What Kind of Car Insurance Do I Need?

Some types of car insurance are mandatory, others are optional.

Some kinds of car insurance are required by state law, while other types of insurance are optional. Buying more insurance coverage provides greater protection to drivers who are willing pay higher premiums. To make a good decision about which car insurance policy you should buy, you should have a general understanding about the various kinds of available coverage.

Mandatory Coverage

In all states, drivers must have some form of financial responsibility—often an insurance policy with certain minimum limits—in place before they can to register a vehicle and operate it.

Liability coverage. Liability coverage is designed to make sure drivers, passengers, and pedestrians who suffer damage or injury through the fault of another driver don’t have to pay for repairs or medical care out of their own pocket. Almost every state requires drivers to purchase liability coverage, though a few states allow drivers to forego insurance if they can show that they have the financial resources available to pay damages in the event of an accident. "Property damage" liability insurance covers damage to property, typically another vehicle, but also any structure or personal property damaged in an accident. "Bodily injury" liability insurance, as you might expect, covers injury to people—drivers, passengers, or pedestrians.

Coverage limits. Drivers must purchase liability coverage that meets their state’s minimum requirements. Minimum property damage coverage ordinarily ranges from $5,000 to $25,000, depending on the state. Bodily injury coverage is defined per person and per accident because there might be more than one person injured in an accident. Per person minimum coverage usually ranges from $15,000 to $50,000. Per accident coverage typically ranges from $30,000 to $100,000. States with mandatory uninsured/underinsured motorist (UM) coverage or personal injury protection (PIP) coverage (see below) also have minimum coverage limits.

Drivers can be held personally liable for damages above the limits of their policy. Drivers who have significant assets should consider buying insurance with limits sufficient to avoid personal liability, despite having to pay higher monthly premiums.

State-Dependent Coverage

A few states require coverage beyond basic liability coverage. These types of coverage are optional in other states at added cost.

Uninsured/underinsured motorist (UM) coverage. While liability coverage is usually mandatory, many drivers fail to carry insurance, or they have insurance that’s insufficient to cover the total damage or injuries caused in an accident. An at-fault driver can be found personally liable; however, most drivers without insurance don’t have the financial resources to pay personally for damages they’ve caused in an accident. If you have uninsured motorist coverage, your insurance company will cover damages or injuries caused by another driver who doesn’t have insurance. If you have underinsured motorist coverage, your insurance will cover damages or injuries beyond the limits of the other driver’s policy. As with liability coverage, uninsured/underinsured coverage is broken down into property damage and bodily injury coverage. A small number of states have made UM coverage mandatory.

Personal Injury Protection (PIP). Personal injury protection covers medical expenses and, depending on the policy, other costs, for the covered driver and passengers, regardless of who caused an accident. Several states have made PIP coverage mandatory to try to reduce the number of lawsuits after car accidents.

Optional Coverage

Other types of coverage aren’t required by state law but are available for drivers who are willing to pay higher premiums.

Collision coverage. If you have collision coverage, your insurance company will pay for damage to your vehicle in the event of a collision, regardless of fault. This kind of insurance covers typical car vs. car accidents, as well as one-car incidents.

Comprehensive coverage. Comprehensive insurance covers theft or damage caused by something other than a collision. For example, comprehensive insurance pays to repair damage due to hail, fire, flood, damage, a misguided baseball through a windshield, and vandalism. Comprehensive coverage also covers the cost of repairs if you hit an animal with your car.

Learn More

To learn more about cars and driving, get Nolo's Encyclopedia of Everyday Law, by the Editors of Nolo. This handy guide contains answers to everyday legal questions that come up in all aspects of life.

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