How Much Car Insurance Do You Actually Need?

Every state sets a minimum amount of car insurance you must carry to drive legally. Those minimums are a legal floor, not a recommendation — in many states they are far lower than what a serious accident can cost. Here is how to think about each part of a policy so you buy enough, without paying for things you do not need.

Start with liability — it protects everything you own

Liability coverage pays for injuries and property damage you cause to other people. It is usually written as three numbers, for example 100/300/100:

• 100 — up to $100,000 for injuries to one person
• 300 — up to $300,000 for all injuries in one accident
• 100 — up to $100,000 for damage to other people's property

If a claim goes above your limits, you can be held personally responsible for the rest. A common rule of thumb is to carry liability limits at least as high as the assets you could lose in a lawsuit — savings, home equity and future wages. If your assets are larger than the highest limits a carrier offers, an umbrella policy adds another layer on top.

Collision and comprehensive protect your own car

• Collision pays to repair or replace your car after a crash, whoever is at fault.
• Comprehensive covers theft, hail, fire, flooding, falling objects and hitting an animal.

If your car is financed or leased, the lender almost always requires both. If you own an older car outright, compare its current value with what these coverages cost each year plus your deductible. When the numbers get close, dropping them can make sense — as long as you could afford to replace the car yourself.

Coverage for when the other driver cannot pay

Uninsured and underinsured motorist coverage pays for your injuries — and in some states your car — when the at-fault driver has no insurance or too little. Some states require it; in others it is optional but inexpensive compared with the risk it covers.

Personal injury protection (PIP) or medical payments coverage pays medical bills for you and your passengers regardless of fault. PIP is required in no-fault states.

Choose a deductible you can actually pay

A higher deductible lowers your premium, but only choose an amount you could pay tomorrow without strain. Saving on the premium does not help if a claim leaves you unable to cover your share of the repair.

A quick checklist

1. Know your state minimums — then plan to carry more liability than that.
2. Match liability limits to what you could lose in a lawsuit.
3. Keep collision and comprehensive while the car is financed or still worth repairing.
4. Add uninsured motorist coverage if it is not already included.
5. Pick a deductible that fits your emergency savings.

Once you know the coverage you want, request quotes for exactly that coverage from several carriers. Comparing identical policies is the only way to see which carrier prices you best.