Which Auto Insurance Coverages Can I Avoid? - Kelley Blue Book

Car insurance coverages to avoid

No one wants to spend money on auto insurance they don’t need. But not carrying enough coverage can lead to devastating financial losses if you’re in an accident.

Before deciding which auto insurance coverage to avoid, you need to determine which ones you need to comply with by law and those that adequately protect yourself and your family.

Is it Legal to Drive Without Auto Insurance?

Nearly every state in the country requires drivers to maintain liability coverage — it’s the law. Some states also require it for medical payments or personal injury protection (PIP) and uninsured/underinsured motorist coverage.

For the most up-to-date information about the requirements where you live, check with your state’s department of insurance.

What are Mandatory Minimum Insurance Requirements?

In addition to mandates that dictate the types of coverage you must carry, states also make laws governing the amount of coverage you need. The minimum mandatory insurance requirement is the lowest policy limit you can have to drive legally in your state.

Sticking with your state’s minimum insurance requirements will help you save money when you buy insurance. But mandatory minimums in many states are low. If you only carry the minimum, you may find yourself without enough coverage if a serious accident happens. And you may need to tap into your savings or other investments to cover accident-related bills.

The United States Department of Transportation’s National Highway Traffic Safety Administration released data showing that an estimated 38,680 people died in car crashes in 2020. Despite the pandemic, it represents an estimated increase of about 7% compared with 36,096 deaths in 2019.

According to NHTSA analysis, the main causes behind the increase include impaired driving, speeding, and failure to wear a seat belt.

You can’t control what others do on roadways. But you can control your driving behaviors and the types of insurance coverage you buy to prepare for the unexpected.

What if I Drive Without Car Insurance?

The penalties for driving a car without the proper insurance coverages vary based on the state where you live and may include:

Fines
Confiscation of your license plates
Jail time
Suspended license and registration
Vehicle impoundment
Needing an SR-22 form as proof of insurance to continue driving

How to Decide Which Auto Insurance Coverage to Avoid

Before deciding which auto insurance coverages you can avoid, you need to know which types are required to drive in your state legally. And you need to understand how each available coverage protects you. Remember, just because a coverage is optional doesn’t mean not having it is a good idea.

Let’s look at the major types of coverage available on a standard auto insurance policy to help you decide which ones you need and which you can skip.

Main Types of Car Insurance Coverage

Liability

Because liability is required in nearly every state, it’s unlikely you’ll be deciding whether to carry it or not. Instead, you’ll need to determine what policy limits are adequate. It’s important to select an amount that’s high enough to protect your assets if you’re responsible for causing an accident.

If you have liability coverage, you’ll have three separate limits, which you’ll see written like this in your policy: 15/30/10.

The first number represents the per-person bodily injury liability limit. The second represents the per-accident bodily injury liability limit. And the third represents the per-accident property damage liability limit.

Let’s say you carry your state’s minimum liability limits of 15/30/10. Your insurer will pay up to $15,000 in medical bills per person. The company will pay a maximum of $30,000 in medical bills for the entire accident, no matter how many people were injured. And they will pay for up to $10,000 in property damage from the accident.

Remember, the purpose of liability coverage is to protect people you hurt in an accident. It doesn’t cover any of your medical bills or damage to your vehicle.

Medical Payments and Personal Injury Protection

Some states require medical payments or personal injury protection. In others, it’s optional. But skipping it is risky if you live in a state that doesn’t require it. This type of coverage helps pay for injuries you or your passengers sustain in an accident. It might also cover lost wages and funeral costs.

When deciding whether to purchase it and what your coverage limit should be, think about whether you could afford to pay for a hospital stay, physical therapy, surgery, and any other medical treatment you might need after an accident.

Uninsured and Underinsured Motorist Coverage

If you live in a state that requires drivers to maintain this type of coverage, you’ll need to buy it to drive legally. If you live in a state where it’s optional, you’ll have to decide whether it’s worth it.

The at-fault driver’s insurance company should pay for injuries and property damage when you’re in an accident. But if the at-fault driver is uninsured or underinsured, you could be on the hook for accident-related expenses. Uninsured/underinsured motorist coverage helps protect you if you’re hit by a driver who doesn’t carry insurance or enough coverage to pay for your expenses.

Collision and Comprehensive

No states currently require drivers to maintain collision or comprehensive coverage. But collision and comprehensive could be required if you take out an auto loan or lease for a new or used car.

Collision helps pay for vehicle repairs if you’re in a crash. And comprehensive covers damage caused by non-crash-related incidents such as severe weather, vandalism, theft, animals, and more.

To decide whether maintaining comprehensive or collision coverage is in your best interest, you’ll need to do some math. If you don’t already know the current market value of your vehicle, you need to find out. Kelley Blue Book’s car value tool can help. It shows the current market value of your own vehicle (added bonus: you can check any new or used car value if needed if buying a car).

Knowing the value of your car is important because that’s the maximum amount the insurance company will reimburse you if a covered event damages your vehicle. For example, if your car is worth $2,500 but has $5,000 worth of damage, the insurance company will write you a check for $2,500 minus your deductible.

Comparing the amount the insurance company might reimburse you for your vehicle with your comprehensive and collision premiums can help you decide whether paying for coverage is worth it.

Insurance Add-Ons

In addition to the five main types of coverage available on a standard auto insurance policy, there are many add-ons, such as gap coverage, rental car reimbursement, and custom equipment coverage, which you can include that provide protection for a specific need. Add-ons are optional but can provide peace of mind.

Choosing the Right Coverages and Policy Limits

There’s no doubt that the cost of insurance can add up fast. But don’t be too quick to skip a specific coverage just because it’s optional. While it could save you a few bucks today, it could end up costing you down the road.

When selecting coverages and policy limits, you’ll need to balance the cost you have to pay for your policy with the benefit of having adequate coverage when you need it.