What Auto Insurance Coverage Do I Need?

Auto insurance is meant to make you whole again after an accident or loss, so you need as much coverage as it takes to plan for all of the possibilities you could encounter. If you suffer a loss without enough car insurance coverage, then the payments for repairs and such will be coming directly from your finances.

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Some car insurance options are required by state law, while others are just a good idea to have. While auto insurance may seem expensive, it is nowhere near as costly as having to pay for damages or injuries out of your own pocket.

Coverage for When You Cause an Accident

The first insurance coverage that you need pays when you cause injuries and damages to someone else. Liability insurance is a requirement in just about every state in the U.S., and it is the most basic insurance necessary.

Liability insurance covers your legal responsibility when you are to blame for another driver’s injuries and vehicle damages. State law will require that you can at least cover the bare minimum amounts of someone else’s damages.

Each state has minimums for mandatory insurance, or the least amount you can buy. They break those minimums into three parts. The first part is the lowest amount you may buy to cover an individual’s medical bills from a crash that you caused, called bodily injury liability.

State minimums for bodily injury liability range from $10,000 to $50,000 per individual.

The second minimum number for liability insurance is also for bodily injury liability, though it refers to the dollar amount for an entire accident. State minimum amounts to cover an entire accident range from $20,000 in some to $100,000 in others.

Lastly, there is property damage liability; the third part of liability auto insurance coverage. It pays for damages to another driver’s vehicle from an accident that stemmed from your actions. It also covers surrounding property that was damaged in the crash, such as fences, signs, and utility poles. Lows and highs for property damage liability range from $5,000 to $55,000.

While each state sets its own minimum amounts of liability coverage that you must purchase in order to drive your vehicle on the road, the idea of minimum amounts of coverage can be misleading. When it comes time for your insurance to pay for another driver’s losses, the insurance company will not pay more than the dollar amount that you purchased.

If you purchased only the minimum amount of insurance necessary by law, your insurer will pay that amount, and no more. Any further costs will be your responsibility to pay. Generally, buying only the minimum amounts of liability insurance is not a good idea. Industry experts at the Insurance Information Institute maintain that you should purchase $100,000 in bodily injury per individual and $300,000 per accident for liability coverage.

Coverage to Repair Your Vehicle

The next coverage option needed makes sure that your vehicle will be repaired or replaced as well. Liability insurance doesn’t cover your vehicle at all, so you need to have insurance to prepare you if your car is damaged.

Collision insurance is an optional coverage that protects your vehicle, no matter what. Whether you cause an accident or another driver does, collision will pay for your vehicle to be made whole again.

There are two different ways that collision coverage can fix your car. The first is to pay for the repairs. Your coverage provider will offer you a settlement amount, and it is up to you to get estimates from body shops and garages for the damage to ensure the settlement is enough.

However, if the cost of your damages is estimated to be more than your vehicle is worth, then the insurance company will deem the vehicle to be a complete loss. In that event, they will pay you the fair market value for your car. Fair market value is based on the amount for which you could sell your vehicle to a third party, taking into consideration age, mileage, and condition.

Fair market value does not take into consideration how much you paid for your vehicle or how much you might still owe on your vehicle, which could leave you owing money to a lender.

It is always a good idea to know the estimated fair market value of your vehicle, so you know what to expect in the event of an accident. Utilize the services of the National Association of Automobile Dealers to determine the fair market value of your car.

Lastly, collision coverage has what is called a deductible. This is a dollar amount that you are responsible for paying, making you responsible for the little stuff and the car insurance provider responsible for the big costs. A typical deductible is $500, but you can choose a lower or higher deductible.

If your vehicle is damaged, then your settlement amount will be for repairs or the fair market value, minus a deductible. If you have $2,000 in repairs and a $500 deductible, then your insurance provider will pay $1,500 towards your repairs. Raising your deductible will lower the costs of your coverage, but you should ensure that you can cover your deductible if the time comes.

Coverage against Natural Occurrences and Theft

An accident is not the only bad thing that can happen to your vehicle. There are many events that can cause damage to your car, from nature and from man. While collision covers damage from an accident, comprehensive coverage pays for just about everything else.

If there is a storm that includes damaging hail, high winds that knock over trees, or rain that causes flooding, the comprehensive coverage would pay for any damages to your vehicle. Similarly, other occurrences such as fire or an earthquake would also be covered by comprehensive.

Comprehensive also pays for damages from human means, just not those from an accident. Vandalism and car theft are also part of the coverage from comprehensive. Just like collision, comprehensive will either pay for repairs or to replace the fair market value of your car, and it also includes a deductible.

Coverage to Plan for Uninsured Drivers

You also need to have coverage that will pay for your injuries and damages if you are hit by a driver without insurance coverage.

The researchers at the Insurance Research Council deem that one in seven drivers in the U.S. is driving without insurance, though some states have higher percentage rates; Mississippi has 28% of drivers having no insurance.

If you are hit by an uninsured driver, or even one who carries only their state’s minimum amounts of liability coverage, then you are really the one who will be responsible for repairing the damages to your vehicle. Some states give you the right to sue the at-fault driver, but not all do. Some states make uninsured/underinsured motorist coverage mandatory to purchase, just to ensure that as many people are covered as possible.

To avoid the stress and hassle of trying to recoup losses from being hit by a driver without insurance, you should purchase uninsured/underinsured motorist coverage just to be prepared for that eventuality. The coverage pays for your injuries and your damages, though many insurers will only match the amounts you specify for your own liability insurance.

Collision will also pay for damages to your vehicle, even if the accident was not your fault. This will include a deductible, which you might be able to recoup from the at-fault driver. While collision will pay for the damages to your car, it will not cover any medical bills that you may have.

Coverage to Pay Your Medical Bills

Personal Injury Protection, or PIP, which is also called medical payment insurance, is another coverage that you probably need, especially if you have no health insurance coverage. Like the name suggests, it covers your medical bills despite who was at fault in an accident.

PIP insurance can cover ambulance bills, doctor bills, hospital bills, and even therapy or rehabilitation costs. Some states even allow for medical payment insurance to cover lost wages or even benefits to cover a funeral. Again, some states require that drivers purchase insurance coverage to pay medical bills, and you must specify a limit.

Coverage for the Little Expenses that Add Up

While the above insurance options will cover the major expenses that can come with driving a vehicle, there are still a few other options that you might want to consider. Generally, the cost of smaller issues can really add up, increasing the stress and burden of an accident or other loss.

The first option that you want to consider is rental car reimbursement. If your vehicle has to be in the shop after an accident, or you need to shop for a new one, then you will probably need to rent a car to get to work and other places.

According to Wiser Drivers, the cost of renting a vehicle for one day in most cities is more than the cost of rental car reimbursement coverage for a whole year.

The cost to rent can add up quickly, but it won’t if you purchase the coverage.

The next consideration is roadside assistance with towing. Towing a vehicle can cost a couple hundred dollars, and it is nice to know you won’t have to be scrambling to pay a tow truck driver right after an accident.

Lastly, you need to consider general asset protection or GAP insurance. When you buy a vehicle, you likely pay more at the dealership than fair market value. Vehicles then depreciate in value the older they get and the more mileage that is added to the engine. GAP insurance pays the difference between what you paid for a vehicle and the fair market price that the insurance company will pay if the vehicle is totaled.

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