Car accidents are an unfortunate reality of the world we live in, but how can we make sure we are prepared for them? Most states require you to have some type of car insurance before getting behind the wheel of a car.
Minimum coverage limits vary depending on what you state you live in, but even still, some drivers feel the need to purchase more than the legal limit. With so many different car insurance options available, it can be hard to decide what is necessary. It’s important to spend some time figuring out what types of insurance are most beneficial to you before an accident happens and it’s too late.
What Are Car Insurance Coverage Limits?
When you purchase insurance, you are essentially paying to ensure that your insurance company will pay you a specific amount of money to cover the costs if an accident happens. Whatever amount you purchase is considered your coverage limit. This means that the insurance company will not go over this amount.
For example, if the limit on your liability coverage is $25,000, that is the maximum amount of money that your insurance company would put toward the accident.
What Is Considered “Full Coverage”?
Whenever you hear people talk about having “full coverage,” they are usually referring to a combination of insurance types that allow for well-rounded, thorough coverage. However, since the car insurance possibilities are somewhat endless, “full coverage” doesn’t really exist.
In many cases, the term “full coverage” could just mean having the minimum amount of coverage required by the state you live in. Different states have their own minimum coverage limits for certain types of insurance.
Most states require that you have liability coverage for both bodily injury and property damage. However, the following types of insurance coverages are considered optional, but are quite common:
- Comprehensive coverage.
- Collision coverage.
- Rental reimbursement coverage.
- Medical payments coverage/Personal Injury Protection (required in some states).
- Uninsured and Underinsured Motorist Coverage (required in some states).
Even though comprehensive coverage and collision coverage are technically considered optional, you will most likely need to have them on your policy if you lease or finance a car from a dealership. While Personal Injury Protection and uninsured/underinsured motorist coverage is optional in many states, there are a few who require their drivers to have it on their policy.
How Much Car Insurance Do I Need?
Before purchasing car insurance, it’s important to understand that there are two factors that ultimately determine how much you will need:
- The minimum coverage required by your state.
- Your personal situation: the amount of assets you have, where you live, and how much you can afford.
State-Required Minimum Limits
Every state has their own minimum requirements for coverage limits that all drivers must have to drive legally. Usually, the minimum coverage limit requirements are for liability insurance, which is a type of coverage that pays for the injuries and damages done to another driver and their vehicle following an accident.
A common pattern you will see for these coverage limits across most states is 25/50/10.
For example:
- $25,000 for bodily injury liability coverage if only one person is injured in an accident you caused.
- $50,000 for bodily injury liability coverage if multiple people were injured in an accident you caused.
- $10,000 for damage to another driver’s car in an accident you caused.
Keep in mind that coverage limits vary by state, so not all states will have these exact amounts as their minimum requirement, but many of them do. Some states will only require you to have bodily injury liability.
A handful of states are considered to be no-fault states and require you to have personal injury protection coverage (PIP insurance). This means that no matter which party was responsible for the accident, your insurance will cover your injuries and/or damages following an accident.
Other Factors That Will Influence The Amount Of Coverage You Will Need
For a lot of drivers, the state’s minimum coverage limits will not suffice. Some people will prefer to have more protection than what is required of them.
Here are some of the things you will need to consider when purchasing car insurance:
- Assets: If you have a lot of assets or a high net worth, it’s in your best interest to go beyond the minimum requirements for coverage.
- Finances: How much can you afford to spend on insurance every month?
- Location: If you live in an area with a high incidence of theft or higher rates of car accidents, it’s worth it to consider buying more coverage.
- The type of car you drive: If you drive a newer car, you might want to think about getting collision coverage just in case your car gets damaged due to an accident. You can also get comprehensive coverage to protect your car if it is damaged due to other causes such as weather, theft, or vandalism.
- How many other drivers you have in your household: If you are planning on adding multiple people to your policy, you’ll want to take this into consideration when choosing a car insurance plan as well.