How To Choose The Right Auto Insurance

Liability

In most states, you are required to have some minimum of liability insurance, in the event that you damage someone else’s car, or injure the driver of another car, a pedestrian, or a bicyclist. The minimum amount of liability coverage varies by state, so be sure to check out a chart that addresses your local jurisdiction. Typically, liability coverage reads as follows, using California as an example: $15,000/$30,000/$5,000. Here’s what the example means: you have $15,000 of bodily injury liability coverage per person, $30,000 of bodily injury liability per accident coverage total, and $5,000 property damage liability per accident.

With this example of the minimum required in the state of California, one might reflect on the fact that this is a rather low amount of coverage. For example, if you crash into a Rolls-Royce, you are bound to do more than $5,000 of property damage, as they are cars that cost hundreds of thousands of dollars. Likewise, if you kill the occupants of another car while driving, you will most likely be on the hook for far more than $30,000 of damage in a wrongful death lawsuit. So, if you have a lot of assets, consider getting more liability coverage, with at least “$100,000/$300,000” of injury coverage to keep you safe. You might also consider at least $50,000 of property liability coverage, given the cost of a new car on the road today.

Comprehensive

A comprehensive policy will cover most things you want covered on your actual car, in the event of something happening to it other than an actual car accident. This can include acts of God, hurricanes, theft, vandalism, etc. This kind of coverage is usually required on vehicles that are leased or financed, to protect the lender from loss if your vehicle because badly damaged.

Collision

Collision coverage is what it sounds like, again to protect your own vehicle in an accident. It will cover the cost of repairing your vehicle, or replacing it in the event of a total loss. Collision coverage will also be required of you are leasing your car or you have it financed through a lender. How much you pay for collision insurance will depend on the value of your car and the “deductible” you choose to pay should there be an accident. For example, someone with a $500 deductible would have to pay $500 in order to get their car fixed if they crashed it into a tree. Someone with a $1,000 deductible would have to pay $1,000 for the same repair. The lower your deductible, the higher your monthly insurance premium will be, so make sure to weigh the costs and benefits of how much your car is worth to you vs. how much the insurance coverage would cost.

Uninsured Motorist

This kind of insurance protects you in accidents where someone else is at fault, but they have no liability insurance (or in some policies, insufficient liability insurance) to pay for your medical bills, and they are destitute and cannot be adequately sued for money to cover the damages. A large number of drivers have no auto insurance, skirting the law in their state, while many others go with bare minimum coverage, and are thus under-insured.

Cost

Auto insurance policies vary quite a bit in overall cost, which can mean some auto insurance policies are incredibly cheap. Most policies increase or decrease in price based on how many miles you drive per year, and they also increase or decrease in price depending on how much your car is worth (for the non-liability elements). They also change in price based on your driving history, continuity of holding auto insurance, age, and a variety of other risk factors that may vary a bit state to state. If you drive a thirty year old Ford Taurus with 300,000 miles on it and you only want liability coverage for 10,000 miles a year, you might only be on the hook for a few hundred dollars a year for auto insurance, if that. On the flip side, if you have brand new Cadillac or Lexus SUV worth $100,000 and it is financed, you will need full coverage, which will be slightly more expensive depending on how much you drive.

In Conclusion

Figuring out how much coverage you need and what kinds should primarily depend upon whether or not your vehicle is fully owned, and whether or not you are a person with assets to protect. If you own your vehicle with no loan, you can decide between “self-insuring” the cost of your car (that is, going without collision or comprehensive coverage), vs. paying to have the insurance company do it for you. Generally self-insuring is only a good idea if the vehicle is not worth much money, or if replacing it with cash out of pocket is not a concern to you.

Likewise, choosing how much liability coverage you need depends on how many assets you have to protect, and how much the minimum coverage is in your state. If you own property and have a lot of retirement accounts or cash in the bank, you will want to select an adequate amount of liability insurance to keep you safe in an accident. But if you don’t have a whole lot of stuff to your name that is worth a lot of money, you can weigh the risk of having something closer to your state’s bare minimum of auto insurance.

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