Jeffrey Wade
Car insurance is a necessity for drivers in most states. While the minimum coverage required by law varies, liability insurance is the main mandated coverage in nearly every state. This includes bodily injury liability, which covers the cost of injuries to other drivers, their passengers, and pedestrians, and property damage liability, which covers the cost of repairs to property damaged in an accident. While not required in all states, uninsured and underinsured motorist coverage can protect drivers from the financial burden of an accident caused by a driver with insufficient insurance. Collision and comprehensive coverage are optional but can provide additional protection for drivers concerned about the cost of repairs to their own vehicle. When determining the amount of coverage needed, it is important to consider one's net worth and the likelihood of being involved in an accident.
| Characteristics | Values |
|---|---|
| Liability coverage | Required in most states |
| Bodily injury liability | $25,000 per person and $50,000 per accident |
| Property damage liability | $25,000 per accident |
| Uninsured and underinsured motorist coverage | Required in some states |
| Personal injury protection | Required in some states |
| Medical payments coverage | Required in some states |
| Collision coverage | Optional, but required for leased or financed vehicles |
| Comprehensive coverage | Optional, but required for leased or financed vehicles |
What You'll Learn
Liability coverage
The minimum liability limits vary depending on the state, and it is important to have adequate coverage to protect yourself financially in the event of an accident. While liability coverage is essential, it does not cover damages to your own vehicle or personal injuries. For that, you will need additional coverages such as collision and comprehensive insurance.
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Bodily injury liability
The amount of bodily injury liability coverage you need depends on your state's requirements and your personal situation. While state minimums may be sufficient for some, others may want higher coverage limits to protect their assets in the event of a lawsuit. It's recommended to have enough coverage to match your net worth.
To illustrate how bodily injury liability coverage works, let's consider an example. Suppose you have a policy with bodily injury insurance limits of $100,000 per person and $300,000 per accident. You cause an accident that results in the following expenses for injuries to the three people in the other car:
- Michael: $90,000
- Anne: $80,000
- Chris: $110,000
In this case, your insurance policy will cover Michael and Anne's expenses in full since they are within the per-person and per-accident limits. However, you will have to pay $10,000 out of pocket for Chris's expenses, as they exceed the per-person limit.
When purchasing auto insurance, it's important to consider your specific needs and compare policies from multiple providers to find the best coverage for you.
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Property damage liability
The average annual cost for liability car insurance is $650.35, but this varies by state. The cheapest liability insurance is in North Dakota, at $312.30 a year, while the most expensive is in Louisiana, at $1,023.91 a year. When deciding how much property damage liability coverage you need, it is recommended that you buy enough to cover what you could lose in a lawsuit. For example, car owners with a high net worth should have a high level of liability insurance.
Unlike some other types of insurance, there is no deductible for property damage liability insurance. This means that there is no amount that you are personally responsible for paying when there is a claim.
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Collision coverage
When choosing collision coverage, you will need to select a deductible, which is the amount you will pay out of pocket towards repairs before the insurance company covers the remaining cost. A higher deductible can result in a lower monthly premium, but it also means you will pay more out of pocket in the event of a claim. It's important to consider your financial situation and the value of your vehicle when deciding on the amount of your deductible.
In summary, collision coverage is a valuable option for vehicle owners who want protection against the financial burden of repairing or replacing their car after an accident. It ensures that you won't have to pay out of pocket for repairs above the cost of your deductible, giving you peace of mind when driving or lending your car to others.
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Comprehensive coverage
The cost of comprehensive coverage depends on the deductible you choose. A deductible is the amount you agree to pay out of pocket before your insurance company starts paying for damages. Typically, a higher deductible will result in lower insurance costs, while a lower deductible will result in higher costs.
When deciding whether to purchase comprehensive coverage, consider the value of your car, your financial circumstances, and your personal preferences. If your car has a high cash value or you cannot afford to repair or replace your vehicle without insurance, comprehensive coverage is a smart choice.
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Frequently asked questions
The most common types of auto insurance coverage include liability coverage, collision coverage, and comprehensive coverage. Liability coverage is mandatory in most states and includes bodily injury and property damage liability coverage. Collision coverage and comprehensive coverage are optional but are strongly recommended and may be required by lenders for financed or leased vehicles.
Liability coverage is broken into two types: bodily injury and property damage liability. Bodily injury liability covers the medical bills of other parties in an accident you are found at fault for, up to your policy's limits. Property damage liability coverage pays to repair the damage you cause to others' property in an at-fault accident.
Collision coverage pays for the damage to your vehicle regardless of who is at fault in an accident. It also covers rollover accidents and pothole damage.
Comprehensive coverage, sometimes known as "other than collision (OTC)" coverage, pays for damage to your car resulting from events outside of your control, such as theft, vandalism, fire, collisions with animals, and natural disasters.
