Jane Dotson
When it comes to auto insurance, there are two coverage amounts listed because there are different types of coverage. The first amount listed is the minimum coverage required by the state, while the second amount is the recommended coverage based on the driver's financial situation and the value of their assets. The minimum coverage required by the state is usually not enough to cover the costs of a serious accident, so it is important for drivers to consider purchasing higher levels of coverage to protect themselves financially. The recommended coverage amount is typically higher than the state minimum and is intended to provide adequate financial protection in the event of an accident.
| Characteristics | Values |
|---|---|
| Liability insurance | Mandatory in most states |
| Collision insurance | Mandatory if you lease or finance a car |
| Comprehensive insurance | Mandatory if you lease or finance a car |
| Bodily injury liability | $25,000 per person and $50,000 per accident |
| Property damage liability | $25,000 per accident |
| Medical payments or personal injury protection (PIP) | Reimbursement for medical expenses for injuries |
| Uninsured motorist coverage | Reimbursement when an accident is caused by an uninsured motorist |
| Underinsured motorist coverage | Covers costs when another driver lacks adequate coverage |
| Glass coverage | Covers windshield damage |
| Gap insurance | Covers the difference between the car's value and the balance on the loan |
| Medical payments coverage (MedPay) | Covers medical expenses, regardless of who is at fault |
| Personal injury protection (PIP) | Covers medical bills, lost wages, and other related expenses |
| Umbrella insurance | Provides additional liability coverage |
What You'll Learn
Liability insurance
Property damage coverage pays for damage to another person's property, such as 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, damage to personal property inside a vehicle, and legal fees if you are sued for property damage.
Bodily injury coverage provides payment for injuries sustained by others in an accident, including legal fees if you are sued for causing injuries. States may have different requirements on who can file a bodily injury claim.
The cost of liability insurance depends on various factors, such as the amount of coverage selected. Higher coverage limits typically cost more. The required limits vary by state, and it is important to check the specific requirements for your state.
Understanding liability coverage limits is essential when deciding on the amount of coverage needed. While states mandate minimum coverage amounts for bodily injury and property damage liability, drivers can opt to purchase additional coverage based on their specific needs.
It is recommended to have enough liability insurance to cover potential costs in a lawsuit arising from an accident. For instance, if you cause a severe accident and the related bills exceed your liability limits, you may be sued for the remaining amount.
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Collision insurance
How Collision Insurance Works
When two drivers are involved in an accident, collision insurance pays for the damage. It will also cover damage from potholes and accidents involving inanimate objects. It's important to note that collision insurance only covers damage to your own car and not to another person's vehicle.
Comprehensive vs. Collision Insurance
The main difference between collision and comprehensive coverage is the question of what is within the driver's control. Collision insurance covers events within a driver's control or when another vehicle collides with the insured car. On the other hand, comprehensive coverage generally falls under "acts of God or nature," or things typically out of the driver's control, such as a spooked deer, a heavy hailstorm, or a carjacking.
When to Drop Collision Insurance
Some car owners choose to drop collision insurance when their vehicle reaches a certain age or mileage. The idea is that as a car ages and depreciates, the maximum payout from a collision insurance claim decreases, and the cost of collision insurance may no longer be worth it. However, there is no golden rule, and some car owners prefer the peace of mind that comes with collision insurance. Additionally, if there is a loan or lease on the vehicle, collision insurance is typically required and cannot be dropped.
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Comprehensive insurance
Comprehensive coverage is not required by law in any state, but it is usually required by lenders if you are leasing or financing your vehicle. If you own your vehicle outright, you can decide whether to take out comprehensive coverage. It is worth noting that collision and comprehensive insurance are often sold together, and they cover a range of problems such as car accidents, car theft, vandalism, collisions with animals, falling objects, fires, floods, and hail damage.
If you have a car loan or lease, your lender or leasing company will most likely require you to buy both collision and comprehensive insurance. This is because collision and comprehensive insurance cover the cost of repairing or replacing your vehicle if it is damaged by a problem covered by the policy.
The amount of comprehensive coverage you should get depends on how much you want to pay out of pocket. If you sustain a loss, your coverage will pay to repair the vehicle or provide its actual cash value, minus the deductible that you choose.
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Uninsured motorist coverage
The amount of uninsured motorist coverage you need depends on your state's requirements and your personal situation. In some states, you must choose uninsured motorist coverage limits identical to your liability coverage limits. In other cases, you may have the option to select your desired coverage limits. For UMPD, it is generally recommended to choose a limit that reflects the value of your vehicle.
In addition to financial protection, uninsured motorist coverage can provide peace of mind and help ensure you are not left struggling to cover expenses after an accident. It is a valuable component of auto insurance that all drivers should strongly consider, even in states where it is not mandatory.
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Personal injury protection
PIP insurance can help cover medical expenses for you and your injured passengers. It can also help cover your health insurance deductible. If you are injured in an accident and are unable to work, your PIP coverage can help with lost wages. This benefit can also apply if you are self-employed and need to hire temporary workers.
PIP coverage can also help pay for funeral, burial, or cremation expenses after a car accident. If you pass away in an auto accident, your PIP insurance can help replace your lost income for your surviving dependents. PIP insurance can also help pay for services that you would normally perform if you weren't injured, such as childcare and house cleaning.
PIP is mandatory in some states and optional in others. In states with no-fault insurance laws, every driver must file a claim with their own insurance company after an accident, regardless of who caused it. This means that all drivers need to buy PIP coverage as part of their auto policies. As of September 2024, the following states have no-fault coverage laws: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.
In at-fault states, the insurance company of the driver who caused the accident pays for injuries, up to policy limits. Some at-fault states require PIP coverage, while in others, it is optional.
Even if PIP coverage is optional in your state, you may want to consider adding it to your policy for greater financial protection.
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Frequently asked questions
The two coverage amounts listed for auto insurance are the minimum and recommended amounts. While the minimum amount is the legal requirement, it is often not enough to cover the costs of a serious accident. Therefore, it is recommended to purchase a higher level of coverage to ensure adequate financial protection.
The minimum coverage amount for auto insurance is typically the state-required liability coverage, which covers the basic costs of injuries and damages in an accident. However, this may not be sufficient in the event of a major accident. The recommended coverage amount, on the other hand, is usually higher and provides more comprehensive protection, including additional types of coverage such as collision and comprehensive insurance.
When deciding between the minimum and recommended coverage amounts, it is essential to consider your financial situation, the value of your assets, and the level of risk you are comfortable with. If you have a high net worth, it is advisable to opt for higher coverage limits to protect your assets in case of an accident. Additionally, consider the cost of repairs or replacement of your vehicle and whether you can afford it out of pocket.
Choosing the minimum coverage amount for auto insurance may result in insufficient financial protection in the event of a serious accident. If the costs of injuries, property damage, or vehicle repairs exceed your coverage limits, you may be held personally liable and face legal consequences. It is crucial to assess your financial situation and choose a coverage amount that provides adequate protection.
