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Published: May 23, 2023 14 min read

If you own a vehicle and want to take it on the road, you'll need to purchase car insurance first. The types of coverage vary greatly and depend on your needs. For some, cheap car insurance will be sufficient, while others may want to invest a bit more for full-coverage insurance. In this article, we’ll explain the different kinds of coverage available and how to choose the right auto insurance policy for your needs. By taking the time to consider these factors carefully, you can ensure that you have the right level of protection for your car and yourself.

What to consider when determining how much car insurance you need

There are several factors to consider when determining how much car insurance you need. These can include your car’s age, make and model, how you’ll use your car, and how much you stand to lose if you’re in an accident.

State minimum requirements

Every state except New Hampshire and Virginia mandates that you must have auto insurance on any car on the road. The type and amount of coverage may vary, but you’ll have to purchase the minimum to operate your car legally. Liability insurance, which covers damaged property or injuries you cause during an accident, is most often required. Some states also require coverage for personal injury protection, which covers medical expenses for you and your passengers in the event of an accident.

Bear in mind that state minimum requirements may not be adequate to fully protect you, your car, your passengers and other drivers and their property in the event of an accident.

Your ownership status

Another factor to consider when determining how much car insurance you need is your ownership status. If you own your car outright, you may have more flexibility in the amount of coverage you choose. On the other hand, if you are financing or leasing your car, the lender or leasing company may require you to have a certain level of coverage to protect its own financial interest in your vehicle. Check with your lender or leasing company to understand their requirements and ensure you have the appropriate level of coverage.

When You Own Your Car Outright

If you own your car outright, you have more flexibility in the amount and type of coverage you choose. When you own your car outright, it’s not your auto finance or leasing company that sets the rules for coverage. It’s up to you to decide how much insurance and what type of coverage you need over the legal minimum. When selecting coverage types and limits, consider the value of your car.

You may choose to carry collision insurance, for example, if your car is in good shape and if you don’t have enough savings to cover a costly repair bill. If you live in an area with a high rate of car theft, you may want to consider purchasing comprehensive coverage to protect against theft and other non-collision damages.

You should also consider how much you have to lose if you are found to be at fault in an accident. Consider a worst-case scenario. Juries routinely award verdicts in the millions of dollars in cases of accidental vehicular deaths. If you don’t carry adequate coverage to cover these awards, your other assets, such as your home and savings, may be at risk.

When You Lease Your Car

If you are leasing your car, your leasing company will require you to have a certain level of coverage. While you must purchase coverage to meet the state requirements, most leasing companies have their own requirements that will depend on the make and model of certain vehicles. You will often need to purchase a full-coverage policy covering any damage to the leased vehicle. Check with your leasing company to understand their requirements.

When Your Car is Financed

If you are financing your car, meaning you took out a loan to pay for the vehicle, you will likely need a certain amount of coverage to satisfy your lender's requirements. The types of coverage you need to purchase will vary but often include some amount of liability, comprehensive and collision coverages that make up full coverage car insurance. You may also need to purchase other coverages, such as gap insurance and uninsured or underinsured motorist coverage.

Other personal circumstances that may affect your insurance needs include your age, driving experience and vehicle type. If you need car insurance for a new driver or have less driving experience, you may be considered a higher risk by car insurance companies and may need to take out higher levels of coverage. Similarly, if you drive a newer or more expensive vehicle, you may need to take out higher levels of coverage to ensure that it is properly protected.

How you'll use your car

Determining how you'll use your car is essential when selecting a car insurance policy. How you use your car can impact the type and amount of coverage you need and the premiums you'll pay for your policy. You may not need as much coverage if you only use your car for recreational purposes, such as driving on the weekends or taking road trips. In this case, you may save money on your premiums by opting for a policy with lower coverage limits or by excluding certain types of coverage. However, you may want higher coverage if you use your vehicle for a school carpool arrangement or frequently drive children around.

Using your vehicle for less common situations may require different coverage options. If you work for a ridesharing app like Uber or Lyft, your personal auto insurance will likely not cover your passengers. You can purchase rideshare insurance as an add-on to your existing coverage or as a separate policy.

While it may be tempting to skimp on coverage to save money, you should consider the potential risks you may face while driving. Even if you use your car infrequently, you could still be involved in an accident or experience damage to your vehicle. Selecting a policy that meets your needs and provides the appropriate level of protection can ensure that you’re properly covered in an unexpected incident.

Who will use your car

When selecting a car insurance policy, you should also consider who will be using your car. This can impact the type and amount of coverage you need and the premiums you'll pay for your policy.

If you are the parent of a teenager, you will need to consider their driving inexperience when purchasing coverage. Depending on your provider, you may need to add them when they get their permit or their full license. You should expect an increase of 50% to 100% on your premiums.

Types of coverage offered in car insurance policies

Before you purchase car insurance, you must know all the coverage options available and understand their protections. The types of coverage that you choose will determine how much your car insurance will cost. Common coverage options include liability, comprehensive, collision, medical payments, uninsured and underinsured motorist coverage, as well as personal injury protection, gap insurance and other coverages.

Liability coverage

Liability coverage pays for damages or injuries you may cause to another person or their property while driving your car. Liability coverage is typically required by law and is arguably the most important. It is included in most car insurance policies.

Comprehensive coverage

Comprehensive coverage provides financial protection for damages to your vehicle from non-collision events. This type of coverage protects your vehicle from various unexpected events, such as theft, vandalism, natural disasters and more. If you lease or finance a car, you will need comprehensive coverage.

Comprehensive coverage offers protection for events such as:

  • Car theft
  • Vandalism
  • Glass damage
  • Fire damage
  • Water damage
  • Weather damage
  • Falling objects
  • Civil disturbances
  • Hitting an animal

If you own an expensive car, you will want to purchase higher coverage limits to protect your vehicle. Higher coverage limits will offer more protection if you need to repair your vehicle.

No matter what kind of car you drive, if you opt for a higher comprehensive insurance deductible, you can lower your premium costs and save some money on your monthly payments.

Collision coverage

Collision coverage is another common type of coverage offered in car insurance policies. This coverage pays for repairs to your own vehicle in the event of an accident, including damage from hitting another vehicle, hitting an object, like a tree, and road hazards.

Uninsured/underinsured motorist coverage

Uninsured/underinsured motorist coverage protects you in the event of an accident caused by a driver who does not have sufficient insurance coverage. Since you aren't in control of the amount of insurance other drivers purchase, and since uninsured/underinsured coverage is relatively inexpensive, it may be in your best interest to purchase it. Getting into an accident with a driver that has only purchased the bare minimum amount required in your state will cost you even if it isn't your fault.

Medical payments coverage

Medical payments coverage is a type of insurance that can provide financial protection against medical expenses that you or your passengers may incur in the event of an accident, such as diagnostic procedures and hospital stays. This type of coverage can be especially useful if you do not have health insurance or if your health insurance has a high deductible. In these cases, medical payment coverage can help cover the cost of medical bills, such as surgeries and other medical treatments.

In addition, medical payments coverage may also pay for other related costs, such as transportation to and from medical appointments or the cost of hiring in-home nursing care. This coverage can provide peace of mind and financial security in an accident. It can help ensure that you and your passengers receive the medical attention you need without worrying about the cost.

Personal injury protection

Personal injury protection (PIP) is another type of coverage that pays for medical expenses, lost wages and other related expenses for you and your passengers in the event of an accident. PIP is required in states that have no-fault insurance laws.

Gap insurance and additional coverage

Gap insurance is a type of coverage that can be especially useful for those who are financing or leasing their car. This coverage helps to pay the difference between the value of your car and the amount you still owe on it in the event of an accident. Without gap insurance, you may be left with a large financial burden if your car is totaled and you still owe money.

By understanding the different types of coverage offered in car insurance policies, you can make an informed decision about the right policy. Whether you need full coverage car insurance, collision coverage or comprehensive coverage, it's always important to choose a policy that meets your needs and provides the appropriate level of protection.

Do you have enough coverage?

When trying to obtain an affordable full-coverage car insurance quote, you must consider your personal circumstances and potential risks. For example, if you live in a cold climate and frequently drive on poorly plowed roads or live in a high-risk area for theft and vandalism, you may want to consider higher levels of coverage to protect yourself and your vehicle. No matter where you live, statistically, most accidents happen within ten miles of your home. The whole nature of an accident is that it's unpredictable. Insurance is designed to help protect you from the unpredictable.

Whether you’re buying a car or just reviewing your existing coverage, the goal is to carry sufficient insurance to shield your assets in the event of an accident. As your financial circumstances change, reviewing your coverage periodically and making appropriate changes is important. A good insurance agent will take the time to discuss whether changes in your coverage are warranted, so consider seeking professional advice.

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