Insurance Coverage For Autos: Suggested Levels And Adequacy

When it comes to auto insurance, the coverage you need depends on a variety of factors, including your state's requirements, your financial situation, and the value of your assets. While most states mandate a minimum level of liability insurance, it is often recommended to purchase additional coverage to protect yourself financially in the event of an accident.

Liability insurance is required in almost every state and covers injuries and property damage caused to others in an accident. The minimum coverage limits typically include $25,000 per person and $50,000 per accident for bodily injury, and $25,000 for property damage. However, it is advisable to assess your net worth and consider purchasing higher coverage limits to protect your assets adequately.

In addition to liability insurance, other types of coverage to consider include collision and comprehensive insurance, which cover damage to your own vehicle. If you lease or finance your vehicle, your lender may require these coverages. Personal injury protection (PIP) and medical payments (MedPay) are also important, as they cover your medical expenses and lost wages after an accident, regardless of who is at fault. Uninsured/underinsured motorist coverage (UM/UIM) is another valuable addition, especially if you live in a state with a high percentage of uninsured drivers.

Ultimately, the right amount of auto insurance depends on your specific circumstances. By evaluating your state's requirements, your financial situation, and the value of your assets, you can determine the coverage levels that provide you with sufficient protection without breaking the bank.

Liability insurance

Bodily injury liability covers injuries to other drivers, their passengers, and any hurt pedestrians if you are at fault for an accident. It also includes legal fees if you are sued for injuries you caused. The minimum coverage limits for bodily injury liability vary by state, with common limits being $25,000 per person and $50,000 per accident. However, it is recommended to purchase higher coverage limits than the state requires to adequately protect yourself. For example, coverage limits of $100,000 per person and $300,000 per accident are suggested.

Property damage liability covers damage to another individual's property, including their vehicle, if you cause an accident. This can include repairs to the other driver's vehicle, a rental vehicle while the other person's car is being repaired, damage to buildings, fences, or other structures, and damage to personal property. Like bodily injury liability, the minimum coverage limits for property damage liability vary by state, with a common limit being $25,000 per accident. Again, it is advisable to consider purchasing higher coverage limits to ensure sufficient protection. A suggested limit for property damage liability is $100,000.

When deciding on the amount of liability insurance to purchase, it is important to consider your financial situation and the value of your assets. Liability insurance protects you from being personally liable for expenses that exceed your coverage limits. By having adequate coverage, you can avoid potential consequences such as garnished wages or liens against your assets.

Collision insurance

Most lenders require you to have collision coverage if you finance or lease your car. Collision insurance is a good idea if you would have difficulty paying for repairs or a new vehicle after a crash. As cars age and accrue miles, they typically lose value, so collision coverage may not be worth the cost for older vehicles. However, some older vehicles may still hold their value, making collision insurance a worthwhile investment.

The cost of collision insurance varies depending on factors such as the car's value, your driving record, and your location. On average, collision coverage costs about $290 per year. When deciding whether to purchase collision insurance, consider the value of your car and whether you could afford to repair or replace it without insurance.

Comprehensive insurance

When deciding how much comprehensive insurance to get, you will need to determine how much you want to pay out of pocket. If you sustain a loss, your coverage will pay to repair the vehicle or the actual cash value of the vehicle minus the deductible that you choose.

While comprehensive insurance is not required by law in any state, it is worth considering for the peace of mind that comes with knowing you are covered in the event of unforeseen circumstances.

Personal injury protection (PIP)

PIP covers medical expenses, lost wages, and other related costs resulting from a car accident. This includes:

• Medical expenses: PIP covers the cost of medical treatment, ambulance services, surgery, X-rays, and prosthetic devices.
• Lost wages: If the policyholder is unable to work due to their injuries, PIP can cover a portion of their lost wages.
• Rehabilitation costs: PIP can help cover the cost of rehabilitation or therapy needed after an accident.
• Replacement services: PIP can provide reimbursement for services the policyholder can no longer perform due to their injuries, such as childcare or household chores.
• Funeral expenses and survivor benefits: In the event of a fatality, PIP can cover funeral expenses and provide financial support to the deceased's family.

PIP Coverage Limits and Deductibles

PIP policies have minimum coverage requirements set by state governments, typically ranging from $2,500 to $50,000. Some states also allow insurance companies to set maximum coverage limits, usually up to $25,000. Additionally, some PIP policies have deductibles, which is the amount the policyholder must pay out of pocket before insurance coverage kicks in.

Personal injury protection is mandatory in 15 states and Puerto Rico, including Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania, Utah, and Washington, D.C. In these states, drivers must purchase a minimum amount of PIP coverage as part of their auto insurance policy.

In other states, PIP coverage is optional and can be added to an auto insurance policy for an additional cost. This includes states like Arkansas, Connecticut, the District of Columbia, Texas, and Washington.

Benefits of PIP Coverage

PIP coverage provides valuable financial protection in the event of a car accident, ensuring that medical expenses and lost wages are covered regardless of who is at fault. It also provides benefits that may not be covered by health insurance, such as lost wages and replacement services. In "no-fault" states, PIP coverage can help streamline the claims process and reduce the need for lawsuits.

Medical payments coverage (MedPay)

Medical payments coverage, or MedPay, is an optional add-on to an auto insurance policy that covers expenses related to vehicular accidents. It is available in most states and mandatory in Maine and New Hampshire. In some states, MedPay is not available because personal injury protection (PIP) is required.

MedPay covers the policyholder, any passengers in their vehicle, any pedestrians they may injure, and the policyholder if they are injured as a pedestrian or a passenger in another vehicle. It is supplemental to regular health insurance and covers a range of expenses, including:

• Health insurance deductibles and co-pays
• Hospital visits and stays
• Ambulance fees and emergency medical technician services
• Rehabilitation and nursing care
• Some medical equipment, such as prostheses
• Funeral costs

MedPay covers these expenses regardless of who is at fault for the accident. It also applies in situations where the policyholder did not drive responsibly, such as when an accident is caused by alcohol or drug use.

When deciding on the amount of MedPay coverage to purchase, it is important to consider your financial situation and existing health insurance coverage. MedPay is typically sold in small amounts, ranging from $1,000 to $5,000. If you have high deductibles or no health insurance, you may want to consider higher MedPay limits.

MedPay should also be considered if you frequently drive passengers who are not part of your family, as it typically applies to anyone riding in the car at the time of the accident. Additionally, if you live in an urban area, MedPay may be more useful due to the higher incidence of foot traffic and the increased likelihood of pedestrians being injured in accidents.

Frequently asked questions