What car insurance do I need?

Owning and driving a car entails a certain amount of responsibility, not the least of which is the requirement to carry at least the minimum amount of auto insurance in your state. What many people fail to realize, however, is that skimping on insurance can become a very costly mistake in the event of a collision. If you’re wondering, what car insurance do I need, you’re in the right place. Here’s your guide to understanding car insurance.

Who needs car insurance?

Drivers in nearly every state need car insurance in order to legally operate a motor vehicle. Generally, without proof of insurance, a car’s registration will be invalidated. There are exceptions, however. The states of New Hampshire and Virginia have their own laws around car insurance. In New Hampshire, drivers who opt not to have car insurance must prove that they have sufficient financial resources if they are found at fault in a collision. In Virginia, the cost to opt out of car insurance is an annual $500 fee, and those drivers will be financially responsible for the result of any accident they cause. It’s worth noting that typically, when a car is financed or leased, the bank that issued the loan will require comprehensive, collision, and gap insurance, in addition to state minimums.

Types of car insurance

The main types of car insurance coverage are liability (which is further broken down into bodily injury and property damage), collision, and comprehensive. Liability coverage reimburses other motorists and individuals impacted by a collision caused by the policyholder. Collision coverage covers damage and injury to the policyholder’s property and passengers in the event of a collision, and comprehensive coverage reimburses for damage in most other situations that are not a collision. Additional types of car insurance are numerous, including gap insurance, uninsured and underinsured motorist coverage, rideshare insurance, pet insurance, breakdown insurance, and rental coverage insurance.

Car insurance tips

While it’s understandable to want to save money shopping for car insurance, there’s one area where you definitely shouldn’t skimp, and potentially even more surprising, you may want to consider paying more. Here’s why.

Auto liability insurance comprises three major components: coverage for bodily injury for one person, bodily injury per occurrence, and property damage. Generally, these are written as 25/50/10, meaning the coverage for one person injured in an accident you’re held to be responsible for is limited to $25,000, while the total amount for all parties you injure in the accident is capped at $50,000 and any property damage you’re liable for will be paid to a limit of $10,000. This is an example of a state minimum, not what every driver chooses for liability coverage.

Some policies have a combined single limit, as in $100,000 or $300,000 (the latter most often required by lending institutions and leasing companies on new cars that are financed or leased).

But is going with the state minimum liability coverage a good idea? One way to look at this objectively is to consider what could happen. Anything other than a minor fender bender – and sometimes, even those, if whiplash or other injuries result – can quickly drain your bank account. Serious crash injuries involving multiple individuals, vehicles and property damage can prove catastrophic.

Remember that the auto liability coverage will only pay out a maximum of what you select. In the 25/50/10 scenario, the total the insurance company would pay is $60,000. Anything above and beyond that is your responsibility.

Think about the high costs of hospitalization, continuing care, rehab, medication and multiply that by potential months and possibly years and you get an idea where you can soon wind up bankrupt. Own a house? Forget about it if the other party or parties sue you in a private lawsuit and win the judgment. Everything you own, everything you’ve worked so hard to save can be wiped out. And, you’ll still have to pay the attorney fees to argue your case or go for an appeal.

On the other hand, using car insurance to avoid car insurance lawsuits may be one of the best preventive strategies you could employ.

Raising your auto liability coverage limits is simply a matter of getting in touch with your agent or insurance carrier. Before you jump to $300,000 from a state minimum or even from $100,000, discuss what is recommended to keep you adequately covered. The premium increase shouldn’t be your major concern. Keeping your assets protected should be.

If you’re not comfortable with the increased premium, inquire about other discounts available to you that you may not be taking advantage of. If you’ve been with the company for a long time, you could be eligible for a longevity or persistent customer discount. If you bundle auto and homeowners insurance, there’s a discount for that, as well as insuring multiple vehicles in the family with one insurer. It may make sense to switch to house all your auto and homeowners insurance needs with one company. Bottom line: It never pays to take the gamble and risk being on the hook for lengthy and ultimately costly car lawsuits, not when you can prevent your exposure by increasing auto liability coverage limits.

Factors that affect car insurance rates

Numerous factors affect car insurance rates, though they may vary by state. For example, age and gender are typically major factors, with newly licensed drivers and males typically paying more for car insurance than older drivers and females. However, in some states, these factors are not legally allowed to be considered for car insurance rates. Another such factor is credit history and credit score, which is banned as a factor in some states. Driving record, the policyholder’s location, and the car’s make, model, and age are also considered. 

Frequently Asked Questions

How much liability insurance should I have?

Liability insurance is the key to the question, what car insurance coverage do I need? The answer is, it varies. Every state has its own requirements for liability insurance minimums, which you can learn about by either contacting your state’s Department of Motor Vehicles or your insurance company. However, most experts recommend carrying more than your state’s minimum for liability insurance, for extra protection in the event that you are found responsible for a collision or accident.

What does 80% insurance coverage mean?

The 80% insurance coverage is also often phrased as the 80/20 car insurance settlement. That means one driver is assigned 80% of fault and the other driver is assigned 20% of fault. This shares the financial burden of the collision while still acknowledging one driver is primarily responsible. 

What does comprehensive coverage cover?

Comprehensive insurance coverage is often misinterpreted as “everything,” but that’s not the case. A comprehensive car insurance policy covers events that aren’t covered by liability or collision insurance, and are outside of the policyholder’s control. Examples include theft, vandalism, weather events and naturalization disasters, falling trees, and collisions with animals.