When it comes to car insurance, simply buying a policy doesn’t mean that you have the right coverage to fit your needs. Do you own a home? Are you financing a vehicle? Do you drive with lots of passengers? What part of the country do you live in? All of these things come into play when determining the amount and type of coverage you need on your car insurance policy. It can be messy, so we’re here to provide some clarity.
How much liability coverage do you need?
It’s important to understand how liability coverage protects you in the event of an accident. Liability covers you financially by paying for injury and damage that you cause to another driver or their passengers if you are at fault in a crash, rather than paying for those things out of your own pocket. No one plans on being in a crash, but even a minor incident can cause thousands of dollars in repairs and medical bills.
The amount of liability necessary on your policy should be determined based on your risk of financial exposure since someone who owns a home, or other high-value asset, has a much greater risk of exposure than someone who rents their residence and doesn’t own much of value. If you don’t carry enough liability coverage to pay for all the damage you caused in a crash, you could be faced with civil litigation and potentially lose those large assets.
Normally, the recommended amount of liability coverage for a person who owns a home is 100/300/100, and for renters, 50/100/50. (These numbers reflect the dollar amounts in thousands for per-person limit for bodily injury, per-accident limit for bodily injury, and per accident limit for property damage, respectively. For example, 100/300/100 coverage means a $100,000 limit per person injured, a $300,000 limit on total injury expenses per incident, and a $100,000 limit on property damage covered.) Keep in mind that these are general suggestions and coverage should be selected based on your specific needs and exposure, so talking to an insurance agent will help.
How much uninsured motorist coverage do you need?
First off, you should always carry uninsured motorist (UM) coverage whether it is required by your state or not. Auto insurance, of one kind or another, is required in all 50 states and currently 21 states also require drivers to carry uninsured motorist coverage. That being said, roughly 13% of drivers (~30,000,000) on the road are uninsured. That’s a big number and exactly the reason you need UM coverage.
Where liability protects your financial exposure for injuries and damage you cause to other drivers, UM covers your and your passengers injuries if you are hit by an at-fault driver who doesn’t have car insurance. Most companies allow you to select UM coverage up to the limit of liability you choose but won’t allow you to exceed that limit, so be aware that your liability selection will put a cap on your UM selection.
Do you need to carry additional medical payments coverage?
Not to be confused with UM coverage, which protects you and your passengers from people driving without insurance, medical payments coverage will pay for your and your passengers’ injuries –regardless of fault– up the limit of coverage you select on your policy. Additionally, medical coverage amounts will be listed as a single, per-person limit without a per-accident limit, so it can cover all of your passengers up to the amount you select. The most common medical coverage limits are: $500, $1,000, $2,000, $5,000, and $10,000. Carrying this coverage is completely optional but it can help to fill the holes in your auto policy.
Do you need full coverage?
Even though there is really no such thing as “full coverage” when it comes to car insurance, it is a term commonly used to describe comprehensive plus collision coverage. Collision coverage pays to repair damage to your vehicle from a car crash, and comprehensive coverage pays for damage to your vehicle that resulted from anything other than a crash (think: hail, theft, and vandalism). These are two separate coverages on your auto policy, but both are generally required if you are financing your vehicle.
Since the value of your vehicle is constantly depreciating, most auto insurance companies will determine the value of your car on an actual cash value basis (or ACV) at the time of a claim. This means that you don’t select a dollar amount of coverage for your vehicle, rather you would select a deductible.
Deductibles of $250, $500, and $1,000 are the most common options and will be the amount you agree to pay your insurance company for repairs to your vehicle. Your deductible selection also determines how much you’ll pay for both comprehensive and collision coverage. The higher the deductible, the lower the rate, and vice versa.
When shopping for a new policy, price alone shouldn’t be your only focus. Being aware of your coverage options and how they work before you start your policy can help you avoid a serious financial headache down the road.
Neil Richardson is a licensed insurance agent and advisor for The Zebra, the nation’s largest car insurance comparison marketplace. An insurance nerd through and through, Neil has helped tens of thousands of customers understand and secure auto insurance with his expertise and unique knack for translating complex industry jargon into plain English.