How much car insurance do I need?

Understanding state requirements

While the U.S. federal government sets broad insurance guidelines, each state decides its own minimum car insurance requirements. These laws directly impact the type and amount of coverage you need to stay legally insured.

Most states require liability insurance, which covers damages for others if you cause an accident. Minimum requirements typically include:

• Bodily injury liability (BI): Covers medical expenses for people injured in an accident you cause.
• Property damage liability (PD): Pays for damage to another person’s vehicle or property.

Here are some examples of minimum coverage requirements:

• Connecticut: $25,000 per person / $50,000 per accident for BI, plus $25,000 for PD
• California: $15,000 per person / $30,000 per accident for BI, plus $5,000 for PD
• Maine and Alaska: Require higher minimums of $50,000 per person / $100,000 per accident for BI, plus $25,000 for PD 

Additionally, 19 states require uninsured motorist (UM) coverage and 14 states mandate underinsured motorist (UIM) coverage, which help if an at-fault driver lacks adequate insurance.

States that don’t require car insurance

• New Hampshire: Doesn’t require liability insurance, but you must prove you can pay for damages if you're at fault.
• Virginia: Allows you to skip insurance by paying an uninsured motorist fee.

What are no-fault insurance states?

In no-fault insurance states, you must have Personal Injury Protection (PIP), which covers medical expenses and related costs regardless of who caused the accident. This system is designed to reduce legal disputes by having each driver’s insurance cover their own medical bills.

The following 12 states have no-fault insurance systems:

• Florida
• Hawaii
• Kansas
• Kentucky
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New York
• North Dakota
• Pennsylvania
• Utah

Additionally, Kentucky, New Jersey and Pennsylvania offer a “choice” no-fault system, letting you pick either a no-fault policy or traditional liability coverage. Some states also offer optional PIP coverage, but it is not required.

How do state requirements impact the insurance you need?

State minimums provide basic protection, but they may not be enough to fully cover the cost of an accident. If damages exceed your policy limits, you’ll have to pay the remaining costs yourself. States with no-fault laws, like Florida and Michigan, require PIP coverage, which can increase the overall cost of insurance.

Why is meeting state minimums important?

Failing to meet your state’s minimum insurance requirements can result in fines, license suspension or even vehicle registration cancellation. If you cause an accident without adequate coverage, you could be personally responsible for damages, leading to serious financial consequences.

While state-mandated minimum liability coverage provides basic protection, it may not be enough for a major accident. Medical bills and property damage can quickly exceed minimum limits, leaving you financially liable for remaining costs.

To protect yourself and your assets, higher coverage limits are recommended. The New York State Department of Financial Services suggests people with significant assets buy bodily injury liability coverage of $100,000 per person and $300,000 per accident or more.

Similarly, the U.S. Department of State requires its employees to have auto insurance with liability limits of $100,000 per person, $300,000 per accident for bodily injury and $100,000 for property damage.

Factors that influence how much car insurance you need

Choosing the right car insurance depends on your driving habits, financial situation and lifestyle. These factors determine the type and amount of coverage that best fits your needs. Here’s how each of these considerations impacts your insurance:

Driving habits

Your driving history directly affects your premiums. According to the Insurance Information Institute (III), a clean driving record generally results in lower rates, while accidents or traffic violations can increase premiums. Frequent long-distance driving may also warrant higher coverage.

Vehicle type

High-performance, luxury or expensive vehicles often require higher liability limits and comprehensive coverage to protect against theft or vandalism.

Financial considerations

Your assets and income impact how much coverage you should carry. If you have significant assets, higher liability limits protect against lawsuits. Drivers with lower incomes may opt for higher deductibles to reduce monthly costs.

Lifestyle changes

Major life events, such as marriage, homeownership or starting a family, can affect your insurance needs. According to the III, adding a teenage driver to your policy could raise premiums, while moving to a safer neighborhood or switching to a less expensive car may help lower your rates. It’s important to regularly review your coverage to reflect any changes in your life, ensuring that you have the appropriate protection at the best price.

Factors affecting insurance costs

Car insurance premiums are based on several factors, including state laws, local conditions and personal risk levels. Understanding what influences your rates can help you make informed choices and find the best deal. Beyond your driving record and vehicle type, here are some factors that insurers use to determine your premium:

• Age: Drivers under 25 usually face higher premiums due to a lack of experience. Conversely, older drivers may see reduced rates, depending on state rules and the insurer’s guidelines.
• Location: Where you live significantly affects your insurance costs. Urban areas, particularly those with heavy traffic and higher accident rates like Los Angeles, generally result in higher premiums. In contrast, rural locations with fewer accidents and lower theft risks often lead to lower rates.
• Discounts: Many insurers offer savings for safe driving, low mileage, bundling multiple policies or completing defensive driving courses.

While you can’t change your age, you can lower your rates by maintaining a clean driving record and maximizing discounts. Before switching insurers or relocating, compare quotes to find the best coverage at the most affordable price.

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Types of car insurance coverage

There are eight types of car insurance, some of which are required by law and others that are optional. Here's a quick overview of the types of coverage:

• Liability insurance: Covers damages and injuries you cause to others.
• Collision insurance: Pays for repairs to your car if it's damaged in an accident, regardless of fault.
• Comprehensive insurance: Covers non-collision-related damages, such as theft, vandalism or natural disasters.
• Uninsured/Underinsured motorist coverage (UM/UIM): Protects you if the at-fault driver lacks insurance or sufficient coverage.
• Medical payments (MedPay) and personal injury protection (PIP): Help pay medical expenses for you and your passengers after an accident.
• Towing and labor coverage: Pays for towing services and labor costs like flat tire changes.
• Rental car coverage: Covers the cost of a rental car while your vehicle is being repaired.

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