How Much Car Insurance Do I Need?

Navigating car insurance can feel like trying to crack a code, especially when you're focused on building a strong financial future. You know you need coverage, but figuring out how much car insurance you need is the real challenge. If you don’t have enough, one car accident could put your entire financial future at risk. On the other hand, overspending on insurance can drain your savings and cause a delay for your retirement goals.

The goal is to find a balance between smart risk management and frugality. We’ll walk you through the essential types of car insurance coverage, talk about the risks of sticking with minimum coverage, and show you exactly how to calculate the right amount of coverage to protect your assets without inflating your car insurance premiums.

The amount of car insurance you need is personal and depends on several factors. Skip the generic advice and focus on what really matters for your financial health.

Factors Influencing Your Insurance Needs

Your ideal auto insurance package rests on three main pillars:

1. Financial Situation and Assets: As a Think Save Retire reader, you probably have significant assets or are well on your way to building them. The more you own, be that equity in your home or investments, the more liability protection you need. If you’re sued after an accident you’re guilty of, everything you’ve worked for is on the line.
2. Location and Commute: Driving in a busy and high-risk area like a major city increases your chances of getting into an accident. Also, a long daily commute puts you at greater risk than if you’re only driving on weekends.
3. Vehicle Value and Age: The value of your car determines if comprehensive and collision coverage is worth the cost. If your vehicles cost less than $5,000, paying high premiums for full coverage doesn’t make financial sense.

State Minimums vs. Recommended Coverage

Each state sets its own minimum coverage requirements, and understanding the Average Car Insurance Rates by State can help you see how these minimums influence what you might pay. In Texas, for example, the minimum liability limits are 30/60/25. In other words, $30,000 for bodily injury liability per person, $60,000 for bodily injury liability per accident, and $25,000 for property damage liability. If you're looking for affordable minimum coverage, many drivers prefer Geico, with rates starting around $36 a month or $430 annually.

Relying solely on state minimums puts you at risk. A serious accident results in medical bills and property damage well beyond $30,000. If your coverage runs out, you'll have to pay the rest out of pocket, putting your assets at risk.

How Much Liability Insurance Do I Need?

Liability insurance is the most important part of your auto insurance policy because it protects your net worth. It covers the other party’s costs if you cause an accident, keeping you financially safe.

Minimum vs. Recommended Liability Limits

The state’s minimum liability limits aren’t enough if you're building substantial wealth. Just a glance at the average cost of a hospital stay or a new SUV makes that clear.

We recommend aiming for significantly higher liability limits than the minimum.

Bodily injury liability coverage covers the other driver's medical bills, pain and suffering, and lost wages. Property damage liability pays the cost of damage to the other person's vehicle or property, like fences or buildings. Increasing your bodily injury liability limits from the minimum to $250,000 usually adds just a small amount to your premium but boosts your protection.

What Is Comprehensive and Collision Coverage?

Liability coverage protects others, while comprehensive and collision coverage protect your own vehicle. Together, they make up what’s called full coverage.

• Collision coverage pays to repair or replace your vehicle after an accident with another car or object, like a fence or tree, no matter who’s at fault.
• Comprehensive coverage pays for damage to your car that's not caused by a collision. Comprehensive insurance covers things like theft, vandalism, fire, and weather events such as hail or flooding.

When Do You Need Full Coverage?

If you're financing or leasing a new car or an expensive used vehicle, your lender or leasing company will require you to buy car insurance that includes both collision and comprehensive coverage.

The pros and cons are straightforward: Full coverage gives you financial security against major damage, but it increases your car insurance premiums.

How Much Comprehensive and Collision Coverage Do You Need?

The amount of comprehensive and collision coverage you need depends on your vehicle's value. Your insurer will only pay up to the actual cash value of your car. The key factor to consider here is your deductible.

• Deductibles: The deductible is the amount you pay out-of-pocket before your insurance covers the rest. Comprehensive deductibles and collision deductibles usually range from $250 to $1,000. Choosing a higher deductible can lower your car insurance premium, but it means you'll pay more out-of-pocket if you file a claim.
• Vehicle Value Assessment: When does full coverage no longer make sense? If the cost of the combined comprehensive and collision insurance premiums exceeds 10% of your car's value, it’s probably time to reconsider. For instance, if your 12-year-old car is worth just $3,000, paying $500 a year for these coverages doesn’t offer enough protection to justify the cost.

Should You Add Uninsured Motorist Coverage?

Uninsured motorist coverage, sometimes called uninsured/underinsured motorist coverage, is one of the most important protections you can add to your policy. It steps in when the at-fault driver either has no car insurance at all or doesn’t have enough liability coverage to pay for your damages. This coverage ensures you’re not stuck paying the price for someone else’s lack of responsibility.

It covers two components:

1. Bodily Injury: It covers your medical expenses, lost wages, and pain and suffering up to the coverage limits you choose.
2. Property Damage: Uninsured motorist property damage covers the cost of repairing your vehicle, though a deductible may apply in some cases.

This protection is important, especially in areas with high rates of uninsured drivers. Even if you buy car insurance with high liability limits, you can’t control the coverage other drivers carry, making uninsured motorist coverage a must.

How Much Auto Coverage Do I Need for My Assets?

To determine how much auto coverage you need, we evaluate your total assets, like equity, investments, and savings. A good rule of thumb is to carry liability limits that bodily injury liability pays up to your total net worth. If your assets exceed $250,000, you should have at least 250/500/100 liability insurance.

If your assets reach $500,000 or more, you should consider umbrella insurance. This policy adds an extra layer of protection, usually $1 million or more, on top of your existing auto insurance and homeowners policies. It’s the best way to protect substantial wealth from a catastrophic lawsuit resulting from a car accident.

More Coverage: Should You Consider Additional Coverage Options?

A standard car insurance policy covers the basics, but there are optional coverages that can save you both money and stress in the long run.

What is Gap Insurance and Why Do You Need It?

Gap insurance covers the difference between what you owe on your loan and your car's actual cash value (ACV) if it’s totaled in an auto accident. Since new cars lose value quickly, you might owe more than your vehicle is worth, especially in the first few years.

Gap insurance is essential if you:

• Made a small down payment (less than 20%).
• Financed your car for 60 months or longer.
• Leased your car (it is usually mandatory).

If you total a new car worth $30,000 but still owe $32,000 on the loan, standard collision insurance will only cover the $30,000 ACV. Gap insurance steps in to cover the remaining $2,000 of your debt.

Other Additional Coverage to Consider:

• Medical Payments (MedPay) or Personal Injury Protection (PIP): These cover medical bills and potentially lost wages for you and your passengers, no matter who caused the auto accident. Personal Injury Protection (PIP) is required in some no-fault states, while medical payments coverage is crucial if you have a high deductible on your health insurance.
• Rental Car Reimbursement: Covers the cost of a rental car while your own vehicle is being repaired after a covered incident.
• Roadside Assistance: This is a cost-effective addition that covers towing, flat tire changes, and jumpstarts.

How to Compare Car Insurance Quotes

The only way to find out how much car insurance you need and what it will cost is to compare car insurance quotes.

Step-by-Step Guide to Compare Car Insurance Quotes

1. Determine Your Ideal Coverage: Use the information above to decide on the liability limits, deductibles, and optional coverages you need.
2. Gather Accurate Data: Collect your driving license numbers, current insurance declarations page, vehicle identification numbers (VINs), and details about any safety features your car has. Your driving record and insurance score heavily impact your quotes.
3. Get Quotes: Contact at least three different auto insurers or use an online comparison tool.
4. Evaluate and Standardize: Make sure every car insurance quote shows the exact same coverage options and coverage limits. Then, evaluate the car insurance premiums and the reputation of the insurance company.

Can You Save Money by Comparing Car Insurance Quotes?

Yes, comparison shopping is the best way to save money on your car insurance. Each insurance company uses its own formula to assess risk, so you can receive different quotes for the same coverage options.

To get an accurate car insurance quote, be honest about your driving record and avoid assuming how much coverage you need. You can use a car insurance calculator or an online tool to help estimate car insurance costs quickly and efficiently.

When Is More Coverage Worth It?

More coverage is always worth it when the potential loss exceeds the cost of the premium.

• Scenario 1: High Net Worth. If you have significant retirement savings, the small extra cost for high liability limits and an umbrella insurance policy is a must to protect your financial independence.
• Scenario 2: Driving a New Car. The security from collision and comprehensive coverage on an expensive vehicle is well worth the yearly cost, especially if you wouldn’t be able to replace your car immediately after a total loss.
• Scenario 3: No Health Insurance. If you don’t have strong health insurance, you need high personal injury protection (PIP) or medical payments coverage to cover your medical expenses after an auto accident.

The Insurance Information Institute consistently points out that the cost difference between the minimum required auto insurance and sufficient coverage is usually small. Still, the boost in financial security is huge.

Think Save Retire

Making the right car insurance decisions is a key part of the Think Save Retire philosophy. You work hard to save and invest, building a protective moat around your finances. Car insurance is just the other side of that moat, shielding you from a sudden, devastating financial drain. By taking the time to figure out exactly how much car insurance you need, based on your assets, not just state minimums, you’re making one of the smartest, most frugal moves in long-term risk management. Stop underinsuring and start protecting the wealth you're diligently building.

FAQs

What Is a Good Amount of Auto Insurance Coverage?

For someone with growing assets, a good amount of auto insurance coverage typically includes liability limits of 100/300/100. This means $100,000 for bodily injury liability per person, $300,000 per accident, and $100,000 for property damage liability coverage. If your car is worth more than $5,000, add comprehensive and collision coverage, and don't forget to include uninsured/underinsured motorist coverage.

Is 50/100/50 Enough Car Insurance?

50/100/50 ($50,000 for bodily injury liability and $50,000 for property damage liability) is better than the state minimums, but it’s not enough if your net worth exceeds $100,000. While $50,000 for property damage is generally fine for most vehicle-to-vehicle accidents, the bodily injury liability limit of $100,000 per accident can be quickly used up in a crash involving multiple people or a serious incident.

At What Point Is Full Coverage Not Worth It?

Full coverage (comprehensive and collision) usually isn't worth it if the annual premiums for both exceed 10% of your car's actual cash value. For example, if your car is worth $3,000 and full coverage costs around $400 per year, it’s likely time to drop it and self-insure against damage to your vehicle.

Conclusion

People often ask themselves the question, "How much car insurance do I need?". Determining how much car insurance you need requires a thoughtful look at your financial situation and risk profile. Don’t let state minimums lull you into a false sense of security. You need to buy car insurance that protects the assets you’ve worked hard to build. Assess your needs, choose high liability coverage that matches or exceeds your net worth, and confidently compare car insurance quotes to find the best value.