How much auto insurance you should carry depends upon a variety of factors. Many states have financial responsibility laws that mandate drivers carry a minimum amount of liability insurance. It is best to have enough insurance to cover medical costs for yourself or anyone else that may be injured due to a traffic crash you caused. You also need to carry enough auto insurance that will protect your assets and to shield you from other unexpected losses.

Financial Responsibility

Most states have a financial responsibility law. The financial responsibility law obligates you to provide evidence that you have the "financial" capacity to pay for medical bills, property damage and other costs at the time you're involved in a traffic accident or convicted of an offense. You don't have to be at fault in the accident. However, you ,and the other party to the accident, must demonstrate financial responsibility at the time of the accident or traffic infraction. If you cannot provide proof, you may be subjected to a suspension of your driver's license. Unless you have very deep pockets, the primary reason to carry auto insurance is to meet the financial responsibility requirement. Each state has regulations that establish the minimum amount of auto insurance you need to carry. However, many individuals need to have insurance coverage that is higher than minimums set by the states in order to provide adequate protection of their assets.

Considerations

You may need to buy automobile insurance coverage that goes beyond the minimum requirements. For example, say you're at fault in an accident and you damage an expensive car to the tune of $10,000 worth of damage. If you have only the state's minimum requirement for "Property Damage," which is $5000, you will be personally liable for the other $5000. The financial consequences could be even more disastrous if you totaled the other person's vehicle. Also, if the victim has medical injuries, and you only have the minimum requirement for bodily injury, you will be held financially accountable for the cost that exceeds your coverage. Most people can get by with the recommended insurance industry coverage of $100,000 for bodily injury and $300,000 for liability. This means that one person can receive up to $100,000. The total amount of the coverage is capped at $300,000. The easiest formula for determining how much auto insurance you should carry is based on the value of the assets you need to protect. If you have $500,000 worth of assets, you should carry $500,000 worth of coverage. Carrying adequate auto insurance will help protect your investment and pay for any medical expenses if you're involved in an accident. You can purchase coverage to safeguard yourself against other drivers who are at fault in the accident, but are under-insured or uninsured. You can also gain protection against other losses, such as vandalism, theft and natural catastrophes.

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