How much insurance should you buy? Many insurance agents will tell you that you should buy as much as you can afford. But is it really necessary? While this is a good rule of thumb, it's not always practical. Your insurance premium shouldn't use up so much of your monthly budget that it impacts the quality of life.

However, the purpose of insurance is to help maintain the current lifestyle of you and your family in the event of an accident, so the amount you spend on car insurance is a balance between enjoying life now & security against unforeseen events.

 You also need need to consider:
1. What is the state required minimum coverage where you live?

2. What does the minimum cover?

3.  What are you protecting?

4. What other coverage is available and can you afford it?

What is the minimum for your state?

State-By-State Minimum Car Insurance Requirements (validated June 2006):
*The first two figures below refer to bodily injury liability limits (which are not required in all states)
and the third figure refers to the property damage liability limit.
As an example, 20/40/10 means coverage up to$20,000 for each person injured in an accident,
up to a maximum of $40,000 for the entire accident, and $10,000 worth of coverage for property damage.
These state minimums are based on the most current information available as of the above date.
In addition, some states are "no-fault" states which additionally require Personal Injury Protection, a.k.a. PIP.
You should check your specific state’s requirements at the bottom of this page to verify these figures.

What do the minimums cover?  Now that you know what your state requires, what are you actually covered for once you purchase the minimum? Using the coverage definitions below, find the types of coverage required by your state & decide if the required minimums give you enough security to protect your assets against liability claims or if you feel safer with additional coverage. Also consider coverage not required by your state, that would help to pay for losses to your vehicle or other unexpected expenses.

Coverage Definitions

Bodily Injury Liability covers other people's bodily injuries or death for which you are responsible. It also provides for a legal defense if another party in the accident files a lawsuit against you. Claims for bodily injury may be for such things as medical bills, loss of income or pain and suffering. In the event of a serious accident, you want enough insurance to cover a judgment against you in a lawsuit, without jeopardizing your personal assets. Bodily injury liability covers injury to people, not your vehicle. Therefore, it's good idea to have the same level of coverage for all of your cars. Bodily Injury Liability does NOT cover you or other people on your policy. Coverage is limited to the terms and conditions contained in the policy.

Property Damage Liability covers you if your car damages someone else's property. Usually it is their car, but it could be a fence, a house or any other property damaged in an accident. It also provides you with legal defense if another party files a lawsuit against you. It is a good idea to purchase enough of this insurance to cover the amount of damage your car might do to another vehicle or object. Coverage is limited to the terms and conditions contained in the policy.

Comprehensive Physical Damage Coverage covers your vehicle, and sometimes other vehicles you may be driving, for losses resulting from incidents other than collision. For example, comprehensive insurance covers damage to your car if it is stolen; or damaged by flood, fire, or animals. It pays to fix your vehicle less the deductible you choose. To keep your premiums low, select as high a deductible as you feel comfortable paying out of pocket. Coverage is limited to the terms and conditions contained in the policy.

Collision Coverage covers damage to your car when your car hits, or is hit by, another vehicle, or other object. It pays to fix your vehicle less the deductible you choose. To keep your premiums low, select as large a deductible as you feel comfortable paying out of pocket. For older cars, consider dropping this coverage, since coverage is normally limited to the cash value of your car. Coverage is limited to the terms and conditions contained in the policy.

Medical Payments covers medical expenses to you and your passengers injured in an accident. There may also be coverage if as a pedestrian, a vehicle injures you. It DOES NOT matter who is at fault. Coverage is limited to the terms and conditions contained in the policy.

Uninsured Motorist Coverage covers bodily injuries to you and your passengers when the other person has no insurance or not enough insurance in a crash that is not your fault. In some states, there is also uninsured motorist coverage for damage to your vehicle. Given the large number of uninsured motorists, this is very important coverage to have, even in states with no-fault insurance. Coverage is limited to the terms and conditions contained in the policy

Personal Injury Protection Coverage covers within the specified limits, the medical, hospital and funeral expenses of the insured, others in his or her vehicles and pedestrians struck by the insured. The basic coverage is for the insured's own injuries on a first-party basis, without regard to fault. It is only available in certain states.

Rental Car Reimbursement covers renting a car if your car isn't drivable or while your car is being repaired because of a covered accident.

Can you afford auto insurance coverage options in addition to the mandatory Bodily Injury & Property Damage liability insurance required by most states? 

Did you see something above and think, "That makes sense, but it isn't required by state law"? As a smart shopper, you probably did. Can your budget afford the additional expense of these protections? Or maybe more to the point; can you afford NOT to have these additional protections? Only YOU can weigh the pros & cons to make the final choices. We just gave you the information to make intelligent choices.

What are you protecting? 

What assets need to be protected from being painfully separated from you, if you cause injury or damage?
A) Your car itself. If this is a significant asset, or at least the bank you owe money to thinks so, then you will need comprehensive and collision.
B) Your net worth, (your home, other real estate, investments, bank accounts, jewelry, etc.) Do you have an enormous net worth to protect. If so, either gets it out of your name and into a trust or buy all the insurance you can. If you have little or nothing to protect, then you can get by with less insurance and still be financially responsible.

After you determine how much protection to get, always ask how much more it is for the next level higher. Very often, you can get significantly more coverage for very little additional cost.

Some people may brag about the size of their insurance policy at parties & others are more humble. But not having enough car insurance can be the difference between financial stability and financial ruin.

You can learn more about Insurance Coverages by following the link.