insurance is called liability insurance. Having car insurance shows you have the financial responsibility to pay for losses or damage caused by an accident that was your fault.

Except for New Hampshire and Virginia, all states require you to have liability insurance. Liability insurance covers expenses to the other party if you are at fault for a car accident. There are two types of liability insurance, one for property damage and one for bodily injury. Property damage coverage pays for damage to the other person's vehicle, and bodily injury coverage pays for medical expenses for the driver or passengers of those riding in the car in an at-fault accident.

While most states have varying minimum requirements of liability insurance, as a rule of thumb, most insurance carriers recommend a 25/50/10 policy ($25,000 bodily injury per person, $50,000 bodily injury per accident, and $10,000 for property damage). To learn more about other liability policies that could fit your budget, give your car insurance agent a call.

Collision insurance

While not required by law, collision insurance can help pay for damages to your vehicle when the car has been in an accident with another vehicle. Most auto-loan lenders require collision insurance until you’ve paid off your car loan. When deciding how much collision coverage you need, keep this fact in mind: the lower the deductible, the higher the premium. Most deductibles range from $250 to $1,000, so you can decide how much you're willing or able to pay before the insurance kicks in.

Comprehensive insurance

Comprehensive insurance usually helps to pay for expenses or replacement of your car when you are not involved in an accident that’s not caused by a collision: if it's stolen, vandalized or involved in a non-vehicle accident like fire, falling objects and natural disasters. Many lenders require comprehensive coverage until the loan is paid off. Comprehensive insurance has similar deductibles as collision insurance.

Uninsured and underinsured motorist coverage

To protect you in case you're involved in an accident that wasn’t your fault with someone who doesn't have enough insurance to cover the damages to your car or medical bills for you and your passengers, you can add uninsured and underinsured motorist coverage to your policy. This type of insurance may help cover the costs as well as help pay for lost wages if you're unable to work because of the accident. In general, choose uninsured or underinsured motorist coverage that matches your liability insurance policy coverage level (i.e., the recommended 25/50/10).

Personal injury protection

In states that have a no-fault insurance system, you'll need personal injury protection insurance. This type of coverage pays for medical bills, lost wages, an ambulance ride and funeral expenses for you and your passengers, regardless of who caused the car accident. Personal injury protection also covers your medical expenses if you're riding in a car that's involved in an accident. Having this type of coverage often covers medical expenses your normal health insurance policy may not cover.

Medical payments coverage

Similar to personal injury protection yet not as comprehensive, medical payments coverage helps to pay for medical bills for yourself and any passengers who sustain injuries from an auto accident, regardless of who's at fault. You may want to check what's covered in your general health insurance policy, as some of its coverage may overlap with medical payments coverage.

Additional insurance coverage

While you do need liability insurance, most insurance carriers recommend adding the coverage mentioned above to your policy. To further protect yourself in certain situations, consider adding the following coverages to your policy.

Gap insurance

If you're financing your vehicle and owe more on your vehicle than its value, then you're “underwater” on your loan. If your car gets stolen or is totaled in an accident, you'll have to pay the lender the difference of the value to the loan. Most cars depreciate as soon as you drive them off the lot, yet the loan amount remains the same.

For example, if you're financing $30,000 on your vehicle and it's depreciated by 20%, the car's current value is only $24,000. Depending on how much you still owe on the car, you're responsible for repaying the $6,000 difference back to the lender if your car is totaled. However, if you have gap insurance, your gap carrier will help to pay that $6,000 difference. If you're leasing a vehicle, you may be required to have gap insurance. Once your vehicle is paid off, you won't need this type of coverage.

Temporary car insurance

If you plan on borrowing someone's car for an hour or up to 28 days, consider getting temporary car insurance. You can get a comprehensive policy for the time you need without affecting the owner's insurance policy. This is also a good type of insurance to have if you've just bought a car and need coverage to drive the car home until you get a permanent insurance policy.

Forgiveness coverage

To help avoid an increase in insurance rates after you've been involved in an accident that was your fault, you may want to add forgiveness coverage to your current insurance policy. Accident forgiveness is a type of car insurance coverage that ensures your rates won’t increase after the first at-fault accident. Sometimes it’s automatically included in car insurance policies, but most of the time, it’s sold as an add-on coverage — otherwise known as an endorsement. Accident forgiveness can save you a lot of money if you get into an accident, but not every collision is covered. Oftentimes, car insurance companies will only waive the first accident on your insurance policy. This is good coverage to have if you want peace of mind that your insurance rates won't climb after an accident.

Rental reimbursement insurance

If your car is in the shop being repaired or you have to wait for a new one after an accident, then rental reimbursement insurance can help pay for transportation costs. Keep in mind that in order to add rental reimbursement insurance to your policy, you may need collision or comprehensive coverage as well. It does not apply if your vehicle needs routine maintenance work or if you need to rent a car on vacation.

Pay-per-mile coverage

For people who own a vehicle yet rarely drive it, pay-per-mile insurance can help you save money. The rate of this special insurance coverage is based on how many miles you drive, along with other criteria such as your driving record, location and age. This type of coverage is ideal for someone who has a second vehicle they rarely drive or for those who primarily use mass transit. Insurance companies use technology known as “telematics” to track how far you drive, using an app or other device. Telematics can also track risky habits — think hard braking or quick accelerating. Some pay-per-mile programs use tracked driving behaviors to price rates or discounts. The safer you drive, the lower your premium may be. If you’re not comfortable with sharing your data, some companies offer pay-per-mile insurance without using a plug-in device. Instead, you’ll need to send the carrier a photo of your odometer once a month.

As you can see, you'll need at least the minimum requirements of liability insurance to drive legally. However, with so many other types of coverage and insurance, it can be daunting to determine how you can best protect yourself financially.

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