Of all the many adulting tasks we’re faced with, figuring out insurance is among the most confusing. Health? Life? House? Car? Yes! For car insurance, most state laws require every driver to have a minimum level of coverage, but how much and what type of coverage varies by state — so, should you get more than the minimum?
That answer is complicated, but the answer, for the most part, is yes. There are a lot of different types of policies and coverage options, so shop car insurance plans and rates before you shop for your new vehicle, because this cost will affect your overall budget.
How much car insurance you need depends on several factors. According to personal-finance website WalletHub, shoppers should consider a few things when deciding how much car insurance is needed: where you live, what car you drive and your net worth.
1. Where You Live
A good starting point is to figure out what’s required in your state. WalletHub has a map of most states’ minimum level of coverage. Liability coverage, which covers the other driver’s property damage and injuries if you cause an accident, is the only coverage required in 31 states, according to the site. In addition, there are 17 states that expect drivers to carry additional types of car insurance, such as uninsured motorist coverage or personal injury protection.
In Ohio, for example, the state’s minimum insurance requirements include $25,000 for the injury or death of one person, $50,000 for the injury or death of two or more people and $25,000 for property damage in an accident. This combination of minimum coverage amounts is usually abbreviated as three numbers separated by slashes: 25/50/25.
2. What You’re Worth
According to WalletHub, bodily injury claims are usually the most expensive part of an insurance claim; property damage is typically less expensive. If you cause an accident, insurance only pays up to your coverage limits and you have to pay for property and bodily damage above your policy’s limits. If the other driver brings a lawsuit against you, you could have assets seized or wages garnished to pay the damages.
To protect yourself and your assets, WalletHubrecommends choosing a level of coverage that equals your net worth for the middle number (the “50” in the example above). Let’s say your total assets are worth $200,000; you should choose a liability policy that looks something like this: 100/200/50.
3. What You Drive
Liability insurance only pays for damage to the other car or driver — but what about your vehicle? Collision insurance protects your car. It has a deductible that you pay out of pocket before insurance pays the rest of the bill. Generally, lower deductibles come with higher premiums. Insurance covers up to the cash value of your car, so how much collision insurance you should buy depends on what your car is worth at the time of the accident.
Guaranteed auto protection, or gap insurance, is another option to cover the cost of your vehicle, especially since cars depreciate quickly. For example, if your new vehicle is totaled in an accident, you could end up owing more on your loan than the vehicle is worth, but gap insurance can pay the difference.
4. What Else Could Go Wrong?
Shoppers might also want to consider comprehensive insurance, which will help cover car damage from things such as vandalism, theft, weather and wildlife. Again, the amount of coverage you can choose varies, and the policy carries a deductible.
5. What the Other Guy’s Got
Lastly, there are millions of people driving around without car insurance — to be exact, 32 million, or about 13% of drivers in the U.S., according to ValuePenguin, a subsidiary of online loan marketplace LendingTree. Knowing this alarming figure may cause you to consider adding uninsured- or underinsured-motorist coverage to your policy, which can be used if your vehicle is struck by a driver who doesn’t have enough (or, gulp, any) coverage to pay for all the damage they caused; this policy also goes into effect if you or your car are injured in a hit-and-run accident.