In most areas, you’ll need a standard “minimum” amount of car insurance to drive on the roads legally, but most consumers end up seeking a policy above those minimum requirements to afford them more protection. The trouble is, most consumers make a decision without fully understanding the options available to them—or the cost-efficiency of each type of policy.
How much car insurance do you really need to feel protected? And what’s worth the money you’ll pay for it?
Types of Car Insurance
These are the main types of car insurance you’ll need to consider, though there is some overlap in these terms:
- Minimum insurance. The minimum amount of required insurance varies by state, but it’s always intended to accomplish two main goals: ensure the driver is responsible for compensating victims for bodily injury as a result of their driving, and for paying for any property damage that comes from their driving. Most states only require you to have body injury liability insurance and property damage liability insurance, but others also require personal injury protection (PIP) insurance, and/or uninsured motorist protection.
- Body injury liability. This insurance covers the injuries sustained by anybody involved in an accident while you were driving, including your passengers, passengers of other vehicles, and pedestrians. Its payouts could be used for medical costs, as well as ongoing rehabilitation and/or pain and suffering payments. This is almost always required.
- Property damage liability. This coverage will pay for damage to property caused by an accident while you were driving, such as replacing a fence you ran into. It won’t cover damage to your car. This is almost always required.
- Personal injury protection. This insurance provides coverage for injuries, rehabilitation, lost wages, and other forms of compensation in the event that no one is at fault in an accident. It may only be necessary in areas with no-fault collision laws.
- Uninsured/underinsured motorist protection. This insurance covers you in the event you’re involved in a collision with a driver who’s uninsured or underinsured. It’s worth getting because it protects you from other motorists who may not be as responsible as you.
- Scratch and dent insurance. Scratch and dent insurance provides coverage for miscellaneous bits of damage that can harm your vehicle, such as hail damage, chips in your paint, and light scratches. Depending on your policy, you may be able to file unlimited claims, so long as they’re below a specific dollar amount. This is especially important if you park on the street or find yourself in high-risk situations that could scratch or ding your vehicle.
- Collision insurance. Collision insurance covers you for damage to your vehicle in almost any scenario. It will cover the cost of repairs if you hit an object, such as a pole or a fence, and can be used to cover damages in an accident where someone else is at fault—though it’s usually better to seek a claim against the other driver’s liability insurance (which is required in most areas).
- Comprehensive insurance. Comprehensive insurance will protect you for the value of your car if it’s stolen and never recovered. Depending on your policy, it may also cover your vehicle for damage from floods, fire, falling objects, and other rare instances.
How Much Do You Really Need?
Most areas have ridiculously low minimums for liability insurance. For example, you might be required to only have $20,000 in bodily injury liability insurance. As you might suspect, your monthly rates will increase the more coverage you add, but a claim can easily climb to $100,000 or more. Your needs will vary depending on your area, your risk factors, and other variables, but a $100,000/$300,000 policy is usually much better than the minimum policy in your state.
Because increasing your coverage and adding different types of coverage to your policy won’t generally cost you much more on your monthly premiums, it’s often worth buying the best policy you can afford—especially if you drive regularly. The only exception here would be extremely high-limit policies that cover accidents beyond the normal realm of possibility.
No matter what type of policy or coverage you want to get, you can find ways to make them even more cost-efficient. For starters, you can shop around to different insurance providers to see who can get you a better rate. You can also drive safely, avoiding infractions like speeding tickets, and bundle your auto insurance policy together with other policies you might need, like home insurance.
There’s no “right” or “wrong” when it comes to car insurance (so long as you’re meeting the minimum car insurance requirements), but you can better protect yourself with a well-researched, affordable policy. Take the time to find the right policy for your needs.