Selecting Auto Insurance: Choosing The Right Coverage For You

Choosing the right auto insurance coverage can be a daunting task. Not only do state requirements vary, but the different types of coverage offered by insurance companies also add to the confusion. In this guide, we'll explain the different types of coverage available and provide some simple strategies to help you get the best auto policy for your needs and budget.

First, it's important to understand the different types of insurance coverage and what each one does. Focus on several core types of coverage, including medical or personal injury protection, uninsured/underinsured motorist, collision, and comprehensive. Collision coverage, for example, covers damage to your own vehicle in an accident, while comprehensive coverage is for non-accident damage, such as theft or adverse weather conditions.

Next, determine the level of coverage you need. Consider your state's minimum requirements, the age of your car, your driving habits, and your financial situation. Remember that not everyone's insurance needs are the same. For instance, if you're leasing a car, you may need gap insurance, which covers the difference between the actual cash value of the vehicle and the outstanding balance on your lease if it's totaled.

When choosing a policy, review the financial health of car insurers and compare multiple quotes to find the best value for your needs. Don't forget to ask about discounts, as many insurance companies offer reduced rates for various reasons.

Finally, consider your financial situation when deciding on coverage amounts and deductibles. If you own a lot of assets, you may want higher liability limits to protect yourself. When thinking about a deductible, ask yourself how much you can afford. Opting for a higher deductible can save you money on your monthly premiums, but make sure you have enough liquidity to cover small repairs without making a claim.

Understanding types of insurance coverage

Understanding the types of insurance coverage is essential when selecting auto insurance. While some types of coverage are mandatory, others are optional, depending on your state and individual circumstances. Here is a detailed overview of the different types of auto insurance coverage:

Liability Coverage

Liability coverage is a fundamental aspect of any car insurance policy and is required in almost every state. It protects you financially if you are at fault in an accident by covering the costs of repairing property damage and the medical bills of the other party. Liability coverage is divided into two types: bodily injury liability and property damage liability.

Bodily Injury Liability (BI)

This covers the medical expenses of individuals injured in an accident where you are at fault. It applies to both you and any other drivers listed on your policy. All states except Florida, which only requires it for taxi drivers, mandate bodily injury liability insurance.

Property Damage Liability (PD)

Property damage liability insurance covers the cost of repairs to another person's vehicle or property damaged in an accident caused by you. "Other property" can include equipment, mailboxes, and even damage to someone's home. New Hampshire is the only state that doesn't require a minimum level of property damage liability coverage.

Collision Coverage

Collision coverage is optional in all states but may be required by lenders or leasing companies. It covers the cost of repairing or replacing your car after an accident, regardless of who is at fault. It also covers damage to your car from hitting a stationary object, such as a tree or a fence. Collision coverage has no written limit and will pay out up to the actual cash value of your vehicle after depreciation.

Comprehensive Coverage

Comprehensive coverage is also optional but necessary if you want protection against non-collision-related incidents. It covers damage to your vehicle caused by weather, natural disasters, theft, vandalism, falling objects, and collisions with animals. Like collision coverage, comprehensive coverage has a deductible, and in some states, you can opt for a separate glass deductible for windshield repairs.

Uninsured/Underinsured Motorist Coverage

Despite state laws mandating that all drivers have insurance, some individuals still drive without it, and others may not have sufficient coverage. Uninsured motorist coverage protects you if you are in an accident with an uninsured driver, while underinsured motorist coverage kicks in when the at-fault driver's insurance limits are inadequate to cover the costs of the accident. These coverages are mandatory in some states and optional in others. They can pay for medical bills, repairs to your vehicle, and other expenses resulting from the accident.

Personal Injury Protection (PIP) and Medical Payments Coverage (MedPay)

Personal injury protection and medical payments coverage cover your and your passengers' medical expenses after an accident, regardless of who is at fault. PIP is more comprehensive and may also cover lost wages, funeral expenses, and other costs. PIP is mandatory in no-fault states, while MedPay is only required by law in Maine and New Hampshire.

Uninsured/underinsured motorist coverage

Uninsured motorist coverage comes into play when you are hit by a driver who does not have auto insurance. This coverage includes uninsured motorist bodily injury (UMBI) and uninsured motorist property damage (UMPD). UMBI covers medical bills for you and your passengers, while UMPD covers damage to your vehicle. Even if you have health insurance, UMBI can provide additional benefits, such as lost wages and coverage for passengers without their own health insurance.

Underinsured motorist coverage, on the other hand, protects you when you are hit by a driver whose insurance coverage is insufficient to pay for the damages or injuries they caused. This includes underinsured motorist bodily injury (UIMBI) and underinsured motorist property damage (UIMPD). Similar to the uninsured coverage, UIMBI and UIMPD cover medical expenses and vehicle repairs, respectively.

In some states, a deductible may be required for UMPD/UIMPD, but UMBI/UIMBI generally does not include a deductible. It's important to note that uninsured motorist coverage also applies to hit-and-run accidents, although in certain states, UMPD may not cover these incidents.

When deciding on the amount of uninsured/underinsured motorist coverage to purchase, it is recommended to choose limits that match your liability insurance. For bodily injury coverage, consider selecting limits that align with your liability coverage. For UMPD, you can set a limit close to the value of your vehicle, especially if you don't have collision coverage.

Collision and comprehensive coverage

Collision Coverage

Collision insurance covers damage to your vehicle in the event of a collision with another vehicle or object. This may include repairs or a full replacement of your covered vehicle. It covers damage to your car in an accident you cause, including if you hit an object such as a fence or pole, or if someone else hits you. In the latter case, you also have the option of making a claim against the other driver's liability insurance.

Comprehensive Coverage

Comprehensive insurance covers damage to your vehicle caused by non-collision incidents like theft, animal damage, falling trees, and weather damage. It also covers non-crash damage, such as fire, flood, hail, vandalism, falling objects, and natural disasters. It pays for the actual cash value of your car if it's stolen and not recovered.

Choosing Collision and Comprehensive Coverage

When selecting your comprehensive and collision deductibles, determine how much you'd be willing to pay out of pocket if your car was damaged. The higher you're able to set your deductibles for both, the less your premium will be. Comprehensive coverage usually costs less than collision coverage, though costs may vary based on the insurer, your location, the value of your vehicle, and other factors.

Liability and UM coverage

Liability insurance is the main mandated coverage in auto insurance. It covers damage and injuries you cause to others in an accident. The minimum limits for liability are typically $25,000 per person and $50,000 per accident for bodily injury, and $25,000 for physical damage. However, these limits may vary depending on your state's requirements. For example, in California, the minimum liability insurance is $15,000 for bodily injury to one person, $30,000 for bodily injury to multiple people, and $5,000 for property damage.

It's important to note that state minimums might not be sufficient if you're in a serious accident. Therefore, it's recommended to purchase higher liability limits if you can afford it. Additionally, consider getting an umbrella insurance policy for extra liability coverage above your base auto and home insurance policies.

Uninsured motorist (UM) coverage is a crucial component of auto insurance, especially since about one in seven drivers in the US doesn't have auto insurance. UM coverage protects you when you're in an accident with an uninsured driver. It pays for injuries to you and your passengers and, in some cases, damage to your vehicle. UM coverage is required in many states, while in others, it's an optional add-on to your policy.

There are two types of UM coverage: uninsured motorist bodily injury, which covers medical bills related to a crash, and uninsured motorist property damage, which pays for repairs to your car. In some states, only UM bodily injury coverage is available.

Hit-and-run drivers are also considered uninsured motorists, and UM coverage can provide financial protection in such situations. If you're involved in an accident with an uninsured driver, your UM coverage can help cover vehicle repairs or medical bills. However, without UM coverage, you may not receive any payments, even if the other driver is at fault.

When deciding on UM coverage, consider the pros and cons. The main advantage is having financial protection if you're in an accident with an uninsured driver. Additionally, UM coverage can be "stacked" if you have multiple vehicles on your policy, increasing the total coverage amount. On the other hand, the only real con is the additional monthly premium, but this cost is often minimal.

Additional types of coverage

When it comes to auto insurance, there are several additional types of coverage you can consider beyond the basic liability coverage. These optional coverages can provide extra protection and peace of mind in case of unexpected events. Here are some of the most common additional coverages:

Collision Coverage

Collision coverage protects your car from damage in any collision, whether with another vehicle or an object such as a tree or guardrail. It covers the cost of repairs to your vehicle, regardless of who is at fault in the accident. While it is optional in most states, lenders may require it if you are financing or leasing your vehicle.

Comprehensive Coverage

Comprehensive coverage, also known as "other than collision" (OTC) coverage, protects your car from damage caused by events other than a collision. This includes fire, theft, vandalism, natural disasters, and falling objects. Like collision coverage, comprehensive coverage is often required by lenders for financed or leased vehicles.

Uninsured/Underinsured Motorist Coverage

This coverage protects you in the event of an accident with a driver who doesn't have insurance or doesn't have sufficient insurance to cover the costs of the accident. It pays for medical bills, vehicle repairs, and lost wages resulting from the accident. This coverage is especially important if you live in a state with a high number of uninsured or underinsured drivers.

Medical Payments Coverage (MedPay)

Medical payments coverage pays for medical expenses for you and your passengers following an accident, regardless of who is at fault. It typically covers hospital bills, ambulance fees, and passenger coverage. While it is optional in most states, it can provide valuable financial protection if you or your passengers don't have adequate health insurance.

Personal Injury Protection (PIP)

Personal injury protection is similar to medical payments coverage but offers more comprehensive benefits. In addition to medical expenses, it covers lost wages, rehabilitation costs, and funeral expenses. PIP is mandatory in some states, especially those with no-fault insurance laws.

Roadside Assistance Coverage

Roadside assistance coverage provides assistance if your vehicle breaks down or you are stranded on the road. It typically covers towing services, locksmith fees, flat tire changes, and fuel delivery. Adding this coverage to your auto insurance policy can be more affordable than paying for a separate roadside assistance membership.

Rental Car Coverage

Rental car coverage, or rental reimbursement, covers the cost of a rental car while your vehicle is being repaired due to a covered loss. This coverage is useful if you rely on your car daily and need an alternative during repairs.

New Car Replacement Coverage

New car replacement coverage is ideal for those who have recently purchased a new car. If your new vehicle is totaled or suffers significant damage, this coverage will pay for a brand-new car of the same make and model, rather than just the current market value of your car.

Custom Parts and Equipment Coverage

If you have added custom parts or equipment to your vehicle, such as a stereo system or custom wheels, this coverage can help pay for repairs or replacement if they are damaged or stolen.

Gap Insurance

If you are financing or leasing a new vehicle, gap insurance can be valuable. In the event of a total loss or theft, gap insurance covers the difference between the actual cash value of your vehicle and the amount you still owe on your loan or lease.

These are just some of the additional types of auto insurance coverage available. When selecting your coverage, it's important to consider your specific needs, the value of your vehicle, and the requirements of your state and lender.

Frequently asked questions