Gianetta Palmer is a writer for, copywriter, and essayist. Her work has appeared in, Healthline, and The Dyrt Magazine. She is the author of Scrunchie-Fried and writes a lot about car insurance in her spare time.

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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The simplest way to determine how much auto insurance you need for new car is to ask yourself how much coverage money you’ll need if the vehicle was stolen or totaled in an accident. Determining your total protection involves several factors that include bank loans, depreciation, extra components, car modifications and the amount of risk you’re willing to take.

Suffice it to say, there is no standard rule for saying a certain dollar amount is adequate. There are too many factors involved to make the determination so simple. If you’ve already been driving for a number of years, and have owned more than one new car, you’re probably better equipped to decide on coverage amounts than someone who’s just getting started. If you’re not sure, don’t be afraid to ask advice from older, more experienced drivers.

Can I purchase just liability insurance?

At this time, there doesn’t appear to be any states requiring drivers to purchase more than a standard liability policy. This kind of policy provides protection against bodily injury incurred by individuals other than yourself, plus property damage you might cause to buildings, landscaping, and so on. Some states also require personal injury protection (PIP) and uninsured/underinsured coverage as part of the standard liability policy. In every state, collision and comprehensive coverage appear to be optional.

Most drivers are not required to purchase anything more than standard liability in order to register and drive your vehicle. However, if you have an outstanding bank loan, it’s quite likely the terms of your loan agreement require you to purchase collision and comprehensive coverage in order to protect the bank’s investment. Collision insurance pays for damage to your car as the result of an accident while driving; all other damage is covered by comprehensive insurance.

What if I refuse to get collision and comprehensive insurance?

When you sign a loan agreement for a new car, you are essentially signing a contract, which requires you to protect the bank’s investment. If you read the fine print, you’ll probably notice it makes provision for the bank to purchase its own insurance policy should you refuse to purchase one yourself. Don’t think you’re in the clear under such circumstances, though. If a bank takes this course of action, they will undoubtedly pass the cost of the policy on to you.

Keep in mind that what the bank is likely to charge you for their car insurance policy and will usually be a lot more than what you’d pay on your own. They do this as a means of encouraging you to purchase your own policy. In the rare case where neither you nor your bank purchases collision or comprehensive coverage, you would be liable to pay for any damages out-of-pocket in order to protect the bank.

Should I purchase gap insurance?

If you buy a new car from a dealer, you’ll most likely be asked whether you want to purchase gap coverage. This type of auto insurance is a specialized policy, which covers the difference between your auto loan balance and the vehicle’s replacement value. Gap coverage was developed because new car buyers often lose up t 20% of a car’s value within the first year of ownership. By contrast, most of us pay off less than 3% of our loan in that first year.

If you have the cash on hand to make up the difference, you may decide gap coverage is not worth the extra money. Although accidents can certainly happen to anyone, it’s not uncommon for people with extremely safe driving records to forgo this extra coverage. Should you decide to purchase it anyway, make sure to cancel it once the replacement value of your vehicle and your outstanding balance level out.

Should I purchase extra liability coverage?

Prior to the early 1990s many insurance experts believed state minimums for liability coverage were adequate under most circumstances. However, with the skyrocketing cost of health care and higher costs for replacing today’s modern vehicles, all of that has changed. Experts now recommend that drivers purchase greater amounts of liability than are mandated by law.

Using New York State as an example, their minimum liability coverage for personal injury of a single victim is $25,000. When you consider that emergency surgery and hospital care in a critical injury unit can easily reach $10,000 per day, it’s easy to see that $25,000 in coverage is inadequate. If you have valuable assets you want protected from a possible lawsuit, you’d be wise to increase your minimum liability coverage.

That said, it is probably impractical for most people to carry enough liability coverage to cover every possible scenario. Another option is to purchase an umbrella policy as part of your auto or homeowners coverage. An umbrella policy is personal protection against financial loss for just about anything not covered under your other insurance policies. They tend to be very affordable and can offer you good protection if you’re ever sued.

Is there any other car insurance I should consider?

One last thing to consider is extra coverage to provide for customizations or performance parts you may have add later. If your collision and comprehensive coverage does not protect such things, you’d be smart to purchase extra coverage.

When it comes time to calculate how much car insurance you need for a new car, you need to look long and hard at how much financial risk you’re willing to take. You should purchase enough insurance to protect yourself against financial loss under most reasonable circumstances.