How to Choose the Right Auto Insurance

Every state except New Hampshire requires drivers to carry a minimum level of auto liability insurance. These minimums define the least amount of coverage you must have to legally operate a vehicle. They're typically expressed as three numbers — for example, 25/50/25 — which represent:

• $25,000 bodily injury liability per person
• $50,000 bodily injury liability per accident
• $25,000 property damage liability per accident

State minimums are a legal floor — not a recommendation. A serious accident can easily generate damages that far exceed minimum limits, leaving you personally responsible for the difference. Most financial advisors recommend carrying at least 100/300/100 liability limits.

Auto insurance policies are built from individual coverage components. Understanding what each one does helps you make informed decisions about which to include and at what level.

Liability Coverage — Pays for injuries and property damage you cause to others in an at-fault accident. Required in almost every state. Does not cover your own vehicle or injuries.

Collision Coverage — Pays to repair or replace your vehicle after a collision with another vehicle or object, regardless of fault. Required by most lenders.

Comprehensive Coverage — Covers damage to your vehicle from non-collision events: theft, vandalism, weather damage, fire, and animal strikes. Also typically required by lenders.

Uninsured/Underinsured Motorist (UM/UIM) — Protects you when you're hit by a driver with no insurance or insufficient coverage. Highly recommended given that roughly 13% of U.S. drivers are uninsured.

Personal Injury Protection (PIP) — Covers medical expenses and lost wages for you and your passengers after an accident, regardless of fault. Required in no-fault states.

Medical Payments (MedPay) — Similar to PIP but with more limited scope. Covers medical expenses for you and your passengers after an accident.

Gap Insurance — Covers the difference between your vehicle's market value and the remaining balance on your loan or lease if your car is totaled. Essential if you've financed a new vehicle.

The right amount of coverage depends on your personal financial situation, not just your state's minimum. Consider these questions:

• What is your net worth? The more assets you have to protect, the higher your liability limits should be. A $100,000 lawsuit against someone with $25,000 in liability coverage means $75,000 comes out of personal assets.
• Is your vehicle financed or leased? If so, your lender requires collision and comprehensive. If you own your vehicle outright, these become optional.
• What is your vehicle worth? If your car is worth less than $5,000, the cost of full coverage may not be justified. Use Kelley Blue Book or similar tools to check current market value.
• Do you have health insurance? Strong health coverage reduces the importance of high PIP or MedPay limits, since your health insurer will cover most accident-related medical bills.
• Do you have an emergency fund? A solid emergency fund allows you to choose a higher deductible with confidence, reducing your premium while maintaining protection.

Your deductible is the amount you pay out of pocket before your insurance kicks in on a collision or comprehensive claim. Common deductible options range from $250 to $2,000.

Higher deductible = lower annual premium. Lower deductible = higher annual premium but less you pay at claim time.

To find the right balance, calculate how long it takes for the annual premium savings from a higher deductible to offset the increased out-of-pocket exposure. For example: if raising your deductible from $500 to $1,000 saves $200 per year, you break even in 2.5 years — making it a good deal if you have the savings to cover the higher deductible.

Only choose a deductible amount you are confident you could pay immediately if needed. Never select a $2,000 deductible if you don't have $2,000 readily accessible.

Auto insurance pricing varies dramatically between companies for the same driver and coverage. Getting quotes from only one or two insurers means you are almost certainly leaving money on the table. We recommend comparing at least three to five quotes every time you shop for coverage.

When comparing quotes, make sure you are comparing identical coverage — the same liability limits, deductibles, and optional coverages — across all providers. A quote that looks cheaper may simply offer less coverage.

Key information you'll need when requesting quotes:

• Driver's license number for each driver to be covered
• Vehicle identification number (VIN)
• Current mileage and annual mileage estimate
• Current insurance company and policy expiration date
• Any accidents, violations, or claims in the past five years

The purpose of insurance is to be there when you need it. A policy from an insurer that struggles to pay claims is of limited value. Before committing to any insurer, check their financial strength rating from AM Best — an independent rating agency that evaluates insurers' ability to meet their financial obligations.

Only purchase coverage from companies rated A- or higher by AM Best. Look for these ratings: A++ (Superior), A+ (Superior), A (Excellent), A- (Excellent). Avoid any insurer rated below A- unless you have no alternative.

Also review the company's complaint index from the National Association of Insurance Commissioners (NAIC). A complaint index below 1.0 indicates fewer complaints than the industry average — a good sign. An index above 1.5 deserves caution.

Your insurance needs change over time. Major life events should trigger a policy review — and potentially a new round of quote comparisons. Events that commonly warrant coverage adjustments include:

• Buying a new or different vehicle
• Moving to a new city or state
• Getting married or divorced
• Adding a teen driver to your household
• Paying off a car loan (you may be able to drop collision/comprehensive)
• A significant change in your annual mileage
• Retiring and reducing your daily driving
• Purchasing a home (bundling opportunity)