Buying car insurance can feel like walking a tightrope. One misstep, whether it’s an accident, an encounter with an uninsured driver, or an unexpected repair bill, and you could be facing a financial freefall.
While some coverages, like liability insurance, are non-negotiable, others, like collision and comprehensive coverage, offer extra safeguards tailored to your risk profile. Then there are the tempting add-ons that might seem beneficial at first glance but aren’t always necessary.
The key is knowing which protections truly shield you and which extras only add to your expenses.
This guide will help you cut through the confusion, ensuring you invest only in coverage that fits your needs.
1. Liability Insurance
If you drive in the US, liability insurance isn’t optional. It’s legally required in most states and protects you financially if you’re responsible for an accident.
This insurance has two key components:
- Bodily Injury Liability (BIL): Covers medical fees if you injure someone in an accident.
- Property Damage Liability (PDL): Pays for damages you cause to another person’s property, whether it’s their car, a fence, or a storefront.
Many states set low minimum liability requirements, often at $25,000/$50,000/$25,000, which means:
- $25,000 for bodily injury per person
- $50,000 for total bodily injury per accident
- $25,000 for property damage per accident
While these might sound reasonable, a hospital stay can cost far more than that. And if your coverage falls short, you’re responsible for paying the remaining balance.
That’s why a good rule of thumb is to have 100/300/50 coverage for absolute protection. This includes:
- $100,000 per person for injuries
- $300,000 per accident
- $50,000 for property damage
2. Collision Coverage
Liability insurance covers other people’s damages, but what about your vehicle?
That’s where collision coverage comes in.
This coverage pays for your car repairs if you hit another vehicle, a tree, a guardrail, or any other object. Even if the accident is your fault, you won’t be left paying out-of-pocket.
Depending on your insurer, you’ll typically have multiple deductible options — commonly $0, $500, or $1,000. Choosing a lower deductible raises your premium, while a higher deductible can lower your premiums.
NOTE: Deductible is the amount you agree to pay out of pocket when you file a claim before your insurance coverage starts paying.
But do you actually need this cover?
- Yes: If your car is new or still worth a significant amount.
- No: If you’re driving an older vehicle with a low resale value. In that case, the cost of collision coverage may not be worth it.
A general rule: If the annual cost of collision insurance plus your deductible is more than your car’s value, consider dropping it.
3. Comprehensive Coverage
Some of the biggest threats to your car don’t come from collisions but from theft, vandalism, hailstorms, floods, and falling trees — all covered by comprehensive insurance.
When you purchase comprehensive insurance coverage, you generally select a set deductible ($500, $1,000, or $1,500), which you pay out of pocket before your insurance kicks in for a claim.
This coverage is essential if you live in areas prone to extreme weather, high crime, or frequent wildlife encounters. Without it, you’ll be left paying out of pocket if your car is stolen or damaged by a natural disaster.
However, comprehensive insurance isn’t necessary for older cars or those with low resale value. If repairing or replacing your vehicle out of pocket seems affordable, you can skip it.
4. Uninsured or Underinsured Motorist Coverage
Not everyone on the road has insurance coverage, and some only carry the bare minimum, which may not fully cover the damage they cause.
Uninsured and underinsured coverage ensures that if a driver with no or insufficient coverage hits you, your medical bills and, in some cases, your car repairs are covered.
Given that about one in eight drivers in the US is uninsured, this coverage is more important than many realize. In some states, it even covers hit-and-run accidents.
5. Personal Injury Protection (PIP) and Medical Payments (MedPay)
Even with health insurance, an accident can leave you with out-of-pocket medical expenses.
Personal Injury Protection (PIP) and Medical Payments (MedPay) help fill those gaps.
- PIP: Covers medical expenses, lost wages, and even funeral expenses (in some cases) — no matter who was at fault. This coverage is required in all no-fault states like Delaware, Florida, Kansas, etc.
- MedPay: Covers only medical expenses for you and your passengers, such as doctor visits, ambulance and Emergency Medical Technician (EMT) fees, nursing services, etc.
If you already have a strong health insurance plan, you may not need additional coverage. However, if your current policies have high deductibles, PIP or MedPay can provide extra financial security.
6. Gap Insurance
Here’s a scenario many drivers don’t think about:
You finance or lease a new car. A year later, it’s totaled in an accident. Your insurance company will only pay for what the car is worth at that moment, but you still owe more on your loan than that amount.
That’s where gap insurance can help — it covers the difference between a car’s actual cash value and the money owed.
If you’re leasing or financing a car, this coverage is essential. Without it, you could be paying for a vehicle you no longer have.