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WalletPrep worksheet · Protect yourself

How much car insurance do I need?

Name ____________________ Date __________

Key ideas

  1. Liability pays for harm you cause. Anything above your limits can be your bill. In the example, low limits leave Sam owing $42,000 after one crash.
  2. Collision and comprehensive fix your car. Collision covers crashes. Comprehensive covers theft, fire, weather and vandalism. A lender usually requires both until the loan is paid.
  3. State minimums vary and are often low. Each state sets its own required coverage. Check your state insurance department, then buy more liability than the minimum.

Vocabulary

Liability coverage
Insurance that pays for injuries or damage you cause to other people, up to your policy's limits.
Insurance deductible
The amount you pay yourself on a covered loss or medical bill before your insurance starts to pay.
Emergency fund
Cash set aside only for surprises like a job loss, a car repair or a medical bill. A common goal is 3 to 6 months of essential costs.

Work it out

Sam carries an example 25/50/25 policy. He runs a red light and hits one driver. Her medical bills come to $60,000 and her car costs $32,000 to replace.

  1. Her medical bills
  2. Policy pays (per person limit)
  3. Injury bill left
  4. Her car
  5. Policy pays (property limit)
  6. Car bill left
  7. Injury bill left
  8. Car bill left
  9. Sam could owe

Check yourself

  1. Which coverage pays for the other driver's injuries when you cause a crash?

    • A. Collision
    • B. Comprehensive
    • C. Bodily injury liability
    • D. Uninsured motorist

  2. Your property damage limit is $25,000. You total a car worth $40,000. How much might you owe yourself?

    • A. $0
    • B. $15,000
    • C. $25,000
    • D. $40,000

  3. Which coverage pays when hail damages your parked car?

    • A. Comprehensive
    • B. Collision
    • C. Liability
    • D. Personal injury protection

Your turn

Find your policy's declarations page and write down your liability limits and deductibles. Then ask your insurer for a quote at 100/300/100 liability with a deductible your emergency fund can cover, and compare the yearly difference.

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Answer key

How much car insurance do I need?

Work it out

  1. Her medical bills$60,000
  2. Policy pays (per person limit)− $25,000
  3. Injury bill left= $35,000
  4. Her car$32,000
  5. Policy pays (property limit)− $25,000
  6. Car bill left= $7,000
  7. Injury bill left$35,000
  8. Car bill left$7,000
  9. Sam could owe= $42,000
  1. For one injured person, the policy pays at most $25,000. $60,000 − $25,000 = $35,000 is left over.
  2. For property, it pays at most $25,000. $32,000 − $25,000 = $7,000 is left over. Together, $35,000 + $7,000 = $42,000 could be Sam's bill.
  3. With 100/300/100 limits, the policy would cover both the $60,000 and the $32,000, and Sam would owe nothing above his limits.

Check yourself

  1. C. Bodily injury liability Bodily injury liability pays for injuries you cause to other people. Collision and comprehensive cover your own car.
  2. B. $15,000 $40,000 − $25,000 = $15,000. Anything above your limit can be your bill.
  3. A. Comprehensive Comprehensive covers damage that isn't a collision, including weather, fire, theft and vandalism.