How much car insurance coverage do I really need?

Your current car insurance may not always cover you fully in an accident. Find out why add-on insurance coverage can give you some extra peace of mind when you need it.

How much car insurance coverage do I really need?

Most people understand the basic idea behind auto insurance. An accident happens. Your insurance helps foot the bill. Simple. But beyond that? All that car insurance nitty gritty can be … well, confusing.

Most drivers don't have the time to read their policies from front to back. And fair enough. But it also means they might not have a handle on their deductibles and coverage limits. As a result, they often discover they don't have enough insurance — and only when it's too late. In fact, Esurance found that many people are paying more out-of-pocket after an accident than they have to.

But car insurance doesn't have to be so … UGH. We're breaking it down to make it as painless as possible to decide how much car insurance you really need. Ask yourself these questions to choose a policy that works best for you.

1. What are the minimum requirements?

Every state (except New Hampshire) has minimum required limits, which means you must have a certain amount of coverage to drive legally. See what's required by law in your state, then build from there.

And if you're like the vast majority of us who finance or lease, your lender will also have a set of insurance requirements of their own. In most cases, you'll be required to hold some amount of liability, collision, and comprehensive coverage.

Liability coverage — Liability insurance covers costs related to a crash for which you're found at fault. But it only covers the driver and passengers in the other vehicle(s) involved in an accident. It doesn't cover expenses related to your medical costs or your vehicle.

Liability can be broken down into two categories: Bodily injury liability and property damage liability. Bodily injury covers medical care for someone injured (in the other car) in an accident that you cause. Property damage covers things like vehicle repairs, the cost of a totaled car, or damaged landscapes, buildings, or other structures.

Liability policies are often written with three numbers that indicate the amount of coverage included. For example, a policy that lists 100/200/50 liability coverage includes:

  • Up to $100,000 for injuries to each person.
  • $200,000 maximum across all injuries in a single event.
  • $50,000 in property damage per crash.

Collision coverage — In a nutshell, collision covers the costs to repair or replace YOUR vehicle if you're ever in a crash. Collision coverage isn't required by law. But if your vehicle's leased or financed, you'll probably need to have it. More importantly, you'll want it to make sure you have enough coverage. Otherwise, you may have to pay out-of-pocket for repairs or to replace your vehicle if it's considered "totaled."

Comprehensive coverage — Comprehensive covers your car for the stuff that's not technically a collision. Sometimes called, "other than collision," this coverage protects you from those crazy things none of us expects to happen but still do. Your car is stolen, catches on fire, hits an animal. These may not be everyday occurrences, but when they happen, they can certainly do some damage. Again, if your vehicle's leased or financed, you'll likely need to have comprehensive coverage. And no matter what, it's a good idea to have protection in case of a tree falls on your hood, a deer crosses your path, or a vandal takes a key to your new paint job.

Personal Injury Protection (PIP) and MedPay — PIP and MedPay are required in many states. These help cover your (and your passengers') medical costs after an accident. If neither is required for you, you still might want to consider these as add-ons — especially if you frequently drive with passengers in your vehicle.

Uninsured/Underinsured Motorist (UM) coverage — UM coverage is designed to protect you from drivers who either don't have insurance or not enough. It can be broken down into two categories: UM bodily injury (UMBI) coverage and UM property damage (UMPD) coverage.

UMBI helps pay for medical expenses and lost wages for you and your passengers. UMPD covers damages to your car. Again, both step in if the at-fault driver doesn't have enough liability insurance to cover the costs. Because there are so many uninsured drivers on the road, many states require you to have at least uninsured motorist coverage.

2. What’s your budget?

Now that you know what's minimally required of you, it's time to gauge the amount of protection that works best for you. When it comes to budgeting for car insurance, you'll need to weigh two things: how much premium you can comfortably afford to pay, and how much you can afford to pay out-of-pocket if you get in an accident. To figure this out, make sure to understand two terms in the insurance world:

Deductibles. The deductible is the amount of money you'll pay out of pocket as part of your comprehensive/collision coverage if you're in an accident. Say you have a $500 deductible and your car has $4,000 in damage. In the event of an accident, you'll pay only $500 while your insurance company covers the remaining $3,500. Generally speaking, the higher your deductible, the lower your monthly premium — but the more you pay after an accident.

Limits. Your auto insurance coverage limits (which you choose as part of your liability coverage) are the maximum amount your insurer pays for the other drivers' expenses if you're found at fault in an accident. For example, if your liability limit for bodily injury is $20,000, and you're in an accident that causes $60,000 in injuries to the other driver, you might be responsible for the remaining $40,000. If your limit for property damage is $40,000 and you're at fault for totaling a $50,000 car, you might be responsible for the remaining $10,000.

Typically, you'll pay less per month for higher deductibles and lower limits, but you could face steep bills should you be in an accident. Decide what works best for your financial situation. You might find that you can add valuable coverage for just a modest increase to your premium.

Also, keep assets like your savings or home in mind. You may want to increase your liability protection in case another driver takes extreme measures (like a lawsuit) to recover costs for damages, medical bills, or emotional distress beyond your coverage.

3. Where do you live?

Living in certain areas may mean more risk. If you live in a region with severe weather, for example, comprehensive insurance is a must. It will help cover your vehicle for damage from hail, falling trees, and flooding. Also, if you often drive in an area with high-valued vehicles, you should consider that, too — it will cost more to repair or replace them after an accident. You may want to up your liability limits to avoid out-of-pocket costs.

4. What’s the value of your vehicle?

You should consider what it would cost to replace or repair your vehicle in case of the unexpected. If you drive a new car with all the bells and whistles like cameras and sensors, it might make sense to have collision and comprehensive. On the other hand, if you own your car outright and the current value is on the lower end, you might consider skipping collision or comprehensive coverage once you factor in the cost of your deductible.

5. What’s your health insurance policy?

Don't assume it'll cover your medical-related expenses in the event of a car accident. Although your health insurance policy could cover you, it won't cover your passengers. That's where medical payments coverage can be useful, especially if you frequently drive other people in your vehicle.

Creating the perfect car insurance policy means weighing several factors and finding a fit that works with your lifestyle and your budget. Also keep in mind that certain add-on coverages may be a worthwhile investment for your particular circumstances.

Many online quoting tools will automatically customize a coverage profile for you based on your ZIP code and the information you provide during your quote. Let Esurance help you find auto insurance coverage that is tailor-made for you.

Get your free quote online

or call 1-800-378-7262