How Much Car Insurance You Actually Need

The amount of car insurance you need depends on your state's minimum requirements, what you own, and what you can afford to pay out of pocket

Every state except New Hampshire requires you to carry liability insurance, which pays for damage or injuries you cause to someone else. The minimum amounts vary by state — some require as little as $15,000 per person for bodily injury, while others require $50,000 or more. You can find your state's exact minimums on your state insurance commissioner's website or by calling your state's Department of Insurance.

Beyond the legal minimum, the right amount for you depends on two things: how much you have to lose if someone sues you, and whether you're financing or leasing your car. If you own your car outright and have few assets, state minimums might be enough. If you have savings, a house, or a steady income, carrying more than the minimum protects those assets if you cause a serious accident.

Key Takeaways

• Your state sets a legal minimum for liability insurance, and you can find the exact dollar amounts on your state insurance commissioner's website.
• Liability insurance covers damage you cause to others; collision and comprehensive cover damage to your own car and are required only if you're financing or leasing.
• Most financial advisors suggest carrying liability limits of at least $100,000 per person and $300,000 per accident, even if your state allows lower amounts.
• If you finance or lease your car, your lender will require collision and comprehensive coverage up to the car's value.
• Uninsured motorist coverage protects you if someone without insurance hits you, and the cost is usually low relative to the protection it offers.

State minimum liability amounts and where to find them

Liability insurance has two parts: bodily injury liability (which pays for medical bills and lost wages) and property damage liability (which pays for damage to the other person's car or property). Your state sets minimums for each. A state might require $25,000 per person for bodily injury and $50,000 per accident, plus $25,000 for property damage — often written as 25/50/25.

To find your state's exact minimums, go to your state insurance commissioner's office website and search for "minimum liability requirements" or "financial responsibility law." You can also call your state's Department of Insurance directly. Some states have different minimums depending on whether you're a first-time driver or have a violation on your record.

Meeting the legal minimum is not the same as having enough insurance. A serious accident with injuries can result in a lawsuit for far more than your state's minimum. If a court awards a judgment against you that exceeds your policy limit, you could be responsible for paying the difference out of your own pocket.

Liability limits higher than your state minimum

Most insurance agents and financial advisors recommend carrying liability limits of at least $100,000 per person and $300,000 per accident, even if your state allows you to carry less. The cost difference between a state minimum policy and one with these higher limits is usually $10 to $30 per month, depending on your age, driving record, and location.

The reason for this recommendation is straightforward: a single serious accident can cost far more than your state's minimum. If you hit someone and cause $150,000 in medical bills, and your policy limit is $25,000, you are personally liable for the remaining $125,000. That amount can be collected through wage garnishment, bank account levies, or a lien on your home.

An umbrella policy (also called excess liability insurance) is another option if you have significant assets. An umbrella policy sits on top of your car and home insurance and covers claims that exceed those policies' limits. A $1 million umbrella policy typically costs $150 to $300 per year and covers not just car accidents but also injuries that happen on your property.

Collision and comprehensive coverage if you finance or lease

Collision insurance pays to repair or replace your car if you hit another vehicle or object. Comprehensive insurance pays for damage from theft, weather, vandalism, or hitting an animal. If you own your car outright, these are optional — you can choose to carry them or not. If you finance or lease your car, your lender will require both, usually up to the car's actual cash value.

The cost of collision and comprehensive depends on your car's value, your deductible (usually $500 or $1,000), and your location. A newer car costs more to insure than an older one. As your car ages and its value drops, the cost of collision and comprehensive coverage may eventually exceed what it would cost to repair or replace the car yourself, and you can ask your insurance company to drop these coverages.

If you lease, the leasing company sets the required coverage limits, and they are usually higher than what a lender would require for a financed car. Check your lease agreement for the exact amounts.

Uninsured and underinsured motorist coverage

Uninsured motorist coverage pays your medical bills and lost wages if someone without insurance hits you. Underinsured motorist coverage pays the difference if the at-fault driver's insurance is not enough to cover your damages. In most states, you can turn down this coverage, but insurance companies recommend carrying it because roughly one in eight drivers on the road is uninsured.

The cost of uninsured motorist coverage is usually low — often $5 to $15 per month — because claims are less common than with liability or collision. Your uninsured motorist limit should match or exceed your liability limit so that you have the same protection whether you cause an accident or someone else does.

Medical payments coverage and personal injury protection

Medical payments coverage (called Med Pay) pays your medical bills if you or your passengers are injured in a car accident, regardless of who caused it. Personal injury protection (PIP) is similar but also covers lost wages and other expenses. Med Pay is optional in most states; PIP is required in some states (called "no-fault" states) and optional in others.

Med Pay limits typically range from $1,000 to $10,000 per person. If you have good health insurance, a lower Med Pay limit may be enough because your health insurance will cover most medical costs. If you don't have health insurance or have a high deductible, a higher limit provides more protection. PIP is more expensive than Med Pay because it covers more, but it is required by law in no-fault states.

How to decide on coverage amounts for your situation

Start by writing down what you own: your car's value, your home (if you own one), your savings, and your annual income. If you have little to lose, state minimum liability may be legally sufficient, though carrying more is still a low-cost choice. If you have a home, savings, or a steady income, carrying at least $100,000 per person in liability protects those assets.

For collision and comprehensive, the decision is simpler if you finance or lease — your lender decides for you. If you own your car outright, compare the cost of coverage to the car's value. If your car is worth $3,000 and collision coverage costs $600 per year with a $1,000 deductible, you're paying 20 percent of the car's value annually for protection against losses of at most $2,000 (the car's value minus the deductible). In that case, dropping collision and setting aside money for repairs might make sense.

Once you've decided on limits, get quotes from at least three insurance companies. The same coverage can cost significantly different amounts depending on the insurer, and discounts (for bundling home and car insurance, for a clean driving record, or for completing a defensive driving course) vary by company.

Frequently Asked Questions

What happens if I get in an accident and my insurance limit is too low?

If the damages exceed your policy limit, the other person can sue you personally for the difference. A court can order wage garnishment, bank account levies, or a lien on your home to collect the judgment. This is why carrying limits higher than your state's minimum is important if you have assets to protect.

Do I need collision insurance if I have a newer car?

If you finance or lease a newer car, your lender will require collision insurance. If you own it outright, collision is optional, but most people carry it on newer cars because the repair costs are high. As the car ages and its value drops, you can reassess whether the cost of collision coverage is worth the protection.

Is uninsured motorist coverage worth the cost?

Uninsured motorist coverage is usually inexpensive ($5 to $15 per month) and protects you against drivers without insurance, who make up roughly one in eight drivers on the road. Most insurance agents recommend carrying it at the same limit as your liability coverage.

Can I lower my insurance costs by choosing a higher deductible?

Yes. Raising your deductible from $500 to $1,000 typically lowers your collision and comprehensive premiums by 15 to 30 percent. The trade-off is that you'll pay more out of pocket if you have a claim. Choose a deductible you can actually afford to pay if you need to file a claim.

What's the difference between my state minimum and what insurance companies recommend?

Your state minimum is the legal floor — the least you must carry to drive legally. Insurance companies and financial advisors recommend higher limits (usually $100,000 per person, $300,000 per accident) because a serious accident can cost far more than state minimums, and higher limits cost only $10 to $30 more per month.