Do I Have Enough Auto Insurance?

Last Updated on January 24, 2022

Having enough auto insurance coverage is important. You don’t want to be under-insured, nor do you want to be over-insured.

Unfortunately, millions of drivers carry too little insurance, leaving them dangerously under-protected in the event of a claim.

Millions of other drivers carry too much insurance, and they spend hundreds of extra dollars per year for car insurance coverage they’ll never need to use.

Do you have enough auto insurance? Are you over-insured or under-insured? Keep reading to discover how to check if you have enough auto insurance coverage.

Why You Need Car Insurance

To determine if you have enough auto insurance, you first need to consider why you have auto insurance.

enough auto insurance

There are several reasons you want or need auto insurance, including:

State Laws: Unless you live in New Hampshire, your state requires you to carry auto insurance. Most states require you to carry both property damage and bodily injury liability coverage. States require drivers to carry a certain minimum amount of coverage. Some drivers meet that amount, allowing them to legally drive on the road. Other drivers exceed that amount for added protection. Click here to see the limits required in your state.

Protection Against Financial Loss: The second reason people carry auto insurance is for protection against financial losses. If you don’t have insurance, then you need to pay for any damage to your vehicle out of pocket. Let’s say you get into an accident and cause $20,000 of damage to your vehicle. Normally, insurance would cover this damage. Without insurance, you need to pay for this damage out of pocket.

Protection Against Liability: People buy car insurance to protect against liability. When you injure someone or damage someone’s property while driving, then you are liable for those damages (assuming you were at fault for the accident). If you hit someone from behind, for example, then the other driver may have serious back and neck injuries. They could sue you for $1 million or more. If you have insurance, then insurance covers this liability up to the limits of your policy. Without insurance, you must pay for this damage out of pocket.

Lender Requirements: If you are leasing or financing your vehicle, then your lender will require higher insurance requirements. Virtually all lenders require you to carry collision and comprehensive coverage to protect the collateral of the loan (the vehicle), for example. No state requires you to carry collision or comprehensive coverage. However, many drivers carry it to meet lender requirements. If you drop collision or comprehensive coverage, you could be violating the terms of your financing agreement (while also exposing yourself to significant financial loss).

Peace of Mind: Some people buy car insurance for peace of mind. Some people like the feeling of having higher limits and adding all of the bells and whistles to their policy. They like the feeling of carrying roadside assistance and being protected everywhere they go.

People carry car insurance for all of these reasons and more. However, you can still strike a balance between being over-insured and under-insured.

Am I Over-Insured or Under-Insured?

There’s no specific limit for being over-insured or under-insured.

Some people are over-insured when they have more than $300,000 of liability coverage, for example, while others are under-insured with $1 million of liability coverage. It depends on you, your personal aversion to risk, and your financial situation, among other factors.

To determine if you are over-insured, consider the following:

Protect Your Assets with Higher Liability Limits: If you have assets that could be seized in a lawsuit, then you want your liability insurance to cover those assets. Let’s say you have a $500,000 home. You carry minimum liability car insurance for your state, giving you $20,000 of protection in an accident. You cause a serious accident, and the other driver is injured. Your insurance covers just $20,000 of that driver’s medical bills, and you must pay the remaining costs out of pocket. In this situation, you could be forced to liquidate your assets to cover your liability. That’s why carrying higher insurance limits is important. It can be the difference between keeping and losing your assets.

Avoid Higher Liability Limits If You Have No Assets: If you have no assets to seize, then you may be over-insured with higher liability limits. In this situation, it may not be worth it to carry $2 million or more in liability coverage, for example. Even if you cause a serious accident, the other driver cannot seize assets you do not own. Nevertheless, some people maintain higher liability limits because it’s relatively cheap and gives them peace of mind, regardless of the value of their assets.

Self-Insure with Cash: Some people have plenty of cash and would rather “self-insure” themselves against losses. In this case, you may be okay with lower liability limits and lower coverage limits. In a worst-case scenario, you could cover your losses with cash. If you have plenty of cash or other liquid assets to cover emergency expenses, lawsuits, and other costs, then you may be okay with lower insurance limits.

Consider Your Driving Habits and Risk: Even if you’re the world’s safest driver, you could get into a serious car accident this afternoon. However, if you are a safe driver with decades of accident-free experience, then you may be okay with higher deductibles and lower limits. Consider your driving habits, average annual mileage, and overall risk to determine the right level of insurance.

Medical Expenses and Repair Costs in Your State: Some states have surprisingly low insurance requirements. In these states, a basic plan may provide only a small amount of coverage, forcing you to pay out of pocket for vehicle repair costs, medical bills, and other expenses after an accident. A single car accident could easily cause $200,000 in medical bills, which is higher than the minimum limits of any state. Consider medical expenses, repair costs, and the overall cost of living in your state to determine if your insurance would cover the average accident.

Optional Coverages to Consider Adding or Removing

Most states require liability coverage. Other types of insurance coverage, however, are optional.

Depending on your unique insurance needs, you may consider adding or removing the following optional coverages from your policy:

Collision Coverage: Collision coverage covers the cost of repairing your own vehicle after an accident. If you don’t have collision coverage, then your insurance will not cover any repair costs after an accident. That means you need to pay out of pocket to repair your vehicle. On older vehicles, you can safely drop collision coverage because it doesn’t take much for a vehicle to be a total loss. Dropping collision coverage can help you save hundreds per year on car insurance. On newer vehicles, however, collision coverage is generally a good idea (and it’s required for financed or leased vehicles).

Comprehensive Coverage: Comprehensive coverage is optional coverage that covers damage that occurs outside of an accident, including vehicle theft, vandalism, fire damage, flood damage, and collisions with animals. If you don’t have comprehensive coverage, and your vehicle is stolen, then your insurance will not compensate you for the theft of your vehicle. Similarly, if you have a house fire or flood that destroys your vehicle, insurance will not cover you. You may be able to drop comprehensive coverage on older vehicles (for the same reason you can drop collision coverage). However, it’s generally a good idea on newer vehicles, and it’s required on leased or financed vehicles.

Uninsured and Underinsured Motorist Coverage: Nationwide, approximately 14% of motorists drive without insurance. In some states, however, that number is closer to 20% or even 30%. Many more drivers have too little insurance, carrying only minimum liability coverage that leaves you without sufficient protection for most accidents. That means there’s a good chance your next collision will be with an uninsured or underinsured motorist. Some states require uninsured and underinsured motorist coverage. This coverage also protects you against a hit-and-run.

Medical Expenses Coverage: There are two main types of medical expenses coverage, including medical payments coverage (MedPay) and personal injury protection (PIP) coverage. Like health insurance, these coverages cover you against certain unexpected medical expenses after an accident. Some states (including the 13 states with no-fault insurance systems) require PIP coverage. However, these coverages are optional in most states. If you have bad health insurance or no health insurance, or if you want added peace of mind for your medical expenses after an accident, then consider adding medical expenses coverage.

Roadside Assistance: Roadside assistance is optional in every state, but it protects you against certain roadside emergencies. If your vehicle breaks down on the side of the road, or if you run out of fuel, then you can contact your roadside assistance company to help. Most insurers offer roadside assistance. Or, you can buy roadside assistance through a third-party company like AAA.

Gap Insurance: Gap insurance covers the gap between the amount of money owing on your auto loan and the value of your vehicle. It’s optional in every state, although most lenders require it (and some even build it into your leasing or financing payments). If you get into an accident with a newer vehicle, then gap coverage could help you avoid thousands of dollars in expenses.

Glass Coverage: Glass coverage is optional, and it covers broken or chipped windshields and other glass. Some insurers bundle glass coverage in comprehensive policies, while others keep it separate.

Rideshare Coverage: If you drive for Uber, Lyft, or other rideshare companies, then you may need rideshare insurance. Otherwise, this insurance is unnecessary.

Custom Equipment Coverage: If you have custom equipment in your vehicle (like a high-end stereo or accessibility equipment), then you may want to buy custom equipment coverage to protect this equipment.

Umbrella Insurance: Umbrella insurance is an extra level of liability protection that applies after you use up your auto insurance liability coverage. If you have high-value assets that could be seized in a lawsuit, then you should carry enough umbrella insurance to protect those assets.

Rental Reimbursement Coverage: Some insurers offer rental reimbursement coverage, which reimburses you for the cost of renting a car after your ordinary car is being repaired. It’s optional in all states.

Original Equipment Coverage: Original equipment coverage is an optional car insurance coverage that requires the repair shop to use original parts to repair your vehicle instead of cheaper, aftermarket parts. If you only want your vehicle repaired with original parts, then you may want to buy this coverage.

Final Word on Having Enough Insurance

Do you have enough auto insurance? The answer to that question depends on your budget, lifestyle, and personal aversion to risk.

Consider your insurance needs and analyze your policy to determine if you’re over-insured, under-insured, or carrying the perfect amount of car insurance.

James Shaffer
James Shaffer James Shaffer is a writer for InsurancePanda.com and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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