How much car insurance do I need?

Wondering how much car insurance you need? The exact amount of coverage you need to get confuses a lot of people. That’s because there’s not an easy one-size-fits-all answer.

In this article, we’re going to look at three common scenarios concerning home ownership and assets to answer the question of, “How much car insurance do I need?”

Here’s how much car insurance you need

At first glance, you may not understand how your status as a homeowner vs. a renter and the dollar amount of assets you have in your life factors into how much car insurance you need.

But think about it like this: The more you have in life, the more protection you’re going to need when you’re out there on the road.

That’s because if you’re at-fault in an auto accident that winds up causing a lot of bodily injury and property damage to someone else, all of your assets could be on the line if you don’t have enough insurance coverage.

So to answer the question, “How much car insurance do I need?” you really have to go down a forked kind of path.

First, you need to ask yourself if you are a homeowner or not? Then, if you are a homeowner, ask yourself how much do you have in the way of assets that you need to protect.

Let’s take a look at three possible scenarios to help make sense of it all:

• You rent a home and have little in the way of assets
• You’re a homeowner with some assets, but they’re worth less than $1 million
• You’re a homeowner with assets valued above $1 million

You rent a home and have little in the way of assets

• You can likely get by with state minimums
• However, know that it will not be enough for even a minor accident
• You are what the lawyers call “judgment proof,” meaning you have nothing that can be taken away

Almost every state requires that motorists have auto insurance. Furthermore, each state has a required minimum of insurance you must carry, often called the state minimum. You can see your state’s minimums here.

State minimums are generally only enough if you have practically nothing in the way of assets: You don’t own a home and you have no investments or savings.

If that describes you, you’re “judgment proof” as the lawyers say — meaning you have nothing that anyone can come after.

So if you rent and have really no assets to speak of, you’re a candidate for having state minimums only.

However, we have to stress this: The state minimums likely won’t be enough to cover the medical bills for even a minor accident.

And you’ll be on the hook in an at-fault accident for the excess bills beyond what state minimums cover, which puts you in the uncomfortable position of owing money that you can’t pay because you have no assets.

You’re a homeowner with some assets, but they’re worth less than $1 million

• Bodily injury liability of $250,000 per individual and $500,000 per incident is a safe bet
• Think of that as a starting point and adjust upwards as you gain more assets

Bodily injury liability pays for the medical bills of the people you’ve harmed in an at-fault auto accident.

If you own your own home, but don’t necessarily have a lot of other investable assets, you still need to make sure you have enough protection. That’s in case someone you’ve harmed tries to come after you for everything you’ve got.

In this situation, money expert Clark Howard advises that a 250/500 policy is a good starting point. That’s $250,000 of coverage per individual and $500,000 for injuries to all the occupants of another vehicle that you harm.

But a 250/500 policy is only that — just a starting point — and you may need more based on how much more you have in life.

“The more you have, the more liability coverage you want to have,” Clark says. “It’s a continuing scale.”

You’re a homeowner with assets valued above $1 million

• If your assets are $1M or more, you want an umbrella policy that sits on top of your existing coverage

If you’re a homeowner and you have investable assets of more than $1 million, Clark advises keeping a reasonable level of bodily injury liability like 250/500 and getting a supplemental policy called an umbrella policy.

An umbrella policy sits on top of your existing insurance coverage and covers you in the event of a catastrophic claim.

Umbrella insurance policies are sold in multiples of $1 million. These policies pose such a low risk to insurers that they only cost a couple hundred for the first million dollars of umbrella coverage. The more multiples of coverage you add on, the lower the relative price drops.

Final thought

If you’re asking yourself, “How much car insurance do I need?” you now can see that there’s not one easy answer. But hopefully after reading this article, you have a better idea of how to determine the right coverage for your specific financial situation.

Meanwhile, if you’re in the process of shopping for car insurance, see our list of the best and worst auto insurance companies here.

More car insurance stories on Clark.com:

• When should you file a car insurance claim?
• How to save money on car insurance
• Why did my car insurance go up?