When trying to figure out how much car insurance you need, there are many factors to consider. But overall, the right answer balances affordability and financial protection from the costs associated with an auto accident — including medical bills, property damage, and car repairs.
Here’s how to decide on coverage, what the recommended car insurance coverage is, and everything else you should take into consideration.
5 steps to determine how much car insurance you need
Your car insurance coverage should be generous enough to meet state requirements and protect your net worth. Additionally, you should consider how much cash you keep on hand and what you can afford to pay for premiums.
1. Figure out your net worth
Knowing your net worth helps you define appropriate liability coverage levels. Your net worth is the difference between the value of your assets — including your home, car, and bank accounts — and your debts.
Both your bodily injury liability coverage and your property damage liability limits should exceed your net worth. If they don’t, you’ll want to increase them to bridge the gap.
Here’s what your financial responsibility could look like if you didn’t increase your liability limits: Let’s say you’re at fault in a car accident where multiple people are injured and their medical expenses top $100,000. If you only have minimum bodily injury insurance coverage, the insurance company would cover medical bills up to, say, $50,000, and you’d be personally responsible for the remaining $50,000.
2. Know your minimum requirements
Don’t get taken by surprise when it comes to the minimum car insurance requirements in your state. Some states require liability insurance only, while others have additional mandated coverages, such as uninsured motorist and personal injury protection. A local insurance agent can review the state requirements with you.
Minimum liability insurance requirements vary from state to state, but the most common usually looks like this:
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$25,000 bodily injury per person
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$50,000 bodily injury per car accident
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$25,000 property damage per car accident
Some states also require uninsured motorist coverage, personal injury protection, or medical payments coverage.
If your car is financed, your lender will have additional requirements — usually at least comprehensive and collision. Failing to comply with lender requirements is typically a violation of your loan agreement. The lender can buy insurance and charge you for it or repossess the car if you don’t meet the requirements on your own.
3. Determine your financial risk
Part of determining how much car insurance you need is knowing how comfortable you are with the risk of significant out-of-pocket expenses. Liability-only policies can be as cheap as $89 monthly, but they can leave you without help paying for damages to your car. Full coverage adds protections for your car when you are at fault and if the car is stolen. These policies provide far more coverage for about $60 more than liability insurance alone.
4. Try an insurance coverage calculator
Some insurance companies offer coverage calculators to help you determine the amount of car insurance you need and estimate rates. These calculators typically ask about your state of residence, the vehicles you own, your driving record, and the value of your home or other assets.
5. Get at least three car insurance quotes
The Insurance Information Institute recommends getting at least three different auto insurance quotes to better understand your coverage options and car insurance costs.
Recommended car insurance coverage
Generally, it’s smart to carry more coverage than your state requires if you can afford it. That includes raising your liability limits high enough to protect your net worth and, as appropriate, adding more lines of coverage. Car accidents can be expensive, and upgrading your insurance can provide a lot of value, often at a reasonable price.
Here are the main types of auto insurance coverage you should consider and when it might make sense to pay a little more for protection on and off the road.
Collision coverage
Best for leased, financed, and new cars
Collision insurance covers damage to your car in the case of a motor vehicle accident. Collision coverage costs are affordable, so you should add it to your policy if you can’t afford the costs of repairing or replacing your vehicle. You will have a deductible on your collision insurance, which is an amount you pay before your insurance company funds any repairs.
Comprehensive coverage
Best for leased, financed, and new cars
Comprehensive insurance covers damage to your vehicle from weather, theft, vandalism, fire, and even animal strikes. Windshield replacement coverage is usually included in comprehensive and collision coverage. Comprehensive coverage is best for more expensive vehicles that you can’t afford to repair or replace out-of-pocket. Keep in mind, you’ll also have a deductible on your comprehensive insurance.
Personal injury protection (PIP)
Best for no-fault states
Personal injury protection is required in some states as part of no-fault accident insurance. PIP coverage pays for medical expenses incurred by you or your passengers from an accident, regardless of who caused the crash. PIP can also pay for childcare costs, lost wages, funeral expenses, and rehabilitation related to the injuries.
Medical payments (MedPay) coverage
Best for those without health insurance
MedPay is an optional coverage available in some states that pays for medical bills. Even if you have good health insurance, MedPay can be a good idea if you’re worried about paying out-of-pocket medical expenses or meeting your deductible after a car accident.
Uninsured/underinsured motorist coverage
Best for everyone
Uninsured motorist insurance, or UIM, protects you, your passengers, and your vehicle if you’re the victim in an accident caused by a driver without car insurance. Uninsured or underinsured motorist coverage may also cover hit-and-run claims.
Some states require drivers to protect themselves from damages and injuries caused by uninsured or underinsured motorists. According to the Insurance Research Council, one in seven drivers were uninsured and one in six drivers were underinsured in 2023. More than 28% of Mississippi drivers had no insurance and more than 49% of Colorado drivers had too little insurance.
Additional coverages to consider
Here are some less common types of car insurance coverage available from auto insurance companies that you may want to consider.
Gap insurance
If you bought a new car (or new to you car) or are leasing a car, your lender may require gap coverage. This type of insurance protects you (or the leasing company) in the event your vehicle is a total loss and the actual cash value the insurance pays doesn’t meet your car loan obligations.
Rental reimbursement
Rental reimbursement coverage helps pay for a rental car if your vehicle is damaged in a covered claim. It’s relatively inexpensive and can cover other costs besides a rental car, including rideshare services or public transportation costs.
Roadside assistance
Roadside assistance coverage provides a limited set of break-down services like towing, tire changes, and battery jumpstarts. Getting roadside assistance coverage as part of your insurance premium can pay off if you own an older car or have a long commute.
Classic car insurance
Classic car insurance policies recognize the intangibles that make older or collector vehicles valuable — typically far more valuable than the day they rolled off the showroom floor. For the insurance to remain affordable, however, classic car insurance may be more restrictive than standard auto insurance. For example, it won’t cover the car if it’s used for regular transportation or is not securely stored.
Rideshare insurance
Personal car insurance doesn’t cover driving for business use, including rideshare driving. Rideshare insurance helps bridge the gap between your personal coverage and the coverage provided by the rideshare companies.
This type of insurance is typically sold as an add-on to your personal car insurance policy, meaning you don’t need a separate rideshare insurance policy.
What coverage limits should I have on my car insurance policy?
The right coverage limits depend on your situation and can vary wildly, but here is what’s commonly recommended:
The cost of having these coverage limits will vary depending on several factors, including your driving history, vehicle make and model, and deductible. And keep in mind that some of these types of insurance aren’t available everywhere and have maximum and minimum coverage limits mandated by each state.
How much insurance do I need? FAQs
When is full coverage not worth it?
Full coverage auto insurance may not be worth it if your car is older and not worth much. If the annual added cost to maintain full coverage is 10% or more of your car’s value, it may be time to reduce your coverage. You also don’t need full coverage if you can afford to and are willing to replace your car after a wreck or if it’s stolen.
Which states don’t require car insurance?
New Hampshire is the only state that doesn’t require car insurance, unless you have certain convictions on your record like a DUI or reckless driving. You still must prove you have financial resources to cover an at-fault accident, however.
How much liability coverage do I need?
You need enough liability coverage to meet your state minimums and protect your net worth if you cause an accident that results in expensive damages and injuries. If the damages exceed your liability limits, the other driver can go after your home and bank accounts.
