We all want low car insurance rates, but skimping on coverage can lead to unintended consequences. An auto policy protects your assets. Without insurance, if you’re involved in an accident, you may end up paying thousands of dollars in medical and repair costs. You might have to pay even more if you’re at fault.

State laws require you to carry minimum amounts of liability insurance to pay for the medical and repair expenses of another driver when you cause a fender bender. But most state minimums aren’t high enough to cover all the costs involved in a major collision. If you’re found at-fault for an accident, you’ll have to foot the bill from your own funds if your auto policy doesn’t provide enough coverage.

To determine how much car insurance to buy, you need to understand the different types of coverage, which ones your state and lender require and the amounts of coverage that make sense for your vehicle.

What are the types of coverage and how much do I need?

All states require motorists to buy certain levels of liability insurance and some require other types of coverages. For example, California requires all drivers to carry at least $15,000 in bodily injury coverage to pay for the death or injuries of one person in a single accident, $30,000 in bodily injury coverage to pay for the death or injuries of more than one person in a single accident and $5,000 in personal property liability coverage.

However, $15,000 in bodily injury coverage won’t go far if another driver sustains serious injuries. If your legal obligation exceeds the limits of your coverage, you’ll have to pay the remainder of the expenses from your own pocket. You can guard against such financial exposure by increasing the limits on your coverage or purchasing an umbrella policy, which kicks in after you exceed the limits of your liability policy.

Most insurers allow you to customize your policy and offer recommended auto insurance coverage levels, so carefully consider the types of coverage and levels of coverage you need. The most common basic auto coverages include:

• Liability: Your state requires you to purchase two types of liability coverage to pay for bodily injuries and property damage when you are at fault for an accident. Bodily injury coverage pays the medical expenses of another motorist and his passengers. Property damage pays to repair the other driver’s vehicle or to pay the repair costs of other types of property. For example, if you lose control of your car and destroy a fence, you can file a claim against your property damage insurance.
• Medical payments: Medical payments coverage helps cover the medical costs or funeral expenses of you and your passengers following an accident.
• Personal injury protection: Like medical payments coverage, PIP insurance helps pay the medical expenses of you and your passengers, regardless of which driver was at fault for an accident. Some states require auto owners to purchase PIP insurance.
• Uninsured and underinsured motorist: Many states require drivers to carry uninsured motorist insurance. If an uninsured driver damages your car, this coverage will help pay the repair costs. This type of policy usually includes underinsured motorist coverage, too, which helps cover your repair costs when another driver doesn’t have enough liability coverage to pay all your repair expenses.
• Collision: When you’re at fault for an accident, your collision coverage helps pay repair or replacement costs. State laws don’t require collision insurance, but a lender will if you finance your automobile.
• Comprehensive: Like collision coverage, states don’t require you to buy comprehensive insurance, but a lender will if you take out a car loan. Comprehensive insurance covers non-collision expenses. For instance, if someone steals your car, this coverage will help pay to replace it. Or, if your vehicle sustains damage in a hailstorm, your comprehensive policy will help pay repair bills.
• Gap: If you total a financed automobile within the first few months of ownership, your collision coverage, or another driver’s liability insurance, might not cover the amount you still owe the lender. However, gap insurance can help pay the difference, making it financially easier to replace your vehicle.

Insurance companies also offer many optional coverages that are worth your consideration, including:

• Customized equipment: If you add custom wheels or a sound system to your car, customized equipment coverage can help pay to repair or replace it following a covered accident.
• Glass: Although collision and comprehensive insurance can help offset the cost of replacing a window or windshield, optional glass coverage often pays the full replacement cost, with a low or no deductible.
• Guaranteed value: Some providers offer guaranteed value coverage, which pays a previously agreed upon value if you total your vehicle.
• Loss of use: Following a covered accident, loss of use coverage can help pay your public transportation, rental car or rideshare expenses.
• New car replacement: If you purchase a new car, new car replacement coverage can help replace it with the same make and model if you total it within the first two years of ownership.
• Personal items: When a thief steals your cellphone or other personal belongings from your car or it’s destroyed in an accident, personal items coverage can help pay replacement costs. You may not need this type of coverage if your homeowners or renters insurance policy features this protection.
• Rideshare: If you drive for a rideshare company, it likely will provide a certain level of insurance that only covers your vehicle while transporting a passenger or driving to pick up a passenger. Rideshare fills the gap, covering your vehicle while you’re on the clock but not involved in transporting a customer.
• Roadside assistance: If you blow a tire or breakdown on the road, roadside assistance coverage can help pay the cost of fuel delivery, jump starts, lockouts or towing.

What coverage should I not get? 

If you own a new car, you’ll likely want to purchase liability, collision and comprehensive coverages, even if you paid cash for the vehicle, to maximize your protection. However, if you’ve paid off an older vehicle, it probably doesn’t make good financial sense to continue collision and comprehensive coverages.

For instance, we requested a quote from Progressive for a 1999 Toyota Camry in good condition, with 180,000 miles on the odometer, owned by a 45-year-old man living in San Francisco, California. We received a quote for $311 for a six-month policy, which only includes state required liability and uninsured and underinsured motorist coverages.

When we added collision and comprehensive coverages, with a $1,000 deductible, the premium increased to $395 for a six-month policy. According to Kelley Blue Book, the trade-in value for our Camry is $351 to $924, so it doesn’t make sense to pay an additional $168 per year for collision and comprehensive coverages, especially with a deductible that’s higher than the car’s value.

When purchasing an auto policy, also consider how deductibles will affect your rate. Low deductibles increase your premium while higher deductibles offer lower rates. Using the same policyholder profile, we requested quotes from Progressive for four vehicles with various deductible levels, and here’s what we found:

The takeaway

Purchasing the right amount of car insurance isn’t difficult. It just takes a little research, thought and careful calculations. To determine the perfect amount of insurance for your automobile, follow a few basic rules:

• Find out the types and levels of coverage your state requires.
• Look into auto insurance coverage recommendations for your area.
• For financed vehicles, ask your lender how much collision and comprehensive coverage you need to buy.
• Ponder increasing the legally required liabilities to maximize financial protection.
• Ask about how raising or lowering deductibles will affect your rate when you’re shopping for a policy. For the best rate, raise the deductible to the highest level you can afford to pay out of pocket.
• If you’re insuring an auto you own, find out its resale value to determine if it makes sense to purchase collision and comprehensive insurance.
• Consider a provider’s optional coverages to increase your protection. Add-on coverages increase your insurance premium by a few dollars, but in the long run, they’re often worth the extra money when you need them.