The amount of auto insurance you need depends on a variety of factors, including the year, make and model of your vehicle, as well as any requirements you have for leased vehicles, vehicle loans and state minimums.
Each state in the US has a minimum requirement for insurance. This is the legal minimum of insurance you are required, by law, to carry on your vehicle at all times. Each state is different, and the best way to find out what your state requires you to have is to call your state or county office and ask, however insurance agents will also know what your state minimum requirement is.
If you’ve taken a loan to pay for your vehicle, the lender likely has a minimum insurance requirement as well. However, the lender’s minimum will likely be considerably higher than the state minimums and will often include collision insurance as a necessity. This is to protect their investment in your vehicle, because until you’ve completed paying for the vehicle, the lender technically owns it. In order to ensure that they will get the money back that they loaned you to purchase the vehicle, it must be insured against theft and damage.
The same goes for leased vehicles – leasing is basically renting, so leasing companies often require you to have quite a bit of insurance on the vehicle to cover the cost of the vehicle should it be completely ruined in an accident.
Newer vehicles that have a value of more than about $8,000 should be fully insured, including collision insurance. Collision insurance is coverage for your vehicle if you impact with another vehicle or building and you are found to be at fault. Collision insurance pays for your vehicle to be repaired or replaced and your liability insurance will pay for the other person’s property as well as any personal damages they incur.
For older vehicles, you do not need as much insurance. Collision insurance is quite expensive and the rate that you pay is based on the type of vehicle you drive. The more expensive the vehicle is that you purchase, the more expensive the insurance. However, liability insurance is the same regardless of the type of vehicle you drive. Liability insurance pays for damages to other people and their property. Comprehensive insurance pays for fire, theft and damage to your vehicle that was done by an act of God or other object (such as deer in many states). For many people who drive older vehicles, personal liability and property damage (PL/PD) is all that is needed on your vehicle.
There are other types of insurance that you can invest in for your vehicle as well, such as GAP insurance (which guarantees that your insurance company will pay any gap between how much you owe on your vehicle and what it’s market value is), glass insurance (covering your windshield), and loss of use insurance (which gives you a rental vehicle until your vehicle is replaced or repaired).
The best way to determine how much auto insurance you need, talk to a qualified insurance agent about your vehicle and your driving habits and needs. This will ensure that you have the insurance you need by law and the insurance that will fit your life and your budget.
