Choosing The Right Auto Insurance: What To Consider

Choosing the right type of auto insurance can be tricky. While the minimum amount of car insurance required by your state is important to know, this amount may not be adequate for your needs. The key to figuring out how much car insurance you need is knowing your state's requirements and examining your specific situation.

Liability insurance is the main mandated coverage and is required in almost every state. It covers damage and injuries you cause to others in an accident. The most common minimum limits for liability are $25,000 per person and $50,000 per accident for bodily injury and $25,000 for physical damage. However, your state's requirements may differ.

Beyond what is required by your state, you need enough car insurance to pay for injuries, property damage, and lawsuits that may arise from an accident. Collision and comprehensive insurance are often sold together and cover a range of problems like car accidents, car theft, vandalism, and collisions with animals. Personal injury protection (PIP) covers medical bills for you and your passengers no matter who caused the accident. Uninsured motorist coverage pays for your medical bills if you're hit by a driver who doesn't have insurance.

The best way to determine how much car insurance you need is to try to purchase coverage equal to your net worth. This ensures that your policy can cover the full cost of an accident without putting your assets at risk.

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 vehicles while their car is being repaired, damage to buildings or fences, damage to personal property inside a vehicle, and legal fees if you are sued for property damage.

Bodily injury coverage, on the other hand, provides payment for medical expenses, rehabilitation, and legal costs for individuals injured in an accident caused by you. It is important to note that liability insurance does not cover damages to your property or your own injuries; separate coverages are available for those scenarios.

The amount of liability coverage you need depends on your state's requirements and your personal financial situation. It is recommended to have enough coverage to protect your assets in case of an accident. You can calculate your net worth by adding up the value of your home, vehicles, savings, and investments, and then subtracting any debts. Your liability coverage limits should ideally be higher than your net worth to ensure sufficient protection.

When choosing liability insurance, you will often see it expressed as a set of three numbers, such as 25/50/10. These numbers indicate the coverage limits for bodily injury per person, bodily injury per accident, and property damage per accident, respectively. It is important to select appropriate limits to ensure you have enough coverage in the event of a significant accident.

Collision insurance

When deciding whether to purchase collision insurance, consider the value of your vehicle. If your vehicle is new or has a high value, collision insurance can help cover expensive repairs or replacement costs. Additionally, if you cannot afford to pay for repairs or a replacement vehicle out of pocket, collision insurance can provide peace of mind.

On the other hand, if your vehicle is in storage or not driven for an extended period, such as a boat or RV, you may not need collision insurance during that time.

It's important to note that collision insurance only covers damages to your vehicle and not to another person's vehicle or property. It also doesn't cover all types of damage to your vehicle, such as collisions with animals or damage caused by events outside your control, which would be covered under comprehensive insurance.

When choosing a collision insurance policy, you'll need to select a deductible, which is the amount you agree to pay before the insurance company starts paying for damages. A higher deductible typically results in lower insurance costs, while a lower deductible means higher premiums but reduces your out-of-pocket expenses after a collision.

Comprehensive insurance

When considering comprehensive insurance, it is essential to evaluate your financial situation and the value of your car. If your vehicle's cash value is low and you have a higher deductible, comprehensive coverage may not be a worthwhile investment. On the other hand, if your vehicle has a higher cash value or you live in an area prone to weather-related disasters or car theft, comprehensive insurance could be a smart choice.

The cost of comprehensive insurance will depend on the deductible you choose. A higher deductible will lower your premium but will result in higher out-of-pocket expenses if a claim is made.

In summary, comprehensive insurance is a valuable addition to your auto insurance policy, especially if you lease or finance your vehicle, have a high-value car, or want protection against unforeseen events. It ensures that you are covered for a range of incidents outside of your control, giving you peace of mind while on the road.

Personal injury protection

PIP covers reasonable medical costs, including surgeries, X-rays, dental or eye treatments, medical procedures, prosthetic devices, and professional nursing care. It also covers rehabilitation therapy and lost income resulting from the accident. Additionally, PIP can help pay for replacement services that you would normally perform if you weren't injured, such as childcare and housecleaning. In the unfortunate event of a fatality, PIP can help pay for funeral, burial, or cremation expenses.

The amount of PIP coverage you need depends on your state's requirements and your personal situation. Some states have no-fault insurance laws, where every driver must file a claim with their insurance company after an accident, regardless of who caused it. In these states, all drivers are required to purchase PIP as part of their auto policies. Other states have at-fault laws, where the insurance company of the driver who caused the accident is responsible for paying for injuries and damages. In these states, PIP coverage may be optional or required.

The cost of PIP insurance varies depending on your location, the amount of coverage you choose, and your driving history. It's recommended to compare quotes from multiple insurers to find the best rate.

When choosing auto insurance coverage, it's important to consider your financial situation and the level of protection you need. While PIP can provide valuable coverage in the event of an accident, it's essential to review the specific details of the policy to understand what is and isn't covered.

Uninsured/underinsured motorist coverage

Uninsured motorist coverage protects you if you are hit by a driver who does not have auto insurance. In many states, it is mandatory to have this coverage as part of your policy. Even in states where it is not required, it is highly recommended for all drivers to have this protection. According to the Insurance Information Institute, nearly 13% of drivers countrywide do not have auto insurance, and this number can be over 20% in some states. Without uninsured motorist coverage, you could be left paying for medical bills or vehicle repairs out of your own pocket if you are in an accident with an uninsured driver.

Underinsured motorist coverage, which is often offered alongside uninsured motorist coverage, protects you if you are hit by a driver who does not have enough insurance coverage to pay for the damages or injuries they caused. This type of coverage ensures that you are not left financially burdened if the at-fault driver's insurance is insufficient.

Both uninsured and underinsured motorist coverage can help cover medical bills for you and your passengers, as well as damage to your vehicle. Depending on your state, these coverages may be separate or combined, and they can provide protection in hit-and-run accidents as well.

While not all states mandate uninsured/underinsured motorist coverage, it is a valuable addition to your auto insurance policy. It provides financial protection and peace of mind, especially if you live in a state with a high percentage of uninsured drivers. By having this coverage, you can rest assured that you and your loved ones will be taken care of in the event of an accident involving an uninsured or underinsured driver.

Frequently asked questions