Shopping for auto insurance can be a daunting experience. Your insurance agent will try to sell you every type of coverage that exists. The list of various coverage types can seem like a buffet and by the time you’ve sampled everything, your monthly bill will probably be very high. A little knowledge can go a long way in saving you money and getting you exactly the coverage you need. The following is everything you need to know about auto insurance coverage types.
Bodily Insurance Liability – This is one of two types required by law in all 50 states. The exact amount of coverage you need differs by state, but unless your state requires very high levels of insurance, you generally want more than the minimum anyway. This type of insurance covers costs related to injuries or death of another driver or pedestrian when you are at fault in an accident. Medical expenses can be very high and when you are at fault, you can get sued for expenses in excess of your insurance. In general you should get the highest value of coverage you can afford, up to about $1 million. At that value you should be protected from financial ruin in almost any situation.
Property Damage Liability – This is the other type of coverage that is required by law throughout the country. It works exactly like bodily insurance, except it covers the cost of vehicles, houses, and other non-living objects. You are incredibly unlikely to be at fault in an accident that deals massive property damage, so you can afford a lower value of protection here. Generally, about $30,000 will cover almost any car you can possibly hit. You’d pretty much have to hit a Maserati while it was driving out of the dealership for that value to not be enough. Additionally, Michigan residents are required by state law to get a special type of insurance called property protection. This special insurance does not cover other moving vehicles so liability limits still matter.
Uninsured Motorist – Uninsured motorist coverage is pretty much the reverse of bodily liability. It will cover the medical bills of you and your passengers when the other driver isn’t insured. It is usually optional, though 21 states require this type of insurance and Michigan doesn’t allow it to be purchased. Uninsured drivers are particularly rare, so this is likely to be pretty useless, but at the same time it is also usually incredibly cheap. If you have excellent medical insurance and you never drive with passengers, you can afford to get the state minimum on this. If not, this coverage is cheap enough that you should pick up about $20,000 – $30,000 worth of coverage, at a minimum.
Underinsured Motorist – Many states simply package this with uninsured motorist coverage, but not all. This insurance covers your medical bills when the liability insurance of a person who is at cause in an accident wasn’t adequate to cover your bills. Underinsured tends to be more expensive than uninsured because it is more likely to be necessary. Despite the increased cost, it is still rather inexpensive. Pretty much the same rules for buying uninsured apply to this coverage, except you want a higher coverage value if you do purchase it. You can judge what you feel is best for your potential medical expenses, but $100,000 is usually a good value for most major accidents.
Medical Payments / Personal Injury Protection – These two types of insurance are nearly identical, such that you can usually only purchase one or the other depending on what state you live in. Fifteen states actually require that you purchase one. Whether you live in a state where it is required or not, this is a good insurance to purchase unless you have excellent medical insurance. It covers medical bills of you and your passengers, even if you are at fault. Additionally, personal injury protection will cover related expenses like transportation costs to medical facilities and income continuation for long term injuries while medical payments will also cover funeral expenses. If your medical insurance isn’t up to snuff, or simply if you want to protect your passengers, you should purchase a policy that covers at least $100,000 and more if you can afford it. The premiums for this type of policy tend to be relatively inexpensive.
Collision – Collision is both simple and complicated. Collision will cover damage to your vehicle due to an accident, regardless of who is at fault. The tricky part is that almost all policies will only cover you up to the totaled value of the vehicle. This is not the cost to replace the vehicle. This is the value of the vehicle based on depreciation. Furthermore, collision policies will almost always cover the entire cost, but only after you pay a deductible. The value of the deductible sets the cost of your premium. Collision is almost always the most expensive type of coverage on your car. If your car is new or only a few years old, always pay for collision coverage, with a deductible of $0 if you can afford it. For older cars, keep an eye on the blue book value of your car. It isn’t worth spending $1000 a year on collision if your car is only worth that much or a little more. If your car insurance company offers a plan that covers replacement value of a vehicle, look into it. This is the best insurance you can get.
Comprehensive – Comprehensive is the flip side of collision. It covers damage or replacement of your vehicle in pretty much any situation that isn’t an accident, including theft. It is much cheaper than collision because it is a lot less common. You should follow roughly the same guidelines for purchasing this type of coverage as collision, including looking into replacement value coverage if your insurance company offers it.
Related Coverage – There are a few types of related coverage options that you can either purchase as part of your auto insurance or also purchase from your auto insurance company. An umbrella policy will protect you from lawsuits when your liability coverage runs out. This safety net covers all of your insurance policies, but will generally apply to your auto insurance policy. Some insurance companies will let you purchase insurance for rentals and towing, in case of an accident. If you don’t have a plan like AAA, this is generally worth buying. Finally, if you have upgraded your car sound system from the original specifications, you can buy insurance that specifically covers that.