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How Much Auto Insurance Do I Need? A Guide to Insurance Requirements

Jim TrummSep 25, 2017

There are two ways of answering the question of how much insurance to purchase. The first is to look at the question of what coverage minimums are required by the state you live in. And the second is to consider what coverages you need to keep you and your family protected from financial, legal, medical calamity.

What States Require Car Insurance?

Except for New Hampshire, Virginia, and Mississippi, all US states require their citizens to insure their vehicles. Even in those three states, there are laws that mandate that drivers take some form of personal financial responsibility for their cars and trucks. 

Fifteen states require personal injury protection coverage, a no-fault benefit that pays medical bills and lost wages when you and your passengers are injured in a car accident. Another 22 states require un- and underinsured motorist coverage.

How Much Car Insurance Do I Have to Have?

The minimum coverages required in each state vary widely and change from time to time. For example, in Florida, people are not required to carry liability coverage at all and are required to purchase only $10,000 in personal injury protection and $10,000 in property damage coverage. 

In Arkansas, California, Delaware, Louisiana, Nevada, New Jersey, and Pennsylvania, people are required to carry only $15,000 per person in liability insurance – hardly enough to fully compensate people who’ve been injured in even a moderately serious car accident. At the other end of the spectrum, Alaska and Maine require drivers to have liability coverage to the tune of $50,000 per person.

But for many people, coverage at the Alaska/Maine liability minimum of $50,000 will not be sufficient. Remember, this coverage insures you against injuries caused to other people in accident for which you are at fault. 

Damages in cases like that include the injured party’s past and future medical bills, present and future loss of earning capacity, pain, suffering, mental anguish, scarring, and disfigurement. When you consider that the bill for even a three-day hospital stay may well exceed $50,000, it becomes clear how inadequate these limits are.

How Much Car Insurance Should I Get?

For middle-class families, many insurance experts recommend purchasing at a 100/300 policy – that is, liability coverage of $100,000 per person, $300,000 per accident. But the wealthier you are, and the more assets you have that could be seized to satisfy a personal injury judgment against you, the more insurance you ought to have.

One often-overlooked type of auto insurance coverage pays the policyholder and people riding in his or her car for injuries caused by an uninsured or underinsured driver. This would be useful if you are hit by an at-fault driver from Arkansas who carries only the $15,000 minimum in liability coverage. 

Suppose as a result of the accident you break an arm, are hospitalized overnight, have to return for outpatient checkups and physical therapy, and lose two weeks of work. Your doctor then advises you that as a result of the fracture, it’s likely that you will develop osteoarthritic changes in your elbow that will plague you for the rest of your life.

In that situation, you can see how the other driver’s $15,000 in liability coverage won’t cover anywhere near all of your damages. That’s where underinsured motorist coverage kicks in and pays you what the other driver’s insurer would have paid if he’d had more insurance. In effect, underinsured motorist coverage insures you against being hit by someone who doesn’t have enough insurance. 

Similarly, uninsured motorist coverage pays when you’re injured by an at-fault driver with no insurance at all. Uninsured and underinsured motorist coverage is inexpensive, but it can prevent a moderately serious car accident from becoming a financial disaster for you and your family. Most insurance experts advise purchasing as much of it as you can.

As you consider other coverage options, such as medical payments coverage, it’s a good idea to take stock of your health insurance situation. If you have a “Cadillac” insurance plan that has a low deductible, low co-pays, and no coverage caps, then buying medical payments coverage with your auto policy may be a waste of money. 

However, if you have a high deductible, high co-pay healthcare policy, getting medical payments coverage on your auto insurance may make more sense. That coverage would pay, for example, the first $5,000 of your medical bills after an accident, regardless of who was at fault. If your health insurance plan has a $5,000 deductible, you may be able to use your medical payments benefits to meet it.

It should be clear by now that when it comes to auto insurance, there is no one-size-fits-all answer to the question of how much coverage you need. You might want to consult our list of the top ten car insurance companies and speak with some of them about your particular needs.