Understanding Your Auto Insurance Coverage: What You Need To Know

Car insurance is a necessity, but the type and amount of coverage you need depend on several factors. The first thing to consider is your state's minimum requirements. While most states mandate liability insurance, the specific coverage amounts vary. You also need to check with your lender if you lease or finance your car, as they may have additional requirements, such as comprehensive and collision coverage.

Next, assess your personal situation. Consider your assets, including your car's value, savings, home, business, and retirement funds. If you're in an accident and found liable, your insurance should cover the damages without leaving you financially vulnerable. Experts recommend having liability coverage of at least $500,000, which includes both property damage and bodily injury liability.

Full coverage insurance is also an option, especially if you have a new or expensive car. It includes liability, collision, and comprehensive coverage, protecting you from various scenarios.

Additionally, there are optional coverages to consider, such as uninsured/underinsured motorist coverage, medical payments coverage, and personal injury protection. These add-ons provide extra protection in specific situations, like accidents with uninsured drivers or high medical expenses.

In summary, determining the right auto insurance for yourself involves understanding your state's requirements, your personal financial situation, and the available coverage options to make an informed decision that provides adequate protection.

Liability insurance

Bodily injury liability coverage also extends to legal aspects. If the injured party decides to take legal action against you, this type of insurance can help cover your legal defence costs, court costs, and any settlements or judgments that may arise. This aspect of liability insurance is particularly important, as legal fees can quickly escalate and become a significant financial burden.

When selecting your liability insurance coverage, it is recommended to choose a limit that matches or exceeds your total net worth. This ensures that your assets are adequately protected if you are found legally responsible for an accident. While the minimum coverage limits are set by state law, opting for higher coverage limits can provide you with greater financial security in the event of a serious accident.

It is important to remember that liability insurance does not cover damages to your own property or injuries you sustain in an accident. To protect yourself in such situations, you would need to include additional coverages in your auto insurance policy, such as collision coverage, comprehensive coverage, or medical payments coverage.

Collision insurance

While collision insurance is not legally required in any state, lenders may require it to protect their investment. It is also worth considering for older vehicles that still maintain a good value relative to your deductible and monthly rate. Collision insurance provides peace of mind, covering the costs of repairs or replacements, so you don't have to pay out of pocket.

When deciding on collision insurance, it is important to consider the cost of your car, its potential repair costs, and your ability to pay for repairs without insurance. Collision insurance can be expensive, but you can lower your monthly premium by choosing a higher deductible, which means you will cover more of the repair costs when needed.

Comprehensive insurance is often mentioned alongside collision insurance. Comprehensive insurance covers damage to your vehicle from events outside of your control, such as natural disasters, theft, or contact with animals, while collision insurance covers events within your control, like collisions with other vehicles or objects.

Comprehensive insurance

• Vandalism, fire, and explosions
• Windshield and glass damage
• Falling trees, branches, or other objects
• Rocks or objects kicked up by or falling off cars
• Storms, hail, wind, floods, lightning, and earthquakes
• Accidents with animals, such as hitting a deer
• Civil unrest or riots

The cost of comprehensive insurance varies depending on factors such as the value of the vehicle, location, and the driver's insurance history. On average, comprehensive insurance costs around $134 per year but can be nearly double that in certain states.

Uninsured motorist insurance

Uninsured motorist coverage is a type of car insurance that protects you if you're hit by a driver with no auto insurance. Underinsured motorist coverage, which is usually offered alongside uninsured motorist coverage, protects you if you're hit by a driver whose insurance is insufficient to cover the damages or injuries they caused. In many states, this coverage is mandatory, and it is highly recommended for all drivers.

If you are injured or your vehicle is damaged in an accident with an uninsured or underinsured driver, uninsured motorist coverage can help you pay for medical bills or vehicle repairs. This coverage typically includes uninsured motorist bodily injury (UMBI) and uninsured motorist property damage (UMPD). UMBI may cover medical bills for you and your passengers, while UMPD may cover repairs to your vehicle.

Uninsured motorist coverage is especially important because, according to the Insurance Information Institute, about 13% of drivers countrywide do not have auto insurance, and in some states, this number rises above 20%. Without this coverage, you could be left paying out of pocket for expenses related to an accident that was not your fault.

In some states, uninsured motorist coverage is required by law. For example, in California, you are required to maintain a minimum of $15,000 for bodily injury coverage or death per person, $30,000 for total bodily injury or death per accident, and $5,000 for property damage. However, in other states, this coverage is optional, and you may need to pay an additional fee to add it to your policy.

Even if uninsured motorist coverage is not required in your state, it is highly recommended to protect yourself financially in the event of an accident with an uninsured or underinsured driver. Check with your insurance provider to see if this coverage is available in your state and consider adding it to your policy if it is not already included.

Personal injury protection

In terms of what is covered by PIP, this includes reasonable medical costs such as surgeries, X-rays, dental or eye treatments, prosthetic devices, and professional nursing care. Rehabilitation therapy is also covered by PIP, as well as lost income resulting from the accident. If the injured person is not an income producer, PIP can also cover the replacement of necessary services they usually provide, such as family care or household maintenance. In the tragic event of a fatality, PIP can also cover death benefits and/or funeral costs.

The amount of coverage provided by PIP plans can vary depending on the location and the insurance provider, as well as how much the policyholder has paid. For example, in Texas, the law requires insurers to offer a minimum of $2,500 in coverage, but drivers can increase their coverage to $5,000 or $10,000 if they wish.

It is important to note that PIP is not mandatory in all states, and the requirements vary depending on the local laws. In Texas, for instance, PIP insurance is not mandatory, but drivers must sign a waiver if they choose to decline the coverage. In contrast, there are currently 14 no-fault jurisdictions in the US where PIP insurance is mandatory, including the District of Columbia, Florida, Hawaii, and Kansas.

Frequently asked questions