How Much Car Insurance Do I Need?

Nearly every state has laws that dictate the type and amount of car insurance a driver must carry. But your state’s minimum insurance requirements shouldn’t be the only criteria for determining how much coverage you need. If you’re in an accident or if your car is damaged by theft, vandalism, or a natural disaster, the cost to replace or repair it can be a significant financial setback. An adequate insurance policy can cover accident-related costs while protecting your family and assets.  

Identifying minimum auto insurance requirements, evaluating your personal and financial needs, and shopping around for car insurance can help you find the coverage you need or determine if you’re paying too much for your policy. 

Looking for the lowest auto insurance rates? Read our Cheapest Car Insurance Companies of 2022 to find the best coverage for your needs. 

Why Do I Need Car Insurance?

Buying auto insurance coverage isn’t just a sound financial decision, it’s also mandatory for most drivers to carry a minimum amount of protection. Here are three reasons why you should buy car insurance:

• State law: Every state except New Hampshire requires motorists to carry minimum liability insurance, although Virginia drivers can opt out by paying an uninsured-motorist fee. Most states require liability insurance for bodily injury and property damage. Some states also require drivers to purchase additional types of coverage, like personal injury protection (PIP) or uninsured/underinsured motorist (UM/UIM) coverage. Failure to purchase the appropriate coverage can result in fees and fines, the suspension of your registration or driver’s license, or jail time. 
• Financial protection: If you’re in a car accident, you may be on the hook for medical bills, vehicle and property repairs, and any legal fees associated with the accident. Adequate insurance coverage ensures most of those bills will go to your insurance company, instead of to you.
• Lender requirements: If you financed or leased your vehicle, the lender will likely require more coverage than your state’s minimums. That’s because the lender legally owns the car and needs to ensure it’s financially protected in case of a crash or other damage.

For a more detailed explanation about how car insurance works and why you may need it, check our How Car Insurance Works guide.

What Happens if I Don’t Have Car Insurance?

Driving without car insurance is a disaster waiting to happen. The penalties you’ll face depend on the laws of your state, but fines and court fees are almost a certainty. Most states will also suspend your vehicle’s registration, effective immediately, which means that if you’re caught driving, your vehicle will be towed and impounded. Some states may also suspend your driver’s license. You won’t be able to reclaim your vehicle or reinstate your license until you have proof of insurance, and after you’ve been caught driving with a lapsed policy or with no insurance at all, most insurance companies will charge you a lot more, since you’re an established risk.

The Cheapest Car Insurance Companies in 2022

Average Annual Rates:

• USAA: $1,000
• Geico: $1,148
• State Farm: $1,267
• Nationwide: $1,327
• Travelers: $1,371
• American Family: $1,371
• Progressive: $1,533
• Farmers: $1,917
• Allstate: $2,047

See our Cheapest Car Insurance Companies of 2022 for more information on which insurers are the cheapest option for you.

What’s the Minimum Car Insurance I Need?

Take the following steps to figure out the least amount of car insurance coverage you need:

1. Find your state minimum requirements. If you own your car outright and don’t have a high net worth, this might be enough.
2. If you have a lease or loan, check your lender’s requirements.
3. Determine the value of your assets (including the car as well as savings, home, and business).

Why do your assets matter? If you’re involved in an incident in which damages exceed your insurance coverage, a court may order you to make up the difference, even if you have to drain your savings or sell your belongings. The cost of additional insurance is minimal compared to the financial impact of an expensive collision or disaster.

Types of Car Insurance Coverage

A car insurance policy will include a combination of different types of coverage. The five basic types are liability coverage, collision coverage, comprehensive coverage, uninsured/underinsured motorist, and medical payments coverage. We’ll also take a look at coverage types that are optional, but may be useful for your situation.

Liability insurance: If you are at fault in a car accident, liability insurance compensates the other parties involved for their bodily injury and property damage, which is why it is required in almost every state. This can include the driver and passengers of the other vehicle or vehicles involved, injured pedestrians, and the owner of the property where the accident occurred. However, your liability coverage does not compensate you or your passengers. For more detail, we created a complete guide to liability insurance.

Collision insurance: Not required by law, but usually required by a lienholder on a leased or financed vehicle. This kind of insurance pays for the damage caused to your vehicle in an accident. For more detail, we created a complete guide to collision insurance.

Comprehensive insurance: Not required by law, but usually required by a lienholder on a leased or financed vehicle. This insurance covers damage to your vehicle caused by events other than a collision, such as vandalism, theft, flood, hail, and fire damage. Read our complete guide on comprehensive insurance for more detail. 

Uninsured and underinsured motorist coverage: Required in many states. This coverage pays for your and your passengers’ medical bills and property damage if the driver at fault in an accident doesn’t have insurance, has insufficient coverage, or the incident is a hit-and-run. Read our complete guide on uninsured motorist insurance for more detail.

Medical expenses: Optional in most states, this covers your medical bills, no matter who is at fault in a crash. However, it does not cover lost wages. If you already have health insurance, you may find it worthwhile to skip this coverage, as the two policies may overlap.

Personal injury protection (PIP): Often referred to as no-fault insurance, personal injury protection is required in states with a “no-fault” insurance system and optional elsewhere. This coverage reimburses for medical bills and lost wages if you or your passengers are injured in a crash, regardless of who is at fault. Our guide to PIP coverage can give you more information about this type of insurance.

Gap insurance: Typically required for a car that is leased or financed. “Gap” stands for “guaranteed asset protection,” and if your financed car is totaled in a crash, this insurance covers the gap between the car’s value and the balance on your loan. This coverage is especially valuable when the car is new, since it will typically depreciate much faster than you’ll pay down the loan balance. For more information, read our gap insurance guide.

Rideshare insurance: Supplemental coverage for drivers of ride-hailing services like Uber and Lyft. A rideshare policy is typically inexpensive, though it provides valuable coverage for situations that are not covered by a driver’s personal car insurance policy or the rideshare company’s insurance policy. If you are a rideshare driver, discuss your options with your insurer.

Forgiveness coverage: Protects you from rising car insurance rates if you’re at fault in an accident, basically “forgiving” the incident and wiping your record clean (in the eyes of the insurance company). Generally, you’re only able to use this coverage once.

Glass coverage: Replace cracked or broken glass at no additional cost. May be included in a comprehensive coverage policy, or may be separate, depending on state.

Custom equipment coverage: Reimburses for the expense of custom or aftermarket parts that are damaged in a collision. Examples include an upgraded stereo, custom paint job, or off-road equipment.

Pay-Per-Mile: A policy that calculates insurance costs based on miles driven per year. It generally includes collision and comprehensive coverage, and can include additional coverage as well. Mileage is reported to the insurance company via a device that plugs into your car and tracks your driving. For more information, read our pay-per-mile insurance guide.

Roadside assistance: Provides towing coverage, regardless of the breakdown’s cause. 

Umbrella insurance: This supplemental policy provides additional liability coverage after you’ve exhausted other liability coverage limits, particularly if you’re involved in a lawsuit as a result of a collision.

Rental reimbursement coverage: This pays for a rental car or other form of transportation when your car is inoperable because of an accident. 

Original equipment coverage: If your car needs repairs as the result of a collision, original equipment coverage guarantees that it will be repaired with parts from the vehicle’s manufacturer, instead of cheaper aftermarket parts.