Car insurance offers financial protection in case of a car accident. It covers injuries to others through bodily injury liability and medical payments coverage, and it repairs or replaces your car through comprehensive and collision coverage. These coverages typically have dollar limits and deductibles.
You (and the drivers you list on the policy) must have adequate liability coverage to meet state requirements. It’s also a good idea to have rideshare and rental reimbursement coverage.
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Liability Coverage
Most states require liability coverage, which pays for the other person’s property damage and medical bills if you cause an accident. Experts recommend choosing limits at least equal to your assets to protect your finances in case of a significant accident.
This policy covers you and your family members who live in your household for medical bills, lost wages, and other economic losses due to an accident involving your vehicle. It also covers anyone who drives your car with permission, as long as they are not covered by another policy or a commercial auto insurance policy for business purposes.
This add-on pays to repair or replace your vehicle if it is damaged by fire, natural disaster, theft, or vandalism. It also covers rental car expenses and towing and labor. Some policies cover costs like personal injury protection and uninsured/underinsured motorist coverage.
Comprehensive Coverage
Often called “bad luck insurance,” comprehensive car insurance covers damage from non-collision incidents, like running into an animal or hail damage. It also pays for your vehicle’s replacement if it gets stolen. Lenders typically require comprehensive coverage if you lease or finance your vehicle.
It’s essential to consider your driving habits, state insurance regulations, and the value of your vehicle when deciding whether you need comprehensive coverage. Comprehensive coverage becomes less important as your car ages and its value declines.
If you choose to drop comprehensive coverage, make sure you have enough cash on hand to cover your deductible in the event of an accident. Understanding the impact of deductible choices on premium costs is essential. Choosing a higher deductible may help save money on premiums, but you’ll have to pay more out-of-pocket in case of a claim.
Collision Coverage
The opposite of comprehensive coverage, collision pays to repair or replace your car when it’s involved in an accident with another vehicle or object. It’s often paired with complete to create a policy known as full coverage.
Typically, the cost of collision insurance will be higher than comprehensive, but it may be worth it depending on your finances and the value of your car. You can also look for policies with disappearing deductibles, which decrease your deductible by a certain amount each year you don’t file a claim.
Collision and comprehensive coverage are often required by lenders when you’re leasing or financing a car, as they need to protect their investments. Ultimately, whether or not to carry collision and comprehensive is up to the driver, although most people find it practical. (It’s also good to consider personal injury protection and uninsured/underinsured motorist coverage.) Those aren’t mandatory, but they can add up quickly if needed.
Uninsured/Underinsured Motorist Coverage
Uninsured motorist coverage (UM) and underinsured motorist coverage (UIM) are essential to any car insurance policy. They are designed to cover expenses incurred when you and your passengers are involved in an accident with an uninsured or minimally insured driver.
UM typically provides bodily injury limits of $25,000 per person and $50,000 per accident, while UIM provides property damage coverages of $5,000 per vehicle. You may have the option to “stack” your limits by paying extra, depending on your insurance provider and state. This increases the total limit available if you are in an accident. UM and UIM coverage can provide a financial safety net and help you receive payment from the at-fault party’s insurance company if their policy limits do not cover your damages. However, these policies do not pay for repairs to your vehicle, so optional collision coverage is recommended for that purpose. Contact your agent to learn more about these coverage options and requirements.
