Insurance Basics
Car insurance is your financial safety net—protecting you from unexpected costs due to accidents, theft, and liability.
Why You Need It
- Legal Requirement: Every state mandates minimum coverage to drive legally.
- Liability Protection: Covers bodily injury and property damage you cause to others.
- Peace of Mind: Mitigates financial risk and ensures you’re not left footing large bills.
How Premiums Are Calculated
State Minimums
Every state mandates minimum liability coverage. Below is a snapshot of common minimums:
| State | BI | PD | UM/UIM |
|---|---|---|---|
| California | $15k/$30k | $5k | Optional |
| Texas | $30k/$60k | $25k | $30k/$60k |
| Florida | $10k/$20k | $10k | Optional |
| State | BI | PD | UM/UIM |
|---|---|---|---|
| Alabama | $25k/$50k | $25k | $25k/$50k |
| Alaska | $50k/$100k | $25k | Not Required |
| Arizona | $25k/$50k | $15k | Not Required |
| Arkansas | $25k/$50k | $25k | $25k/$50k |
| Colorado | $25k/$50k | $15k | Not Required |
| Connecticut | $25k/$50k | $25k | $25k/$50k |
| Delaware | $25k/$50k | $10k | Not Required |
| Georgia | $25k/$50k | $25k | $25k/$25k |
| Hawaii | $20k/$40k | $10k | Not Required |
| Idaho | $25k/$50k | $15k | Not Required |
| Illinois | $25k/$50k | $20k | Not Required |
| Indiana | $25k/$50k | $25k | $25k/$50k |
| Iowa | $20k/$40k | $15k | Not Required |
| Kansas | $25k/$50k | $25k | Not Required |
| Kentucky | $25k/$50k | $10k | $25k/$50k |
| Louisiana | $15k/$30k | $25k | $15k/$30k |
| Maine | $50k/$100k | $25k | Not Required |
| Maryland | $30k/$60k | $15k | $30k/$60k |
| Massachusetts | $20k/$40k | $5k | Not Required |
| Michigan | Unlimited PIP | $10k | Not Required |
| Minnesota | $30k/$60k | $10k | Not Required |
| Mississippi | $25k/$50k | $25k | Not Required |
| Missouri | $25k/$50k | $25k | Not Required |
| Montana | $25k/$50k | $20k | Not Required |
| Nebraska | $25k/$50k | $25k | Not Required |
| Nevada | $25k/$50k | $20k | Not Required |
| New Hampshire | Not Required | Not Required | $25k/$50k |
| New Jersey | $15k/$30k | $5k | $15k/$30k |
| New Mexico | $25k/$50k | $10k | Not Required |
| New York | $25k/$50k | $10k | Not Required |
| North Carolina | $30k/$60k | $25k | Not Required |
| North Dakota | $25k/$50k | $25k | Not Required |
| Ohio | $25k/$50k | $25k | Not Required |
| Oklahoma | $25k/$50k | $25k | Not Required |
| Oregon | $25k/$50k | $20k | Not Required |
| Pennsylvania | $15k/$30k | $5k | Optional |
| Rhode Island | $25k/$50k | $25k | Optional |
| South Carolina | $25k/$50k | $25k | $25k/$50k |
| South Dakota | $25k/$50k | $25k | Not Required |
| Tennessee | $25k/$50k | $15k | Not Required |
| Utah | $25k/$65k | $15k | Not Required |
| Vermont | $25k/$50k | $10k | Optional |
| Virginia | $25k/$50k | $20k | Not Required |
| Washington | $25k/$50k | $10k | Not Required |
| West Virginia | $25k/$50k | $25k | Not Required |
| Wisconsin | $25k/$50k | $10k | Not Required |
| Wyoming | $25k/$50k | $20k | Not Required |
Coverage Options
Liability Coverage
What it is: Mandatory in most states, this pays for bodily injury and property damage you cause to others.
Why it matters: Average liability claim is $15,000; insufficient limits can expose you to personal lawsuits.
Collision Coverage
What it is: Covers repair costs for your vehicle after a collision, regardless of fault.
Why it matters: Collision repairs average $3,500; essential for newer vehicles or financed cars.
Comprehensive Coverage
What it is: Protects against non-collision events: theft, vandalism, fire, and natural disasters.
Why it matters: Comprehensive claims average $2,200 and cover risks collision won’t.
Uninsured/Underinsured Motorist
What it is: Covers medical expenses and damages if hit by a driver without sufficient insurance.
Why it matters: 12% of drivers uninsured; UM/UIM protects your finances against them.
Medical Payments (PIP)
What it is: Pays medical and funeral costs for you and your passengers, regardless of fault.
Why it matters: Covers up to policy limits—useful where health coverage is limited.
Roadside Assistance
What it is: Provides towing, jump-starts, tire changes, and lockout services.
Why it matters: 1 in 4 drivers experiences a breakdown annually; saves time and expense.
Glossary
Premium
Definition: Your periodic payment to keep coverage active.
Impact: Higher risk profiles can raise premiums by 30%+
Deductible
Definition: Out-of-pocket amount before coverage starts.
Tip: Opt for higher deductibles to lower your premium up to 20%.
Policy Limit
Definition: Maximum payout per incident.
Note: Consider 100/300 over state minimum to protect your assets.
Claim
Definition: A request for covered loss reimbursement.
Pro Tip: Avoid small claims to prevent rate hikes.
Exclusion
Definition: Situations not covered by your policy.
Advice: Review exclusions on your declarations page.
Underwriting
Definition: Insurer’s risk assessment process.
How it affects you: Clean record leads to preferred rates.
Pros & Cons of Coverages
Collision Coverage
- Pros: Repairs regardless of fault; peace of mind.
- Cons: Higher premiums; not cost-effective for older cars.
Comprehensive Coverage
- Pros: Covers non-collision risks like theft, hail, and fire.
- Cons: Adds premium cost; may not pay off for low-value vehicles.
Uninsured/Underinsured Motorist
- Pros: Financial protection against uninsured drivers.
- Cons: Extra cost; may duplicate medical coverage.
Medical Payments (PIP)
- Pros: No-fault medical coverage for passengers.
- Cons: Limited limits; overlaps with health insurance.
Types of Insurance Policies
- Named Driver Policy: Only covers listed drivers; lowers premium but restrictive.
- Open Driver Policy: Covers any licensed driver; higher premium, more flexibility.
- Usage-Based Insurance (UBI): Telematics-based; pay-as-you-drive rates.
- Pay-Per-Mile Insurance: Low base rate plus per-mile charge; ideal for low-mileage drivers.
- Classic Car Insurance: Specialized valuation for antiques; usage restrictions apply.
Pre-Purchase Checklist
Determine Vehicle Value
Use Kelley Blue Book or NADA to assess current market value.
Check Available Discounts
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