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Most states require a minimum amount of insurance to register and legally operate a vehicle. While most insurance companies or brokers will tell you what those minimums are, you can check for yourself with your state's insurance department offsite link. However, keep in mind that generally the minimum requirements do not come close to covering the potential losses you might experience. Increasing your limits beyond what is required by law generally does not increase your premiums by much.

The amount of auto insurance you need varies with your state's legal requirements, your assets and income, the value of your car, and the adequacy of the other types of insurance you may have.

Depending on your individual circumstances, you might not need all the different types of automobile coverage. At the least, liability coverage to protect against injury to other people is essential to protect against financial ruin.

We provide a description of the different types of automobile insurance available, together with pointers to help you decide which types you need, and in what amount.

If you use an insurance broker, he or she should be able to recommend the proper coverage for you. (See How To Choose and Maximize Use Of An Insurance Professional.)

If you plan on driving into Mexico or Canada (for instance, because medications are cheaper in those countries), check whether your policy covers. If not, purchase additional insurance.

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Collision Insurance

Collision insurance covers damage to your car by an inanimate object such as another car or telephone pole -- regardless of who is at fault.

Collision coverage usually has a deductible, generally in an amount of $250, $500, or $1,000. A deductible is the amount of your loss per accident that you must pay before the insurance kicks in. Everything else being equal, the lower your deductible, the higher your premiums will be.

At least one company offers new car replacement if your car is totaled within one year of purchase and before it has 15,000 miles on it.

If your car is older and has lost most of it's value, you might be better off not carrying collision coverage.

  • Compare the cost of insurance to the value of your car. 
  • The general rule of thumb is to cancel collision insurance when your annual premium equals or exceeds 10 percent of the value of the vehicle. You may also consider dropping collision if you have the cash to pay for repairs or to buy another car if necessary.
  • You can get an estimate of your car's value through Kelly Blue Book ( offsite link), ( offsite link) or National Automobile Dealers Association ( offsite link). Be sure to look at the retail, instead of trade-in or wholesale value, because the retail value is a better estimate of what it would cost to replace the car.

If your car is of some value: If you decide to carry collision coverage, you'll need to choose a deductible (the amount you pay per accident before insurance pays anything.) In determining the amount of the deductible, keep in mind:

  • Premiums decrease as the amount of the deductible increases. Balance the amount of out-of-pocket costs you'd be willing to accept if an accident occurs with the amount of premiums you can afford every month.
  • The purpose of insurance is to cover the losses you can't afford to cover yourself. If you put in a batch of small claims it is likely that your insurance policy will not be renewed.

Liability Insurance

Liability insurance covers in case you as the owner of the car are liable to someone not in your car for damage caused by the driver of your car.

There are two types of liability coverage: "Bodily-Injury" Liability and "Property Damage" Liability.

  • Bodily Injury Liability: If someone not riding in your car is injured in an automobile accident, and the driver of your car is found to be at fault, bodily-injury liability coverage will pay for the injured person's medical treatments, rehabilitation, and other loss.
  • Property Damage Liability: This coverage pays for damage to property caused by your automobile when the driver is at fault.

Limits: Limits refers to the amount of coverage available for each accident. The two types of limits are "split limits" and "single" or "combined" limits.

Split Limits: Most auto policies use "split limits". An example is "50,000/250,000/50,000." Written this way:

  • The first number is the maximum amount the insurance company will pay for bodily injury to any one person.
  • The second number applies to the amount that will be paid to all injured people in total.
  • The third number is the amount the policy will pay for property damage.

Single Limit (also known as "Combined Limit"): Another type of liability coverage limit is a "single" limit. For example, if a limit is stated in the policy as $300,000, this would be the maximum paid for all liability claims per accident.

Everyone should have liability coverage, and most states mandate it.

The amount of liability coverage you need varies with your net worth and your income.

There is no limit to the amount for which you can be liable to other people.

Some people think that just because they don't own anything they can't suffer losses. This isn't true: your future income can be attached to satisfy an award granted to someone who sues you.

Bodily Injury:

  • If your net worth and income are low: If you don't own or earn much, standard advice is you might be okay with the minimum amounts of bodily-injury and property-damage liability coverage required by your state. However, we suggest that you at least look at liability limits of at least $500,000. If you can afford it, consider $1,000,000. The difference in premium between the two limits is generally minimal, especially compared to the possible consequences.
  • If you have more assets or a higher income: If you have substantial assets or income, you should have at least enough bodily-injury liability to protect all of your assets in case someone sues you. If your assets exceed the maximum amount of automobile liability insurance you can obtain, or if you want a higher limit but the company you want to work with doesn't offer it, consider an umbrella policy. Your bodily injury limit should be at least $1,000,000.
  • If the amount of your assets and/or income change suddenly, review the amount of your automobile liability coverage to make sure that it is adequate, but not excessive. For example, as a person with [insertcondition], you might go on disability, return to work, or receive proceeds from a sale of a life insurance policy (a viatical settlement).

Property Damage Liability:

Remember that property-damage liability coverage pays for the cost of damage you cause to another person's vehicle. While states typically only require $10,000 or $25,000, it is preferable to get coverage closer to $100,000. The cost differential is not likely to be that great -- but with cars getting more and more expensive, you're better off at the higher amount.

Comprehensive Coverage

Comprehensive coverage covers when damage occurs to your car due to:

  • Theft
  • Vandalism
  • Fire
  • Flood
  • Windstorm, or
  • Collision with an animated object, such as a bird striking your windshield.

Comprehensive coverage usually has a deductible. Coverage for damage to glass (windshields and windows) can be included without a deductible.

For advice concerning whether to purchase comprehensive coverage, see the discussion above about Collision Coverage. The reasoning for whether to purchase these coverages is the same.

Medical Payments

Medical payments covers:

  • Medical expenses for related members of your household and passengers who are injured while in your car.
  • Members of your household related to you if a motor vehicle injures them when they are not in a car.
  • Funeral expenses are included if the injury is fatal.

If you and your family have adequate health coverage, medical payments coverage -- for injuries by a motor vehicle or when in your car -- is probably not necessary. Otherwise, consider taking this coverage.

Pet Covrage

A few companies cover a pet's injury or death due to an automobile accident as part of a standard automobile policy for no additional payment.

The policies pay a limited amount of money to treat, board and put a pet to sleep (euthanize). They may even pay for pet replacement. 

Personal Injury Protection

Personal Injury Protection is like medical payments coverage, except that it also includes coverage for some lost wages and the costs of assistance you need at home due to injury. In some states, this coverage is called "no fault" insurance.

In no fault states, you can only sue the other party if the accident involved damages beyond a certain dollar amount or serious injury or death.

If you and your family don't have adequate health, disability, and life insurance coverage, you should consider purchasing the minimum amount of Personal Injury Protection. Note, however, that this covers disability or death resulting only from automobile accidents, not from unrelated disease.

Uninsured and Underinsured Motorists Coverage (UM/UIM)

UM/UIM covers you and members of your household who are related to you against costs resulting from injury by:

  • An uninsured motorist
  • An underinsured motorist or
  • A hit-and-run driver.

This coverage is essential to cover against costs resulting from an auto accident caused by an underinsured motorist or a hit-and-run driver. Get at least $100,000 per person and $300,000 per accident.

Underinsured Motorists Property Damage

This coverage covers damages to your automobile by someone who doesn't have enough insurance to pay the cost of repairs or replacement.

It also protects you from losses caused by a hit and run driver.

If you have collision coverage, this coverage is probably not necessary. Otherwise, you should consider it to protect against the cost of repairing damage to your vehicle by someone without coverage adequate to pay the costs.

Glass Coverage

Covers when cracked or broken glass in your car needs replacement.

Consider the cost of replacing damaged glass for your vehicle when deciding whether or not to elect this coverage. Many discount repair shops can replace glass inexpensively these days. Plus, using this coverage could cause you to file numerous small claims which could cause your insurer not to renew your policy.

Emergency Roadside Assistance

Covers roadside emergency services such as:

  • Towing
  • Gasoline (where allowed)
  • "Lock-out" service if you lock your keys in the car, or
  • Changing of a flat tire.

If you have a relatively new car, your automobile manufacturer may provide this coverage. It may also be included with your credit card.

If emergency roadside assistance isn't covered under either, compare the cost and benefits of coverage under an auto policy to that of an automobile club, such as the American Automobile Association ( offsite link).

Rental Insurance

Covers the cost of renting an auto while your car is being fixed after an accident.

If your car is your only means of transportation (particularly to your doctor and medical treatment) and your garage won't loan you a car while they work on yours, consider this coverage.

Insured Drivers

Generally, when someone drives your car with your permission, they're covered in the event of an accident.

For safety, all of the drivers who live in your house, or are there a lot (such as a nanny or housekeeper) should also be listed. Otherwise, you may not be covered if they are in an accident while driving your vehicle.

Likewise, if your child is away at school, and drives the car during the summer, the child may need to be specifically listed to be covered.


Most automobile insurance policies written in the United States do not cover the vehicle or your liability in Mexico.

If you are planning on driving into Mexico, ask your broker or insurance company if you can add coverage for Mexico to your automobile insurance policy. If not, purchase t emporary "tourist" automobile insurance from a Mexican insurance company. Search in your favorite engine for words such as "automobile insurance Mexico".