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: Jul 19, 2021

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smart car

Insurance Q&A: “What insurance do I need for my car?”

When it comes to car insurance, there are seemingly endless coverage options available to us.

Depending on your personal financial situation, the value of your vehicle and your personal risk tolerance, you may decide to purchase all or only a few types of coverage.

Remember, most states have mandatory minimum auto insurance laws that come with the ownership and operation of a motor vehicle.

Let’s look at a few examples of what type of coverage and liability limits you may need, based on your unique situation.

I’m Broke and My Car is a Junker

If this statement represents your current situation, you will likely opt to purchase state minimum liability car insurance coverage and forego physical damage coverage, including comprehensive and collision, for your jalopy. It doesn’t make sense to pay for coverage to repair or replace a car that isn’t worth anything.

Read more about the difference between comprehensive and collision coverage.

I’m the Average Joe in the Average Car

You will likely need at least minimum limit liability, but should certainly opt for higher limits if you can fit it into your budget. Remember, there is no limit on how much you can be sued for if you cause an accident and lose a resulting court case. You are on the hook for any amount of money over what your insurance company insures you for. We are talking wage garnishment here people!

[Top auto insurance companies in the United States.]

Also, the average American is leasing or has an existing loan on their car. If this is the case, you lender will require you to purchase physical damage coverage on the vehicle to protect their financial interest. The lender is considered a loss payee on you policy, which means any money you owe on a totaled car is first paid to the insurer and you get what’s left.

I’m Wealthy and My Car is a Status Symbol

Think full coverage. And a much higher insurance premium. You will certainly want to opt for higher liability limits on your auto policy if you have “something to lose,” from a financial standpoint. If you have money and cause someone bodily injury or property damage, you can expect an attorney to find your money…and take it.

Physical damage coverage is almost always mandatory in this situation, unless you own your Porsche outright and don’t have to protect a lender’s interest in your chariot. Even still, a financially savvy individual should understand it is better to pay a few hundred extra dollars per year and leave your insurer on the hook for any damages you may be found liable for.

Get insurance quotes online or talk to a local independent insurance agent if you need assistance choosing the right coverage or simply want to be sure you get the best deal no matter what your insurance needs.

Tip: How are car insurance rates determined?