Car insurance is important — it helps protect you from paying large out-of-pocket costs after a crash, theft, or other covered loss. And it isn’t optional for most drivers: all states and D.C. require proof of financial responsibility (most commonly by carrying liability insurance). New Hampshire is the lone state that does not require every driver to buy a liability policy, but drivers there are still financially responsible if they cause a crash. In Virginia, the option to drive uninsured ended — insurance is required as of July 1, 2024. There’s a lot that goes into your auto insurance policy, but don’t worry — we’ve broken down the essentials with current, state‑specific rules and 2025 cost trends.
What is Car Insurance?
Auto insurance is a contract between you and an insurance company. If a covered event (like a crash, theft, or vandalism) happens, your insurer pays for losses up to your limits and subject to your deductibles and policy terms. In exchange, you pay a premium monthly or annually. Policies commonly run six or 12 months, and most carriers let you choose the term and whether to pay in full or monthly.
Insurance covers defined perils and isn’t a blank check. While your specific protections depend on the coverages and limits you select, most auto policies are built around:
- Property damage liability – pays for damage you cause to others’ property (e.g., vehicles, buildings, structures)
- Medical costs – pays for injuries via required no‑fault PIP in no‑fault states or optional medical payments, depending on your state
- Liability costs – pays legal defense and judgments/settlements when you’re found at fault up to your chosen limits
How Does Car Insurance Work?
There are hundreds of auto insurers, from large nationals like State Farm, Progressive, GEICO, Allstate and USAA to strong regional carriers such as Amica, Erie, Auto‑Owners and NJM. Policies are customizable by coverage type and limit, and more carriers now use telematics/usage‑based insurance (UBI) to personalize pricing based on driving behavior, with regulators emphasizing transparency and privacy protections (J.D. Power 2024; NAIC on UBI).
In addition to basic liability and property damage coverage, you can also purchase add-on auto insurance options like:
- Collision coverage – pays for your vehicle’s damage from a collision with another vehicle or object
- Comprehensive coverage – pays for non‑collision losses (e.g., theft, vandalism, fire, certain weather events); comprehensive claims have been pressured by elevated theft and severe weather in recent years (NICB)
- Personal injury protection (PIP) – required in no‑fault states (e.g., FL, MI, NJ, NY, PA, HI, MA, MN, ND, UT, KS, KY) and pays medical costs for you and passengers regardless of fault (state requirements)
- Uninsured/underinsured motorist coverage – protects you if an at‑fault driver has no or too little liability insurance; UM/UIM purchase is mandatory in some states (e.g., Virginia) and is equal to BI by default in others (New York SUM) unless you opt down, while states like California require insurers to offer it unless you reject in writing (Virginia DMV; NY DFS; California Insurance Code §11580.2).
Auto insurance also covers any additional family members you add to your policy and anyone who drives your car with your permission. However, personal auto insurance won’t cover your car when you’re driving it for business purposes (like delivery or ride‑sharing). Ask your agent about a rideshare endorsement to close those gaps.
Many drivers have needs beyond the basics. If you own a new, financed, custom, or vintage car, consider endorsements. Current trends include usage‑based/telematics programs (discounts tied to driving behavior), OEM parts endorsements for repairs, new car replacement and gap for total losses, and classic roadside/rental add‑ons (NAIC on UBI; J.D. Power 2024). These are just a few popular coverages that can be added to your auto policy for better protection:
- “Gap coverage” (loan or lease payoff)
- Accident forgiveness
- Roadside assistance and towing
- Rental reimbursement
- Umbrella liability insurance
- Rideshare insurance
- Custom parts and equipment coverage
- Pet injury coverage
Every insurance company has a different coverage selection. Compare a few of the best auto insurance companies and look at more than price: telematics options and discount designs, how stable rates have been in your state, and claims satisfaction. Recent research shows regional mutuals like Amica, Erie, Auto‑Owners and NJM often score highly on claims service (J.D. Power 2024 Auto Claims), while big brands differ in shopping experience and digital tools (J.D. Power 2025 Shopping Study). Market share context is available from NAIC.
What’s included in “full coverage” auto insurance?
Many people use “full coverage” as shorthand, but it isn’t a standardized policy. In practice, people usually mean a policy with liability plus collision and comprehensive, and in some states it may also include required PIP or UM. The exact protections depend on the limits and endorsements you select — there’s no unlimited, catch‑all plan.
“Some agents use ‘full coverage’ as a shorthand way to describe auto policies that only meet state minimum limits for coverage,” says Jonathan O’Steen, personal injury attorney and partner at O’Steen & Harrison LLC. “True full coverage would provide unlimited protection for all losses arising from an automobile accident.”
Don’t rely on a label. Review liability, UM/UIM, PIP/MedPay, and your physical damage coverages and deductibles with an agent to tailor protection to your financial situation and state requirements.
Learn what true “full coverage” looks like
How Much Does Auto Insurance Cost?
Premiums have risen sharply from 2021 levels. The motor vehicle insurance component of the CPI ran at double‑digit year‑over‑year rates through much of 2024 and remained elevated in 2025 (BLS CPI). For a standard driver profile in 2025, Bankrate’s nationwide analysis places the average full‑coverage premium in the mid‑$2,000s per year, with minimum coverage in the mid‑$700s. A second benchmark from NerdWallet finds average full coverage around the low‑$2,000s, with minimum coverage in the upper‑$600s to low‑$700s. The latest official NAIC average expenditure per insured vehicle increased again in 2022 (a different metric from a quoted “full coverage” premium).
Car insurance premiums are based on many factors, including driving record and location. Regulatory rules vary by state, and some rating factors are restricted or prohibited in certain jurisdictions. In general, carriers consider:
- Age
- Gender (where permitted by state law)
- The state you live in
- Your car type
- Your driving history and habits
- Your credit score (where allowed; see CFPB on credit-based insurance scores)
- The coverage amount you pick
- The coverage type you pick
- Education level (where allowed)
- Profession (where allowed; see NAIC consumer guidance)
State averages vary widely. High‑cost states like Florida and Louisiana commonly exceed $3,000 per year for full coverage, while lower‑cost states like Maine and Vermont are often near or below roughly $1,200–$1,400. Check current state tables from both Bankrate (2025) and NerdWallet (2025) when budgeting.
Is Car Insurance Required?
All states require drivers to prove “financial responsibility,” usually by purchasing at least the state minimum liability insurance. New Hampshire is the only state that doesn’t require all drivers to carry a liability policy, but drivers there must still meet strict financial‑responsibility obligations after certain crashes. With Virginia now requiring insurance (July 1, 2024), liability insurance is effectively mandatory almost everywhere. No matter where you live, insurance is the primary way to avoid paying tens of thousands of dollars for injuries, vehicle damage, and legal costs.
Specific requirements vary by state. Many jurisdictions also require additional coverages: no‑fault/PIP states mandate PIP (e.g., FL, MI, NJ, NY, PA, HI, MA, MN, ND, UT, KS, KY), and many states require Uninsured/Underinsured Motorist protection either to be purchased or at least offered unless you reject in writing. Examples: Virginia includes UM/UIM in every policy (with strengthened UIM benefits as of 2023), New York requires SUM (its UM/UIM form) to match your BI limits by default unless you opt down, and California ties its UM/UIM offer minimums to the state’s financial‑responsibility limits (Code of Virginia §38.2‑2206; NY DFS SUM; CA Insurance Code §11580.2). Florida requires $10,000 PIP and $10,000 property damage liability to register a vehicle (FLHSMV). Most states now use electronic insurance verification for enforcement.
See auto insurance coverage requirements in your state
How much car insurance do I need?
You must buy at least your state’s minimum limits, but those floors can be too low for real‑world medical and repair costs. Several states have raised minimums recently — for example, California increased minimum liability to 30/60/15 effective Jan. 1, 2025 (with another increase scheduled for 2035), and New Jersey raised BI minimums in 2023 with another step scheduled for Jan. 1, 2026 (California SB 1107; NJ DOBI). Many experts also recommend UM/UIM due to the prevalence of uninsured drivers — an estimated 14.0% nationally in 2022 (Insurance Research Council). Ultimately, select limits that protect your assets and income.
To give just one example, O’Steen suggests buying at least:
- Bodily injury liability: $100,000 per person, $300,000 per collision
- Property damage liability: $50,000 per collision
- Medical payments: $50,000 per collision
- Uninsured motorist: $100,000 per person, $300,000 per collision
- Underinsured motorist: $100,000 per person, $300,000 per collision
Better coverage will cost a little more, but online quote tools let you test higher limits and optional coverages — often the jump from state minimums to much better protection is less than expected.
When Should I Buy Car Insurance?
You’ll need active insurance on or before the first day you use your vehicle. You can choose an effective date in the future when you set up a policy so you’re covered the moment you take the wheel.
Even if you’re not insuring a new car, re‑shop regularly — especially after life events that change risk or eligibility. Common triggers include adding a teen driver (typically a substantial increase), getting married or divorced (some states restrict marital status use), moving (ZIP code risk and garaging address matter), buying a new vehicle (consider gap/new car replacement), and after violations or at‑fault accidents (which can affect rates for 3–5 years). Telematics programs can help safe or low‑mileage drivers reduce premiums, particularly after shifts like remote work (Triple‑I auto basics; NAIC consumer guidance).
- Adding a new driver to your policy
- Getting married
- Buying a home
- Moving to a new state or city
- Passing the three-year mark after an accident
- Passing a big birthday (25, 30, 40, etc.)
After all, 40% of drivers don’t shop for insurance as often as they should, and shopping activity has been elevated as prices rose according to J.D. Power’s 2025 Insurance Shopping Study. Broader market forces — like higher parts and labor costs, ADAS sensor calibration needs, elevated theft, and severe weather — have pushed premiums higher industry‑wide (BLS CPI; CCC Crash Course 2024; NICB thefts). NHTSA’s final rule will make automatic emergency braking standard on new vehicles later this decade, which is expected to reduce certain crashes over time, though repairs remain complex (NHTSA AEB rule).
The Bottom Line
Nearly all U.S. drivers must carry auto insurance (New Hampshire is the exception to mandatory purchase, not to financial responsibility). States update rules periodically — California’s minimums rose in 2025 and New Jersey’s rise again in 2026 — so verify your policy meets current requirements. Given 2025’s elevated price environment and wide differences across insurers, your best bet is to shop broadly, compare telematics and add‑ons, and weigh price against claims service and coverage fit.
