Car Insurance: How Much Coverage Do You Really Need?

By Kaitlin Hurtado on February 22, 2019

Adulthood and unexpected financial costs seem to go hand in hand, unfortunately. Many of us grow up not giving a second thought to costs our parents cover for us – health insurance, groceries, utilities, and so on. It’s easy to overlook these costs when we do not have to pay them, but when it comes time to get our own insurance policies, whether it be for tuition, health, or cars, we fret and question the true necessity of these added costs. We think to ourselves – maybe if we play it safe, we will not have to pay for insurance coverage. However, it is not as easy as it sounds. Things happen, mistakes happen, and accidents happen.

As hard as you try to stay out of trouble medically or with your car, you might just end up really needing that insurance policy. You often hear it is better to be safe than sorry when it comes to insurance policies, but it is true – invest in your wellbeing and assets by paying for car insurance. So you decide to get your own car insurance policy, what are you to do now? Fret no more, here is a quick-start guide on car insurance to help you figure out what type of car insurance coverage you really need so that you are not underpaying or overpaying for what you need or do not need.

infographic about car insurance

Infographic by Kaitlin Hurtado, via Canva

What exactly is car insurance and why do you need it? 

Car insurance is what is going to cover you in the case of a car accident, which will provide financial coverage for potential legal fees, medical expenses, repair costs, and other costs that can stem from a car accident or issue.

Just like health insurance or tuition insurance, you are going to get covered when you need it. But also like health insurance and tuition insurance, the amount of coverage and the amount of money you will need to pay will vary depending on the time of insurance policy you decide to take out based on a variety of factors.

You may believe that you are the safest driver out there and can’t possibly get into the accident – but accidents do happen, whether you end up being at fault or not. Instances where car insurance comes in clutch are not always just the typical car accidents that will first come to mind, car insurance will also help you out immensely with the following situations:

  • Coming back to your parked car, only to find a dent that was not there before and no one to blame in sight.
  • A surprise flat tire on your drive home.
  • A collision with a non-vehicle item, like a gate.

Car insurance may seem unnecessary when you look at the possible high cost you will have to pay, but in instances such as these, that comes unexpectedly, you will be thankful that you have a car insurance policy to cover you in times of need.

Consider different types of car insurance 

There are different types of car insurance, so it is important to consider your different options in order to figure out which one would work best for you. Here are five options to consider.
  1. Liability insurance: This car insurance is designed to protect you with coverage in the case that you are the one at fault in a car accident. It will cover the costs that stem from the accident, ranging from medical costs to property damage. Depending on your driving capabilities, you may want to consider purchasing liability insurance with an amount higher than the minimum coverage.
  2. Collision insurance: This type of car insurance is self-explanatory in the sense that it will provide coverage in the case of a collision. It will cover the repairs needed for your car. If your car is new or has a higher value, you may want to invest in collision coverage. Your car’s value is higher, and you want to protect that in the case of an accident as you are more likely to repair the car and pay higher costs without insurance.
  3. Personal injury protection: This type of car insurance will cover medical bills that stem from the car accident, regardless of who is at fault in the car accident. With the costs of medical bills being so high, this type of car insurance can help immensely with the financial burden that comes with medical emergencies related to car accidents.
  4. Uninsured/underinsured motorist protection: While state laws say that all drivers must be insured if they are going to operate a vehicle, there are still drivers that remain uninsured. Or, you may find that some drivers have some type of car insurance, but not enough to cover all the costs of a car accident. This type of car insurance will protect you when you find that the other party of the car accident is at fault, but cannot cover all the costs due to being uninsured or underinsured.
  5. Comprehensive coverage: This type of car insurance will cover costs that are not related to a car accident. These situations can include environmental damage like a storm, a falling tree hitting your car, etc. This type of car insurance is less sought-after, as these type of situations are less likely and just seem like plain bad luck.

Of course, there are more options when it comes to car insurance out there, but these are the most common and the ones that cover basic needs when it comes to car insurance and the type of coverage you will need.

What factors do you need to consider when choosing car insurance? 

Just like any important decision, you will have to consider a variety of factors when choosing what type(s) of car insurance coverage you will actually need. Consider the value of your car and how you need your car in your life. For example, if you are driving an older car with some preexisting issues, you might want to consider just getting liability coverage because it will cost you less to replace your car than to repair it.

However, if you cannot bear to part with your car because it is an absolute necessity in your daily life or if you just love your newer model, you will need to consider getting more coverage to make sure that your car and life is up and running as soon as possible after a car accident.

Price is also a large factor in your final decision – as you might think you need an array of types of car insurance, but realistically, it won’t work with your budget.

person driving car

Image via unsplash.com

How “much” car insurance coverage do you need for each type, if you need it at all? 

There are different types of car insurance, and those different types also vary in the amount of coverage they can give in the case of an accident. It’s important to consider possible scenarios in which you might need different types of car insurance, and then how much financial backing you may need in each scenario to see how much car insurance you will actually need.

Liability for Bodily Injury, for example, has a minimum coverage that varies by state. The minimum can be low as $10,000 per person involved in the accident, or $20,000 per accident. Likewise, liability for property damage also varies, and the minimum is something that is really not enough coverage in the case of an accident. If a car is worth around $40,000 and you are responsible for hitting it and getting it totaled, you will need sufficient enough liability coverage to cover the costs incurred.

Collision coverage will cover the cost of damage to your own car in an accident so the amount you need to buy will be based on the vehicle you are insuring. You will need to decide if you are going to buy and the amount you are going to be paying for the deductible (typically from $25o to $1,000). Collision coverage will be a worthy investment if your car is newer or higher in value. When looking at collision coverage and if you need it, consider the value of the car in comparison to the deductible. If the deductible is almost as much as the monetary value of the car, it isn’t worth it to buy collision coverage.

Comprehensive coverage is typically sold with collision coverage as they cover what is known as physical damage coverage. Choosing the highest deductible you can afford is recommended, as it means you have a significantly lower premium.  It’s not nice to think of a higher rate when you do need your insurance, but if you are less likely to file a claim, there is no harm when you have to pay a lower premium. While you may not think this type of coverage is necessary as miscellaneous damages like theft or storm damage are unlikely in your eyes, it is still important to be properly covered. Also, depending on if your car is leased, your leasing company may require comprehensive damage for the leased car.

Medical expenses coverage will cover the medical care and is focused on the limit you choose. The limit you choose will be the maximum amount of money that will be paid for medical claims for each person involved in the car accident. So if you chose $3,000, each person can get up to $3,000 in medical expenses coverage. It is also important to consider other insurance types you already have when considering medical coverage, like health insurance.

Uninsured/underinsured motorist coverage varies on the state because, in some states, the coverage is limited to bodily injured costs, while other states will have it cover property damage. When it comes to choosing how much or if you need this type of coverage at all, you should consider how likely you are to pay the difference between your costs and the other party’s coverage.  Personal injury protection may be required by law in some states but may be a worthy investment as it provides coverage for your medical costs and your passengers regardless of who is responsible in the accident. Personal injury protection may also be the type of car insurance you might be safe getting the minimum amount of coverage if you have health insurance or disability insurance.
person driving car

Image via unsplash.com

Pricing is a large factor, so what price is “worth it”?

When it comes to getting car insurance, you have two major options on how to guide your decision. You can go directly to an insurance company, but be more wary of being treated like a source of money rather than someone who needs the right insurance just for their specific needs. Or, you can go to an independent insurance agent.

Unlike a larger insurance company, independent insurance agents are employed to help you out as a single customer and search for different policies from different companies to find a policy that suits your needs rather than throwing a random or generalized car insurance that doesn’t exactly fit you.

Each car insurance pricing will vary depending on the pricing of the deductible and premium, coverage limits, and the type of coverage you choose. The premium is a fee that you will be paying each year in order to keep your car insurance policy and the deductible is a fee that you will pay yourself before your car insurance policy kicks and provides coverage to pay the rests of the costs acquired when needed. The lower your premium costs, the higher your deductible will costs, and vice versa.

You may think that minimum coverage is the best option because the minimum would be cheaper, but some states may require a policy that involves higher than minimum coverage. Think about a potential situation where you are in a serious car accident, and your minimum coverage is nowhere near close to covering all the costs of the car accident. If you have other assets that can be seized to pay for the costs, it will be worth it to pay more than the minimum coverage for your car insurance.

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