There are many factors to consider in choosing the right types and levels of auto insurance coverage to buy. Though many drivers feel that simply meeting the minimum required level of coverage is enough to be protected, in many cases, the minimum coverage can leave you with thousands of dollars in debt, in the event of an accident.
Required Insurance Coverage
Nearly every state requires a minimum level of auto liability insurance coverage. Liability insurance covers damages to others, when you’re at fault in an accident, and is divided into two sections – bodily injury insurance and property damage insurance.
Bodily injury insurance pays the medical expenses of those injured in an accident, while property damage insurance pays for repairs to, or replacement of, damaged vehicles or other property.
Other Types of Insurance
There are many other types of insurance coverage that will increase the protection provided by your policy.
Uninsured or underinsured motorist insurance covers your medical expenses and damage to your vehicle, when another driver is responsible for an accident, but he or she lacks the necessary insurance to pay for the damages. One in seven drivers in the United States are uninsured and many more may be underinsured.
Collision insurance covers damage to your vehicle, resulting from a collision with another car, or any other object, regardless of whether or not you’re at fault. Collision coverage is required in most lease agreements, and is also essential if you’re driving an expensive car.
Gap insurance covers the difference between the cash value of your car, and the amount owed on it’s financing. In the event of a total loss, in which, the car is stolen or damaged beyond repair, and the amount outstanding on the car’s loan is more than it’s cash value, gap insurance will pay off the remaining balance. This coverage primarily applies to new cars, and may be required in a car’s financing agreement.
Personal injury protection insurance, also called MedPay in some states, covers up to 80% of your lost wages, medical bills, and other costs, resulting from an accident. PIP coverage is required in 15 states, and can be indispensable for many, but it’s best to ensure that your existing health insurance doesn’t already cover the same benefits offered through PIP, before adding it to your coverage.
Comprehensive insurance covers damage to your vehicle, that’s not covered by any other area of your insurance. This includes things like theft, fire, and vandalism. As with collision coverage, comprehensive coverage is required by most lease agreements, and is especially important if you’re driving an expensive car.
Getting the Right Insurance Coverage
Determining how much insurance coverage you’ll need, will depend on the kind of car that’s being insured, and the person driving it.This section covers a few of the most important things to consider, when choosing your coverage.
The Car
When insuring a new or expensive car, comprehensive and collision coverage are crucial. How much coverage is needed, will depend on the value of your car.
- If the car’s being financed, then gap insurance is also a good idea. In the event that the car’s totaled, without gap coverage, you could end up with a sizable outstanding balance on your auto loan.
- If the car’s being leased, then the required comprehensive and collision coverage will typically be included in the lease agreement.
Comprehensive, collision, and gap coverage should be minimal, or foregone altogether, if the car has little or no cash value.
The Driver
New drivers account for 29% of vehicle-related injuries, and are three times more likely to be involved in a fatal car accident. Given the increased risk, new drivers should select a higher level of liability coverage. More experienced drivers, on the other hand, can purchase a lower level of liability coverage, given that the risk of being at fault in an accident tends to decline with more driving experience.
- Comprehensive and collision coverage should still be considered on the basis of the car’s value, regardless of the driver’s proficiency behind the wheel.
Costs and Benefits
While auto insurance may seem like an unnecessary and costly burden now, having the right coverage is an essential investment in protecting yourself, and your property, from unforeseeable circumstances in the future.
