With so many different types of auto insurance being offered by thousands of companies, trying to determine the right amount of coverage for your needs can be an overwhelming process. It is crucial to maintain enough coverage to protect yourself in case of an accident, but at the same time, you do not want to pay higher premiums for coverage you never use.
Consider the following breakdown of auto insurance types, and learn how to arrive at the most accurate coverage amounts to stay safe without overpaying.
Keep in mind that individual states’ required minimum coverage levels take precedence over any recommendations. Your auto insurer can easily provide you with your state minimums if you have trouble locating these figures on your own. You must maintain at least that much auto insurance in order to drive your vehicle.
Body coverage, a sub-category of liability insurance, covers any claims by the other party for medical expenses in case of an automobile accident where you are found to be at fault. In addition to medical expenses, it can also protect you from claims for emotional suffering, funeral costs, and/or lost wages.
Medical expenses can be prohibitively high and add up easily. If you do not maintain enough bodily coverage, you run the risk of being sued personally and losing all of your assets. The costs of automobile injuries do not go down with the value of your car; therefore, you should determine your specific bodily coverage amount based on how much personal financial protection you need, not on the worth of your vehicle.
A generally accepted minimum coverage amount is $100,000 per person/$300,000 per accident. If you have significant personal assets (including, but not limited to, a house, an investment portfolio, and/or an inheritance), you will want to increase this coverage so it is higher than your personal net worth.
Property Damage Coverage
Property damage coverage, a sub-category of liability insurance, covers any claims of damage to vehicles, buildings, or other property caused by an accident where you are found to be at fault.
If you are in an accident with someone else’s expensive vehicle, you will likely not be able to handle the repair or replacement costs yourself. Adequate property damage coverage is crucial in order to protect your personal assets from being taken by the other party. Just as with bodily coverage, your minimum coverage amount should be based on your total worth. Your coverage should exceed the total sum of all of your assets. At minimum, you will likely want $100,000 in property damage coverage.
Collision coverage pays for the cost of repairs to or replacement of your vehicle in an accident where you are at fault. Your selected coverage amount should be based on the present-day market value of your vehicle. If you are still paying off the loan on your car, you will need to check with your lender about the minimum amount of collision coverage they require.
If your car is worth less than the cost of the auto insurance premiums (a general guideline is less than $2,000), it may not make sense to maintain this coverage. Without collision coverage, if your car is damaged in an accident, you will be responsible for repairing smaller damages on your own or buying a new vehicle.
This type of auto insurance coverage relates only to your own vehicle. It helps cover the costs of accidents involving no other cars (for example, hitting a deer), as well as theft, fire damage, or vandalism.
After you consider any state minimum requirements for comprehensive coverage, be sure to also check with your auto loan financer to see if they also have a required comprehensive minimum. Beyond these minimums, determining the best coverage amount depends on a balance of what your car is worth and what premiums you can afford to pay.
If the total worth of your car is close to, or less than, your premium amount, and you own your car outright, you may elect not to carry this coverage at all. (Still not sure? Generally, you only want to drop comprehensive coverage if your vehicle is worth under $1,000.) If your car is worth a bit (or a lot) more, on the other hand, consider how you’d pay for repairs or an outright replacement if you didn’t have comprehensive coverage. Everyone is at risk of needing to file a comprehensive claim for circumstances entirely out of their control, and low comprehensive coverage payments now can save you from a huge financial emergency later on down the line.
Personal Injury Coverage
Personal injury coverage handles certain medical expenses and reimburses you for lost wages in case of an accident, regardless of who was at fault. It is mandatory in many no-fault states.
Check with your health insurance company to determine whether or not they would cover your medical expenses in an accident, whether or not you were at fault. Many times, they will, which makes personal injury coverage unnecessary.
The one case where personal injury coverage is advantageous is for lost wage reimbursement. This type of insurance is especially important for people with families to support and/or who would be most likely to miss work after an accident. For example, a broken leg may not cause a receptionist to miss more than a day or two of work, but could leave a limousine driver or construction worker home for weeks. Retirees or teenagers are unlikely to require lost wage reimbursement.
Consider your current income, compared with the added costs of obtaining enough personal injury coverage to equal your income. If the cost is not prohibitive, you may be very thankful down the line to have personal injury coverage if you find yourself out of work due to an automobile injury. Most people would require at least $10,000 per individual in personal injury coverage.
Uninsured/Underinsured Motorist Coverage
This coverage handles expenses incurred if you are in an accident caused by a driver with no or too little insurance. Because there is no way to prevent such a situation from potentially happening, it’s very important to elect this type of coverage in addition to all others you are paying for.
Don’t assume your costs can be recouped by suing the uninsured motorist. Legal actions take time, and if your car was too damaged to drive or even totaled, you need the payments covered right away. Additionally, if the party at fault has no or too little insurance, it is not very likely that they would have much money available to pay your costs even if directed to by a court of law.
When choosing this coverage amount, consider that you may be physically injured in addition to sustaining damages to your vehicle. You also may have injured passengers in your car. Therefore, you do not want to select an amount that only covers the cost of car repairs. A generally accepted minimum level is $100,000 per person/$300,000 per occurrence.
Rental Reimbursement Coverage
This coverage pays for a rental car if your own car was damaged in an accident. There is generally a maximum daily rental rate, and a maximum number of rental days.
If you would not need to rent a car should yours be out of commission (because you have another car, for example, or because you have easy access to public transportation to get to work), then do not elect this coverage. Otherwise, since rental reimbursement coverage usually adds only a few dollars to your premium, it is a wise idea to select it, just in case.
This coverage pays for all towing costs associated with an accident. Depending on the policy, towing coverage may also include emergency roadside assistance if your car runs out of gas, stalls, or has a dead battery.
Many people already have similar coverage from their auto dealer or an auto club. Do not signup for this coverage if you already have towing coverage from another source. However, if you do not have access to any towing coverage currently, it is definitely worth the additional few dollars per year for the added safety and peace of mind.
Austin Scott is a freelance writer who writes on topics such as online car insurance and getting a car insurance quote.
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