How much car insurance coverage is necessary?

By law, you need to be insured up to the minimum amount required in your state before getting behind the wheel of any car. Beyond that, your insurance needs will vary depending on your financial situation and the amount of risk you are willing to take on.

  • Full or comprehensive car insurance is the most expensive, but often the best deal for drivers who own an expensive car, those who commute frequently or anyone who lives in an area with extreme weather or high crime rates.
  • Drivers of less expensive or older cars usually save more by opting for the minimum required policy, along with some extra coverage if they can afford it. Since the cost of repairs might exceed the total value of an older vehicle, some owners forgo collision protection in favor of greater liability coverage or personal injury coverage.

If someone other than you causes an accident while driving your car, most insurance policies will still pay for damage, according to the rules that apply. However, it’s a good idea to check with the insurance provider to be sure this is the case. Regardless, either the at-fault driver or the actual policyholder will be responsible for paying for anything not covered by insurance. People who don’t own a car but frequently borrow or rent one might consider purchasing a non-owner policy to make up the difference.

Car insurance premiums might be tax deductible in certain situations, but only with the documentation to prove it. Insurance costs may be deducted as part of overall business expenses if you use that car for work-related travel. However, this does not generally apply to taxpayers who use the standard deduction when filing their income tax returns. If your car is used for business purposes often, save all insurance-related documentation, as well as receipts, invoices and other forms of proof that your vehicle expenses were for business purposes.

Car insurers set premium prices depending on every driver’s individual risk. A huge number of details are factored into every determination of insurance risk, so the cost of any two policies can vary widely depending on the driver’s personal attributes, accident history, location, vehicle type and much more. The type of coverage you choose also impacts what you pay – premiums for minimal liability coverage will almost always be lower than those of a universal coverage policy.

The cost of car insurance is highly variable, but according to the National Association of Insurance Commissioners, U.S. motorists pay around $900 per year on auto insurance.

In all but one state (New Hampshire), every driver is required to hold at least a liability auto insurance policy with coverage limits that meet a minimum amount. The exact minimum liability requirements vary by state. Drivers who are found to be operating a vehicle without an active eligible insurance policy may be found in violation of a law.

In general insurance terminology, liability refers to financial costs incurred from actions on behalf of the policyholder. If you have only liability car insurance, the policy will only pay others who suffer financial loss due to your actions. A liability policy is often expressed as three numbers, each of them representing the maximum payout to affected parties. For example, a 100/300/50 liability policy will break down as:

  • Up to $100,000 of compensation for bodily injuries, per person.
  • Up to $300,000 of compensation for bodily injuries, per accident.
  • Up to $50,000 of compensation for property damage, per accident.

Unless you have other applicable coverage, the policyholder is responsible for any costs exceeding those amounts. Many other terms may apply, so check your individual policy’s rules and conditions.

Exactly what is covered by an auto insurance policy varies depending on the type of policy. The most common categories of car insurance policies are liability coverage, personal injury or medical payment coverage, uninsured or underinsured motorist coverage and comprehensive coverage.

Car insurance protects against accidental or otherwise unintentional financial loss related to an automobile. Like any other insurance policy, insured customers pay a regular premium that varies depending on their risk, as determined by their insurer. In the event of an accident or injury, the insured person is compensated within certain limits dictated by their policy.