When it's time to buy auto insurance, be sure to review each type of policy offered so you'll know which ones best meet your personal needs.
Having the right coverage is important, in case you're found legally responsible for injuries or property damage in a collision, explains Insurance Information Institute (III) spokeswoman Janet Ruiz. Your goal should be to have enough coverage to protect your assets, which include your home, savings and investments.
Every state has different coverage requirements, and it's up to you to decide which additional protections you need, says Jim Armitage, an insurance agent based in Arcadia, California. Here's a breakdown of six basic types of auto insurance protection.
1. Bodily Injury Liability
This protection applies to injuries that you cause to others in an accident. It can pay for the injured party's medical expenses and compensate them for lost income. It can also pay your legal bills stemming from an accident, up to your policy limits. Additionally, it generally covers you and the drivers listed on the policy when driving someone else's vehicle with permission.
The insurance industry typically recommends a minimum policy limit of $100,000 in bodily injury coverage per person and $300,000 per accident. The legally required amount varies by state, but generally it's much less than the recommended amount, Armitage says. For example, in Mississippi, the law requires bodily injury coverage limits of $25,000 per person and $50,000 per accident.
2. Property Damage Liability
This coverage can help pay for the property damage caused by you or someone driving your car with your permission. Covered damage may include harm done to objects such as other cars, buildings, fences or street lights.
You can be sued for causing property damage, just as for causing physical injuries, Ruiz says. She typically recommends property coverage of at least $100,000, but many states require less. For example, in New Jersey you can purchase property damage liability coverage of as little as $5,000 per accident.
A $100,000 property damage liability policy "is the minimum suggested if you have assets that need to be protected," Ruiz says. "While that might not be enough to protect a very wealthy person's assets, it generally would be adequate for most middle-class homeowners."
3. Medical Payments or Personal Injury Protection
These coverages can help pay for medical care for drivers or passengers who are injured. They may cover medical payments, lost wages, and costs associated with replacing services performed by someone who was injured in a collision, says Kevin Lynch, an assistant professor of insurance at The American College in Bryn Mawr, Pennsylvania. They also may cover funeral expenses.
Medical payments coverage, which is sometimes called MedPay, covers medical costs you and your passengers pay after an accident, Lynch explains. You're also often covered for injuries if you're driving someone else's car or if a car hits you when you're walking. MedPay will generally cover you no matter who caused the accident and may also cover funeral expenses.
Personal injury protection (PIP) is a "no-fault" coverage that is required by some states, says Lynne McChristian, a spokeswoman for the III. The term no-fault means that no matter which driver is at fault, some medical expenses for the policyholder and his or her passengers may be covered. PIP is generally more robust than MedPay, and may also help cover lost wages, caregiver costs and funeral costs.
Call your state department of insurance or visit its website to find out PIP requirements for your state.
This protection can help pay for repairs to your own car following damage from collisions, pot holes or rolling your vehicle. Collision coverage typically is sold with a deductible of $250 to $1,000, according to the III. Higher deductibles typically reduce your insurance costs because you're taking on more financial risk, meaning you'll have to pay more out of pocket if there's a collision.
Armitage says collision coverage may give you peace of mind because it ensures your car will be fixed no matter who's at fault for damage. However, your insurance company will pay you only what the car is worth, no matter how much you spend on coverage. For example, if your car suffers damages that exceed its market value, it will be declared a total loss and you will be issued a check for what the car is determined to be actually worth at the time of the accident less any deductible.
So if you drive a car with a low market value, such as $1,000, keeping collision coverage may not make financial sense.
Comprehensive coverage helps pay to replace your car if it's stolen. It also covers damage not caused by collisions, such as fire, falling objects, explosions, earthquakes, vandalism, collisions with animals, wind or hail, Armitage says.
The III says this coverage normally is sold with a $100 to $300 deductible.
Comprehensive may make sense if you want to replace your car if it's stolen or you're worried about serious non-collision accidents. However, if your car has a low resale value, spending money on this protection may not be worthwhile. Like collision coverage, comprehensive coverage is limited by the actual value of the car at the time it's damaged.
If you're paying off a loan on your car, your lender likely will require you to have comprehensive and collision insurance to pay for repairs. Typically, the higher your deductible, the lower your insurance cost will be.
6. Uninsured and Underinsured Motorist
This protection helps compensate you for medical costs if you're hit by an uninsured or an underinsured driver. It may also apply if you're the victim of a hit-and-run driver or if you're struck by a car while walking.
The policy compensates you whenever an at-fault driver fails to pay for your medical losses, Armitage says.
This coverage doesn't automatically pay for your car to be repaired when you're hit by an uninsured or underinsured driver, says Carole Walker, executive director of the Rocky Mountain Insurance Information Association. In some states, you can buy uninsured and underinsured motorist property damage insurance as a separate policy.
Ruiz notes that many motorists fail to maintain auto insurance. A 2014 U.S. study by the Insurance Research Council estimated that 12.6 percent of motorists were uninsured in 2012.
It's important for you to understand the different kinds of auto policies that are offered so you'll be able to buy a coverage plan that meets your needs. If you have too little coverage, you could be left holding a bill for property damage or bodily injuries following an accident. However, if you purchase coverage you don't truly need, you may end up spending too much on car insurance.
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