Auto Insurance: Are You Properly Covered?

It's important to have the right amount of auto insurance coverage. Too little insurance leaves you under-protected in the event of an accident, while too much insurance means you're spending extra money on coverage you don't need. To determine if you have enough auto insurance, consider why you have it in the first place. Most states require drivers to carry a minimum amount of liability insurance, which covers injuries and property damage caused by the driver in an accident. However, the minimum coverage may not be sufficient to cover all expenses in the event of a serious accident. It's recommended to have enough liability insurance to cover your net worth, which can be calculated by adding up your assets and subtracting any debt. Additionally, consider adding optional coverages such as uninsured motorist protection, comprehensive coverage, and collision coverage to ensure you're fully protected.

Liability insurance

Property damage coverage insures you against damage caused to another person's property by your vehicle. This includes repairs to the other driver's vehicle, rental vehicle costs while their car is being repaired, damage to buildings or structures, damage to personal property inside a vehicle, and legal fees if you're sued for property damage.

Bodily injury coverage, on the other hand, provides payment for injuries sustained by others in an accident. It covers medical expenses, rehabilitation costs, and legal fees if you are sued for causing injuries. It's important to note that states may have different requirements for who can file a bodily injury claim.

When determining if you have enough liability insurance, consider the following:

• State Requirements: Most states mandate a minimum amount of liability coverage, so ensure you meet or exceed these requirements.
• Asset Protection: If you have assets that could be seized in a lawsuit, you'll want your liability insurance to cover them. Opt for higher liability limits to protect your assets adequately.
• Driving Habits and Risk: Evaluate your driving habits, experience, average mileage, and overall risk profile. Even safe drivers can encounter accidents, so consider the potential costs of a serious incident.
• Medical and Repair Costs in Your State: Some states have low insurance requirements, which may not sufficiently cover medical bills and repair costs. Ensure your liability coverage is adequate for the average accident.
• Umbrella Insurance: Consider an umbrella policy, which provides additional liability protection beyond your auto insurance limits, for extra peace of mind.

Collision and comprehensive insurance

Collision insurance is essential if you want protection against the costs of repairing or replacing your vehicle after an accident, even if the accident was caused by an uninsured driver. It covers damage to your vehicle from accidents involving other cars or objects, including single-car rollovers and accidents with stationary objects like road signs and guardrails. The coverage limit for collision insurance is typically the vehicle's actual cash value, and you can usually choose a deductible between $100 and $2,000.

On the other hand, comprehensive insurance covers damage to your vehicle from unexpected non-collision incidents. This includes theft, animal damage, falling trees, and weather damage such as hail. It also covers fire damage, flood damage, and vandalism. Like collision insurance, comprehensive insurance typically has a coverage limit of the vehicle's actual cash value, and you can choose a deductible between $100 and $2,000.

While neither collision nor comprehensive insurance is required by state law, they are typically required for car loans or leases. Lenders want to protect the collateral of the loan, which is the vehicle. Therefore, if you lease or finance your vehicle, your lender will likely require you to carry both collision and comprehensive insurance. Once your car loan is paid off, these coverages become optional.

When deciding whether to purchase collision and comprehensive insurance, consider the value of your car, your driving habits and risk, your current savings, and the location where you drive and park your car. If your car is valuable, you drive frequently or in high-traffic areas, don't have sufficient savings to cover repair or replacement costs, or live in an area with hazards like fallen branches or animals, then purchasing both types of insurance is a wise decision.

Uninsured motorist coverage

The amount of uninsured motorist coverage you need depends on your personal circumstances. For bodily injury coverage, it is generally recommended to match the amount of your liability coverage. For property damage coverage, you can select a limit that reflects the value of your vehicle.

It is important to note that uninsured motorist coverage does not only apply to collisions but also includes hit-and-run incidents. However, in some states, uninsured motorist property damage coverage will not cover hit-and-run accidents, and collision coverage may be needed instead.

Medical expenses coverage

There are two main types of medical expenses coverage: Medical Payments Coverage (MedPay) and Personal Injury Protection (PIP) coverage. Both MedPay and PIP coverage can help pay for unexpected medical expenses that arise from a car accident. This includes expenses such as hospital visits, surgeries, ambulance fees, and even dental procedures. It's important to note that MedPay is not offered in every state, but PIP coverage is usually available as an alternative.

When deciding on the amount of medical expenses coverage to include in your auto insurance policy, consider the coverage limits offered by your health insurance plan. If your health insurance has high deductibles or co-insurance payments, you may want to choose a higher limit for your medical expenses coverage to ensure that all your medical costs are covered in the event of an accident. Additionally, if you don't have health insurance, it's advisable to opt for a higher limit to protect yourself from the financial burden of medical expenses.

It's worth noting that medical expenses coverage typically applies to everyone in the car at the time of the collision, including the driver and passengers. Additionally, in some cases, it can also provide protection if you are hit by a car as a pedestrian. However, medical expenses coverage usually does not cover situations where your injuries result in missed work and lost wages.

By including medical expenses coverage in your auto insurance policy, you can rest assured that you and your passengers will have financial protection for medical treatments related to a car accident, regardless of who is at fault. This type of coverage can provide valuable peace of mind and help alleviate the financial strain associated with unexpected medical bills.

Gap insurance

When you buy or lease a new car or truck, the vehicle starts to depreciate in value the moment it leaves the car lot. Most cars lose 20% of their value within a year. Standard auto insurance policies cover the depreciated value of a car, meaning they pay the current market value of the vehicle at the time of a claim. However, in the early years of a vehicle's ownership, the amount of the loan may exceed the market value of the vehicle. This is where gap insurance comes in. If you've badly damaged or totalled your car, gap insurance covers the difference between what a vehicle is currently worth (which your standard insurance will pay) and the amount you actually owe on it.

It's a good idea to consider buying gap insurance if you:

• Made less than a 20% down payment
• Financed for 60 months or longer
• Leased the vehicle (gap insurance is generally required for a lease)
• Purchased a vehicle that depreciates faster than average
• Rolled over negative equity from an old car loan into the new loan

You can get gap insurance from your car dealer or from car insurers, who typically charge less than dealers. On most auto insurance policies, including gap insurance with collision and comprehensive coverage adds only about $20 a year to the annual premium.

Frequently asked questions