How Much Car Insurance Should You Buy?

How much car insurance should you buy?

There are two correct answers:

First, you need enough insurance to drive legally. (Click on "State Car Insurance" above to see a map of liability insurance requirements for every state.)

Second, you need enough insurance to protect your life from turning into a living hell if you have a car accident. That can be as easy as buying the minimum coverage mentioned above. Or it can be much more complicated.

Who should buy minimum levels of liability insurance?

If you own only the clothes on your back and a car on its last legs, you're probably what is known as “judgment-proof.”  You may lose if someone decides to take you to court, but you have no real assets to take.  If you have savings or a home or even expensive jewelry, you are not judgment-proof.

We've created four liability insurance levels as a rough guide. 

In the levels below, the first two numbers refer to bodily injury liability, which pays the hospital bills of anyone you injure. The first number is the per-person limit; the second is the per-accident limit. The third number is the property damage liability limit, which would repair or replace the car of anyone you hit.
  • State minimum:  In most states this is not enough to pay for serious injuries or to replace a newer car. It is only enough to drive legally.
  • 50/100/50: As your net worth rises, increase your coverage to match. Your net worth is the value of what you own minus what you owe.  Assets would include your home's current value, any other real estate, your car (do not count the value of a leased car, though), stocks, checking and savings, retirement accounts,  jewelry, household items and the cash value of a life insurance policy. Liabilities would include the outstanding balances on mortgages, car loans, student loans and credit cards.
  • 100/300/100: This is the level most financial experts say is appropriate for middle-income earners with a typical level of savings, adequate in most circumstances. The cost of liability insurance, once you have bought the basic levels, does not increase exponentially. Moving to 100/300/100 will not cost twice as much as 50/100/50. You may find the additional coverage will cost only a few dollars a month.
  • 250/500/100: If you own an expensive home or have saved diligently, you may be worth millions even though you do not consider yourself rich. We would suggest supplementing even this high level of coverage with an umbrella liability policy that extends your protection by $1 million or more. It's relatively cheap.

Levels of coverage offered will vary by state and by insurer. Liability insurance will not repair your own car.