How Do I Know How Much Car Insurance I Need?

 How much car insurance do you need? Have you been asking yourself this question for a while now? If yes, then read this guide from beginning to end as we reveal what you need to know when it comes to getting car insurance and how much can insurance is needed.

A car is a necessity that helps in easy movement from one place to another, to some, it's a luxury, and to others, it is a good of ostentation. Whichever way you look at a car, it all depends on you. However, one thing that is certain is getting insurance coverage for your car because the state demands it.

If you leave in a developed country like the united state of America, you'll know how important it is to have car insurance before even thinking of driving one. But a lot of people get confused when it comes to deciding the type of insurance and how much insurance will their car be needing.

As we progress gradually with this article, we'll be talking extensively about what you need for your car, the amount, and the type of insurance coverage.

With all that said, let us dive into the major topic of today's discussion.

When an individual asks for the insurance he needs for his car, a lot of experts will tell that person that it all depends on him.

Yes, that is true. But aside from that, there are a whole lot of factors that determined that. Some of these factors are, where you live, how much your car is worth, and what other assets you need to protect. 

This all boils down to some major key things which I'll want you to get hooked on while I explain deeper.

When it comes to car insurance, most states in the united state requires you to have a minimum amount of insurance coverage for any injuries or property damage you caused as a result of you driving your car. Collision coverage in most cases is usually optional due to the fact that it only covers damages that happened to your car.

Another insurance coverage that is also optional is comprehensive coverage because it only protects your car against different risks such as theft or fire.

With all of this said, let me explain How Car Insurance Works.

How Does Car Insurance Work?

Car insurance is always a full package of insurance coverage that is meant to cover you and your car.

This is why you see car insurance coverage in several different types of insurance.

Below are some popular coverages you can find around at any car insurance company you walk in today.

• Bodily injury liability
• Property damage liability
• Medical payments or personal injury protection
• Collision coverage
• Comprehensive coverage
• Uninsured/underinsured motorist coverage

All of these types of insurance coverages I made mentioned above depend on the state at which you reside. In some states, the law makes that coverage mandatory, and in others is optional. This is why it is important that you make your own research to know the insurance coverages that are mandatory at your state of residence.

Let's say for example you have an auto loan lease, your lender may also have certain requirements.

But beyond what your state or lender requires, you may want to purchase additional insurance to protect yourself. Here's a closer look at each type of coverage and how to decide how much you really need.

What Are The Types Of Car Insurance?

If you have been following the article properly, you'll notice that I mentioned the different types of car insurance that are popular in the insurance industry.

Below are the Types Of Car Insurance

• Bodily injury liability
• Property damage liability
• Medical payments or personal injury protection
• Collision coverage
• Comprehensive coverage
• Uninsured/underinsured motorist coverage

Bodily injury liability

As the name implies, bodily injury liability is an insurance policy that covers the payment for any injuries an insurance holder and the family member gets as a result of an accident that was caused by someone else. This coverage is accessible to only the holder of the insurance policy and those who were listed as beneficiaries.

How Much Do You Need For Bodily Injury Liability

As I have mentioned before, each and every state has its own requirement for car insurance. However, bodily injury liability coverage is required by almost every state in the united state. This amount varies by the state due to different factors, this is why you see an auto insurance policy involving liability coverage being expressed as a series of three numbers, such as 15/40/15. 

When you look at these numbers, you'll get to understand that the first number represents the maximum your insurer will pay per person if you injure someone in an accident—$15,000 in this example. The second number is the maximum it will pay per accident, in case more than one person is injured—$40,000 in this case. The third number refers to property damage liability.

Hope you're understanding everything? I want to try my best to ensure I explain using layman's language so that you can understand you need to have a degree in finance.

When you look at the explanation I made above, you realize that purchasing at least a minimum bodily injury coverage is very important as the state requires.

In most cases, most states require you to pay $25,000 per person and $50,000 per accident, although some states are lower or higher.

Don't freak out yet okay. This amount all depends on the state. You might be lucky to pay a very lower amount compared to what I mentioned there.

If peradventure you got involved in an accident, You'll need to consider your assets and whether they'd be adequately protected in the event of a lawsuit.

Let me give you an example that clearly explains what I mean.

Let's say you own your current home and you have a substantial amount of money in savings, a costly accident could put them at risk. In that case, you'll want to buy more coverage. The nonprofit Consumers' Checkbook, among others, recommends buying coverage of at least 100/300/50, just in case. The difference in cost between that coverage and your state's minimum will probably not be very much

If you are having enough cash, you can even go ahead to get more coverage like 500/1000/50. This is only necessary when you know you're having a lot of assets to protect. You can also purchase an umbrella policy, which will raise both your auto and home insurance liability coverage to $1 million or more.

Property damage liability

Property damage liability is insurance coverage that is designed to cover the cost of damages caused by you (the Policyholder) or any of your family members. When this accident destroys another person's car or even property such as fences and trees, the insurance company will ensure that they cover everything.

How Much Do You Need For Property Damage Liability

Just like the bodily injury liability, almost all the states in the United state requires you to have some amount of property damage coverage. When you look at the policy, you'll realize that it is always presented as the third number from the sequence I made mentioned above when I was explaining bodily injury liability.

So let's say you have a 25/50/20 policy. This means that you'll get $20,000 in coverage.

In some other states, you're required to have a minimum of $5k-$10k in property damage liability coverage. However, on a general note, having from $20'-$25k is usually the minimum you're expected to have in property damage liability coverage.

Buying more coverage that is higher than the state minimum comes with its own advantage because it secures you from chewing more than you can afford. Let's say you collided with a Bugatti or Rolls-Royce, you'll probably not face much financial risk as you would when you're in an accident in which people are seriously injured. A commonly recommended level of property damage coverage is $50,000—or more if you have substantial assets to protect.

Medical Payments Or Personal Injury Protection

Medical Payment or Personal Injury protection is also known as MedPay or PIP. This car insurance coverage covers the cost of injuries to the driver and any other passenger in your car. Sometimes this insurance coverage takes care of any loss of wages the victim might experience as a result of the injuries sustained from the accident.

How Much Do You Need For Medical Payment or Personal Injury Protection

MedPay or PIP is mandatory insurance coverage in most states and optional in some states. When you live in states like Florida and Newyork, PIP coverage is mandatory due to the absence of faulty laws.

When you look at the state law of Florida on MedPay or PIP, you'll realize that residents of the state are expected to have at least $10k, while in places like the Newyork, the minimum is $50k.

If you and your family are already having good health insurance coverage, you may not need to buy the minimum PIP coverage. However, if you don't have health insurance, you may want to purchase more in other to get maximum protection.

When You're living in a state like Florida, where $10,000 is the minimum coverage, this might not be inadequate if you're in a serious accident.

Collision coverage

Collision coverage insurance takes care of anything that has to do with repairs or replacement of your car if it gets into an accident with another car or even hits someone's object.

How Much You Need For Collision Coverage

Collision insurance is not a mandatory policy as most states don't require car owners to have one. In some cases, if you're having an auto loan or you're leasing your car, most lenders out there may require you to get collision coverage. But once you've returned the leased car or paid off your loan, you can decide to drop the loan.

I'll advise you to try and get collision coverage just in case you're not thinking of getting one because your state is not making it mandatory. This coverage will help you in the long run by reducing the trouble of paying a big repair bill out of your pocket after an accident.

When you are thinking of getting collision insurance, you need to consider the worth of your car first. This is very important because the cost of collision insurance is determined by the value of the car. This is why the collision coverage comes with a deductible of $250 to $1000.

This means that if your car is worth over $20k to replace, you'll need to pay the first $250 to $1000. This amount depends on your deductible when you bought your policy. Your insurer will be the one responsible to for as much as $19,000 to $19,750 after that. However, as time passes by, the value of your car will likely depreciate. At this point, you'll need to consider dropping your collision coverage.

Between the cost of your annual premiums and the deductible you'd have to pay out of pocket after an accident, you could be paying a lot for very little coverage. Even insurance companies will tell you that dropping collision coverage makes sense when your car is worth less than a few thousand dollars

Comprehensive coverage

This insurance coverage takes care of damages that happen to your car as a result of a fire, flood, or falling tree. It also covers car theft.

How Much You Need For Comprehensive Coverage

Comprehensive coverage is also optional coverage that you can choose to have or not. However, as I have mentioned before, if you're having an auto loan or your car is leased, your lender may require you to have one. Once you've paid off your loan or returned the car, you can drop your collision loan.

Despite the fact that the comprehensive coverage is optional for car owners, it is very important that you consider weighing your ability to pay money out of your pocket when your car is stolen, or damaged to a level where you may be forced to get a new one.

You'll also want to consider how much your car is worth compared with the cost of covering it year after year.

Uninsured/underinsured motorist coverage

Uninsured/Underinsured Motorist Coverage is a coverage designed to help drivers or car owners who are unable to get enough coverage to cover any serious accident. The insurance coverage covers you and your family members if you're injured or your car is damaged by an uninsured, underinsured, or hit-and-run driver.

The Uninsured/Underinsured Motorist Coverage is very important despite it being optional. According to a publication by Investopedia,  As of 2019, an estimated 12.6% of American drivers or about one in eight—were uninsured. This is a result of them not having enough insurance coverage to cover any serious accident.

How Much You Need For Uninsured/Underinsured Motorist Coverage

Uninsured/Underinsured Motorist Coverage is mandatory in some states. A good example of this state is Maryland. Maryland requires car owners and motorists to carry uninsured/underinsured motorist bodily injury liability insurance of at least $30,000 per person and $60,000 per accident. It also requires at least $15,000 in uninsured motorist property damage coverage.

You can always make your own research on your state of residence to know the optional and mandatory insurance coverage you need to get for your car.

Conclusion

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