Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 13, 2021

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Car Insurance Q&A: “How much car insurance do I need?”

Most of us know car insurance is mandatory, but very few know how much they need?

You don’t want to be “under-covered,” but at the same time, you don’t want to be oversold and wind up paying far too much for coverage you don’t need.

As a rule of thumb, I recommend purchasing as much car insurance as you can afford. Period. You never know when you’re going to cause an accident with catastrophic losses.

But to properly evaluate your car insurance needs, you must look at your unique financial situation. There are some basic guidelines you should follow, which an insurance company or independent insurance agent can help you with.

First things first, you must carry at least your state minimum car insurance coverage to legally operate a motor vehicle – so this is the bare minimum starting point.

How much auto insurance coverage do you need with few assets?

If you don’t have a lot of assets to protect in the event you severely injure, kill, or damage another’s property, you may get away with just the state minimum coverage requirement of liability insurance. This consists of bodily injury liability coverage and property damage liability coverage. Property damage coverage pays for repair bills for other vehicles or anything else you damaged during an accident.

If your vehicle is older and/or in poor shape and you don’t have an outstanding loan on it, you may not need to purchase physical damage coverage, also known as collision insurance and comprehensive insurance. Liability car insurance only covers the other party’s injuries and repairs. You will need collision coverage for your own vehicle repairs to be covered after an accident, and comprehensive coverage for things like weather, natural disaster, and auto theft.

If you are sued and have nothing to lose, this coverage may work for you. But I still recommend liability limits of at least 50/100/25 in this instance. This means $50,000 for injury per person, $25,000 for property damage per accident, and $100,000 total for injuries in one auto accident.

Also, keep in mind that some states include medical payments coverage or personal injury protection or uninsured/underinsured motorist coverage in the minimum insurance requirement.

If you have health insurance, and it’s not part of the legal requirement, you may not need personal injury protection or medical payments coverage.

According to the National Association of Insurance Commissioners, the average cost of a monthly premium for liability insurance coverage is around $54.

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How much auto insurance coverage do you need with some assets (including a home)?

If you own a home, you should carry at least 100/300/100 liability limits. A good attorney representing the person you injured, killed, or whose property you damaged will find any money you have.

If you carry low liability limits and a judgment is levied against you, the rest of the money may be garnished from your paycheck or taken from the equity in your home (in the form of you taking a loan out against your home to avoid bankruptcy). Often times, “upping” your limits to 250/500/100 is the best option if you can afford it.

In fact, many car insurers charge you a lower insurance premium for choosing higher limits, as it demonstrates your level of responsibility, which usually translates to your overall driving behavior.

If you are in this group and have a higher value car, or have a loan out against your vehicle, you will probably have to purchase physical damage coverage for your car.

In this case, I recommend getting both comprehensive coverage and collision coverage, referred to as full coverage on your insurance policy.

You can also reduce your overall insurance premium by choosing the highest offered auto deductible, typically $1,000 for this type of coverage.

What’s your best bet?

If you have a lot of assets to protect, like a home, a nest egg, or you own a business, you absolutely need to carry at least 250/500/100 liability coverage. See the “good attorney” remark above for the reason.

Additionally, you’ll likely have higher value cars if you’re in this category, so you’ll want to have comprehensive and collision coverage in place as well.

Insurance professionals strongly recommend an umbrella insurance policy in addition to your car insurance policy. Personal umbrella coverage can be purchased with limits of $1,000,000 and up.

This type of insurance will cover you in the event the worst-case scenario happens and you need a lot of extra coverage. Your umbrella policy will require you to carry the maximum underlying liability limits for your auto (250/500/100). The cost for this type of policy is usually under $300 per year at $1,000,000.

Get insurance quotes online or contact an independent agent to ensure you’re at the proper coverage level to protect your assets in the event of an accident. Prices vary depending on the insurance provider, so it’s important to shop around.

Let’s face it…accidents happen and insurance is the best way to make sure you are protected against the consequences.