What is the Recommended Level of Car Insurance Coverage?

By Desiree Baughman
Desiree maintains insurance licensure in 46 states, and by combining years of experience as a writer and insurance professional, she delivers information consumers can easily relate to and understand. A graduate of Sweet Briar College with a diverse writing portfolio, she regularly serves as an expert source and commentator for respected outlets like CBS Money, Bankrate, and Ragan.com.

What is the Recommended Level of Car Insurance CoverageTypically when shopping, it’s fun to have options and to compare products and prices. Insurance may be the only exception to this. Instead of enjoying the thrill of the chase, things become confusing and stressful very quickly. But similarly to “fun” shopping, there are some things you need, and some things you can’t live without. It’s just about having the wisdom to know the difference.

The auto insurance policy that you choose can include a number of different kinds of coverage, which often makes it all the more difficult for car owners to assess not only what kind of insurance they really need, but how much of it. We’re going to break down the standard auto insurance policy so that you can purchase the right kind of coverage for you and your family and at a price that’s affordable.

Liability Insurance

Need It? Definitely

Liability insurance isn’t only something that’s nice to have, it’s the law. Each state has a different minimum requirement, though most drivers shouldn’t stick with purchasing just the minimum for their vehicle, and for this reason:

Liability insurance is there to protect your assets should you cause an accident. When you’re at fault, you are then responsible for paying for the damage caused to any other party’s vehicle, as well as their medical expenses. The amount of liability insurance that you carry is the maximum amount that your insurance company will pay out. So let’s say you stick with your state’s minimum of $25,000 per person, and it was a fatal accident, killing the driver of the other vehicle. That $25,000 won’t even come close to protecting you should you be sued. Your car, house, and absolutely everything you own can be taken away and liquidated if you lose what would also be a costly lawsuit.

So how much liability should you choose? Enough to cover your assets. If you own a home worth $1 million dollars and a handful of classic cars, then your liability should be that much, if possible (this would likely exceed the standard liability insurance maximums, though additional coverage can be purchased through a Personal Excess Liability or Personal Umbrella policy).

Collision Coverage

Need It? It Depends

Collision coverage is there to repair any damage that your vehicle may suffer should it become involved in an accident. The good news here is that you don’t have to figure out how much to buy. What you have to consider is the deductible, if you even want this type of coverage at all.

Deductibles usually range from $250 to $1,000, and should be selected based on what you know you could afford to pay on short notice, as well as the value of your car (i.e. carrying a $1000 deductible for a car worth $1500 most likely doesn’t make much sense financially). The need for this type of coverage really depends on the age and value of your vehicle. For example, a brand new Mercedes is a valuable asset and will cost a ton to repair – in this case, collision coverage is a no-brainer. But if you’re driving a decade old Neon around that’s worth more to you than whatever the Kelly Blue Book Value is, then either increase the deductible to reduce your premium or consider dropping it all together.

Comprehensive Coverage

Need It? It Depends

Also known as “comp” insurance, having this in your policy will pay for any damages to your vehicle that aren’t caused by a collision. Some of the typical perils that are included in your comprehensive include:

  • Hail
  • Flood
  • Fire
  • Theft
  • Vandalism

In some situations, there isn’t a deductible (though most of the time there is one). Fortunately it’s also often much less expensive than collision coverage and doesn’t take an individual’s driving record into account.

Much like collision coverage, purchasing this policy may not make sense if you own an older vehicle or one that holds little to no value. However, owners of newer vehicles should have this type of coverage and should select a deductible based on what they can afford to pay in a short matter of time.

Uninsured/Underinsured Coverage

Need It? Yes

Did you know that as many as 1 in 7 drivers in the US today are driving around with any auto insurance – for themselves, much less you. What this means for you is that if you happen to get into an accident with a driver that holds little to no insurance, you may not be covered. With uninsured or underinsured coverage, you’re ensuring that any glaring gaps in the other motorist’s coverage will be covered for you so that you aren’t left needing to chase them down and pursue legal action.

So how much coverage is enough? Consider the legal fees, medical bills, and car repair expenses that could be the result of fairly serious accident that you would otherwise be paying out of pocket for. Chances are it would be far more than $15K per person or $30K per accident. $100K per person and $300K per accident is usually sufficient, though for full coverage (if you can afford it) opt for $250K/$500K.

It’s important as a driver to note that an increasing number of states are making this type of coverage mandatory along with liability insurance. Check with your local DMV or insurance company to see if you need this type of coverage.

Medical Payments Coverage

Need It? Probably

With medical payments coverage, you, your family as well as any passengers in your vehicle who are injured as a result of an auto accident will receive payment for any necessary medical expenses, regardless of who may be at fault.

The need for this type of coverage will depend on a couple of factors:

  1. Do you have health insurance? If you hold health insurance, then you may only need minimal medical payments coverage or none at all, depending on what your health insurance will cover. If you don’t carry health insurance, however, then this type of coverage is a must-have and certainly is necessary.
  2. Do you carpool or lend out your car? The other consideration is the other passengers in your vehicle and the extent of coverage you need for them. If you’re a family, carpool to work, or lend your vehicle out to friends and family often, then this coverage will take care of them should they become involved in an accident.

How much you invest in this type of coverage will again depend on your current health insurance, as well as your budget. A number of drivers unnecessarily pay for this coverage when it’s already covered through other medical policies. Some others may only need to use this as supplemental coverage on top of other current insurance policies. The good news is that premiums are quite affordable and the coverage itself can cover a number of items, from the replacement of eyeglasses to any funeral-related costs. Having $10K in coverage is affordable and is nice to have should any other insurance policies lapse or not cover all of your medical expenses.

Personal Injury Protection

Need It? Maybe

Also known as “PIP” or “no-fault’ insurance, some states have made this type of insurance a requirement by law which is why the “need” factor for it is set to “maybe”. In many situations, PIP insurance will only overlap coverage that you likely already have if you carry health insurance or disability insurance, making it unnecessary to those who live in states where this isn’t mandatory.

Look at your current health and car insurance coverage policies and determine whether or not you have adequate protection for injuries as the result of a car accident. If you do, then carry only the minimum if your state requirements. If you have coverage, leave it off of your policy.

The other consideration is whether or not you frequently have passengers in your vehicle who are not family members (i.e. if you carpool to work). In this case, you may want to purchase an increased amount of PIP coverage.

Emergency Road Service

Need It? Nope

With this type of coverage, you’ll never be stuck footing the bill for things such as towing, locksmith service, and roadside assistance. Do you need this type of coverage? Definitely not, but it is a nice “luxury” policy to have in place when you need it.

Keep in mind, however, that there are other companies that offer this service to you, and perhaps at a more affordable rate. A membership with AAA may set you back a bit more, but you can likely take advantage of the many other options that they are able to offer you which your car insurance company can’t (i.e. discounts on home insurance, on travel expenses, etc.).

The car insurance you carry – and the amounts of it – is a personal decision that should strike a balance between the needs of you and your family, and your budget. Be sure to look at any other insurance policies that you may hold to prevent buying more insurance than necessary, and don’t be afraid to ask for help from an insurance professional to help you determine what you may or may not need to protect yourself and your assets. After cutting coverage options or amounts, you still may not have the premiums you want, but as it goes, you can’t always get that – but at least you’ll have what you need.