How Much Car Insurance Do You Really Need?

When you’re shopping around for car insurance—and you should always shop around—you have to decide what kinds of coverage you need as well as how much of each type of coverage. If you get more coverage than you need, you could end up paying unnecessarily high premiums, but if you don’t get enough of the right kinds of coverage, that mistake could have a big negative impact on your financial security down the road.

Protect Your Assets with Liability Coverage

The first kind of car insurance coverage, which is a must-have for all drivers, is liability insurance. In fact, most states require drivers to have a minimum amount of liability coverage, including both bodily injury liability and property damage liability.

The purpose of liability insurance is to cover the injuries and property damages that happen to other people if you cause an accident. The problem is that the minimum amount of coverage required by most states is far less than the actual potential damage and medical costs that could occur as the result of a major accident.

If you’re sued as the result of an accident and the amount awarded is more than your liability insurance covers, then you could lose your home, savings, and other assets. Therefore, experts including the Wall Street Journal’s personal finance guide recommend that you get liability coverage in an amount that’s at least equal to your total personal assets.

For most people, Consumer Reports recommends the standard 100/300/100 liability coverage. That’s $100,000 in bodily injury coverage per person, $300,000 in bodily injury per accident, and $100,000 in property damage per accident. If you have more than $500,000 in personal assets, you may want to increase those amounts.

Protect Your Vehicle with Collision and Comprehensive Coverage

The major kind of coverage is collision and comprehensive. This is the coverage that pays for repairing or replacing your own car. Collision covers—you guessed it—collisions, while comprehensive covers your car being stolen or damaged in some other way. For instance, if you run into a tree, that’s covered by collision. But if a tree falls on your car, that’s covered by comprehensive.

Generally speaking, it’s cost-effective for most drivers to carry both collision and comprehensive coverage. However, if you drive an older car that isn’t in great condition, it may not be. recommends that you compare the value of your car to the combined total of your annual premium and deductible for collision and comprehensive insurance. If the value of your car is equal to or less than that cost, then you might want to consider cancelling that coverage.

Consumer Reports goes a step further and recommends that if the annual collision or comprehensive premium is more than 10% of the current value of your car, you should consider cancelling that coverage. Otherwise, over time you could end up paying more in premiums than your car is worth. Of course, if you choose to cancel this coverage, you need to make sure you have enough in savings to repair or replace your car in case it does get damaged.

Choosing your deductible is also an important part of determining how much comprehensive and collision coverage you need. If you’re able to keep enough in savings to cover a $500 or $1000 deductible when needed, then you could save a good bit on premiums by bumping up from the standard $250 deductible.

Protect Yourself from Uninsured and Underinsured Drivers

Another common type of car insurance coverage is uninsured/underinsured motorist coverage. In spite of the laws requiring minimum insurance coverage, about 1 out of every 8 drivers on the road today don’t have insurance at all, according to the Insurance Research Council.

If you’re in a wreck caused by an uninsured driver, uninsured motorist insurance covers things like damage to your car and injuries to your passengers as well as your own pain and suffering damages.

Underinsured motorist coverage provides similar protection in accidents where the other driver has insurance but not enough to cover the damages done. Often, this happens when the other driver has only minimum liability insurance required by law.

The experts at Consumer Reports and the Wall Street Journal strongly recommend uninsured/underinsured motorist coverage, in part because it’s usually not very expensive but provides a major benefit. As for amount, they recommend that you get coverage that matches what you have for liability. So if you’re carrying the standard 100/300/100 liability, that’s what you should get for uninsured/underinsured motorist coverage too.


While these three kinds of car insurance coverage are the ones that most people need, there are other types of coverage available, which you should consider based on your own situation. If you have good health insurance, disability insurance, and access to another vehicle (or the ability to pay for a rental car yourself), many of those other types of coverage may be redundant. If you’re unsure about what additional coverage you need, an independent insurance agent can help you evaluate the choices and find the right plan for you.