How to Calculate How Much Car Insurance You Need
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- Bodily injury liability
- Property damage liability
- Personal injury protection
- Uninsured/ underinsured motorist protection
- Comprehensive and collision
- GAP insurance
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Unless you live in Virginia or New Hampshire, car insurance is a requirement if you own a vehicle.
If you don't live in one of those two states, you know you need car insurance ... but how do you know how much you need? You could get the minimum car insurance required by law, but is that really the smartest financial move? Lower car insurance costs can equate to woefully inadequate coverage down the road.
When calculating how much insurance you need, it's important to account for coverage types, policy limits, and the best rates. Here's what you need to know.
Bodily injury liability
If you are the cause of a car accident, bodily injury liability (BIL) is the liability coverage that covers the medical expenses and related costs for other parties involved. Unless you live in Virginia or New Hampshire, BIL is a requirement under your car insurance policy and will be calculated in your car insurance rates.
You must maintain the state minimum coverage limit at all times, however, when it comes to BIL, it is a good idea to opt for more than the minimum coverage (medical bills are expensive). The average cost of a BIL claim is more than $15,000. If the claim exceeds your coverage, you could be stuck paying a hefty portion of the claim out of pocket.
Property damage liability
Property damage liability insurance is a state requirement almost everywhere. The average claim is around $4,500; however, it is not uncommon for property damage claims to exceed $50,000!
Make sure you purchase an insurance policy that adequately covers you for property liability damage. At least $25,000 in PDL coverage is recommended.
Personal injury protection
Personal injury protection (PIP) covers medical expenses resulting from injuries you sustained in an accident. This coverage can include lost wages, personal assistance with tasks you’re unable to do, and funeral expenses. PIP insurance is only available in 21 states, and it's mandatory in 13 of them. Minimum coverages range from $3,000 to $50,000. A limit of at least $10,000 in PIP coverage is recommended.
Uninsured/ underinsured motorist protection
Underinsured/ uninsured motorist protection provides coverage if your car is damaged by an uninsured or underinsured driver. Residents in 22 states must carry uninsured driver protection, and minimum limits vary depending on the state.
The base limit could still leave you at risk of being sued if the claim exceeds the covered costs. Suggested limits are $100,000 liability coverage per person on your policy.
Comprehensive and collision
You aren’t forced to purchase comprehensive and collision insurance for your vehicle. If you’re financing or leasing a vehicle, however, the lender will want their asset protected and require you to maintain comprehensive and collision insurance while the loan is outstanding.
When you’re calculating how much car insurance you need, ensure that your comprehensive and collision coverage is enough to cover your vehicle’s value and its contents. In the event of a claim or total loss, you want your insurance to completely cover your vehicle.
GAP insurance, or guaranteed auto protection insurance, is a product that will pay negative equity between your insurance payout and your loan’s current value. That means that if your car is worth less than you still owe, you won’t be responsible for the difference.
It’s fantastic practice to buy GAP insurance if you have negative equity. But the moment your car loan is lower than your car’s value, it’s no longer useful to continue your GAP coverage.
If you are trying to determine the right coverage for you, reach out to your insurance company or broker for more information.