Car insurance provides financial protection for car accidents, theft, and other vehicle damage. Policies generally include a combination of liability coverage for when you’re at fault in an accident, and physical damage coverage for your car. Some also include coverage for medical costs and other related expenses.
However, policies are customizable, so you can select your desired coverage types and limits – the maximum amount your insurer will pay out for that coverage. Most states mandate specific coverage. Lenders and lessors often require additional protections if you finance or lease your vehicle.
As the policyholder, you pay a premium in exchange for coverage. You can choose to pay this in a lump sum or spread it out over monthly payments. Your rate depends on many factors, including your age, gender, driving record, coverage selections, credit history, and ZIP code. Most insurers also offer discounts to help you save money.
If you have to file a claim with your insurer, you may have to pay your deductible, depending on the type of damage. Your deductible is the amount you pay out of pocket for certain coverage types before your policy kicks in to cover the rest.
State-required liability coverage doesn’t have a deductible, but collision and comprehensive coverage do. When you buy your policy, you select your deductible amount; common options are $500 or $1,000.
Car insurance is required in every state except New Hampshire. You must carry at least the minimum amount of coverage required in your state, but you can buy more. If you finance or lease your vehicle, your lender or lessor might require that you have other coverage types, like collision and comprehensive.
Failing to have the state-required coverage can result in fines, license and registration suspension, and even jail time. Plus, if you don’t meet your lender or lessor’s requirements, they could issue force-placed insurance, which would add to the cost to your loan payment. Your vehicle could also be repossessed for not having coverage.
While states require a minimum amount of coverage, you can buy higher limits and additional coverages for added financial protection.
Consider the following things to help you decide how much car insurance you need:
- Your state’s laws
- Your lender’s or lessor’s requirements
- Your car’s value
- Your financial situation
- How much protection you want
You can also consult a licensed agent in your state for assistance deciding what’s best for you.
What your car insurance policy covers depends on the coverage types you select. If you buy minimum coverage, you’ll only have the state’s legally required coverage. Full coverage often includes your state’s required coverage plus collision and comprehensive coverage.
Additional car insurance coverage
You can customize your policy by adding optional coverages. Options may vary by insurer, but here are some common coverage types to consider:
- Gap insurance: Guaranteed asset protection (“gap” insurance) covers the difference between your insurance payout (your vehicle’s actual cash value) and your auto loan balance if your car is totaled or stolen. Your lender or lessor may require that you carry gap insurance.
- Rental car reimbursement: This helps cover the cost of a rental car if your vehicle is damaged or totaled. It typically includes a set daily limit that you can use toward a rental car.
- Accident forgiveness: Some insurers offer accident forgiveness, a benefit that prevents your premium from increasing after your first at-fault car crash.
- Roadside assistance: Roadside assistance provides on-site emergency service to help get your car back on the road. Details depend on your insurer, but this add-on often covers fuel delivery, battery jumpstarts, towing, and lockout assistance.
- Rideshare insurance: Standard car insurance policies typically exclude coverage while driving for a rideshare company like Lyft or Uber. While rideshare companies may offer limited protection to their drivers when driving passengers, this add-on covers any gaps, including while you’re waiting for someone to book a ride.
It’s important to understand that car insurance doesn’t cover every situation you may encounter. Here’s what it generally doesn’t cover:
According to our report on the cheapest car insurance companies, car insurance costs an average of $2,068 per year. However, rates are highly individualized and vary based on a number of factors.
The image below includes average annual rates, which are provided for comparison purposes only. Keep in mind that your actual rate may differ.
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