For most people, car insurance is generally considered a necessary evil. Having to make monthly payments that can stretch an already tight budget can seem especially burdensome if you’ve never had an accident. However, if you ever do need to make a claim, having the right auto insurance can become a financial lifesaver. In the end, despite how you may feel about carrying auto insurance, it’s still required by law.
Since state law requires that you carry insurance anyway, the question then becomes how much and what kind of coverage do you need? Here are a few things to keep in mind when trying to decide on what kind of auto insurance best suits your needs.
The Basics of Auto Liability
The most basic type of automotive insurance available, liability protects any individual you hit in an accident where you’re found at fault. When discussing liability insurance, three numbers are used to represent the dollar amounts that cover you against three different types of liability. If you were to purchase a liability policy, for example, that covered 20/40/10, you would have $20,000 of coverage towards bodily injury for one person injured during the accident, $40,000 worth of coverage that would go towards everyone injured in an accident, and $10,000 of coverage against property damage.
When trying to determine how much liability coverage you need, two main factors generally come into play.
The first thing you need to determine is the minimum coverage you’re legally required to carry in the state in which you live. Some states don’t have a minimum coverage amount, so it’s important to find out what your state of residence requires, especially if you move after initially starting your policy.
The second factor has to do with your own financial situation. If you find yourself at fault in an accident where another party was injured and their medical bills exceed your insurance coverage, you can most likely expect the party, and their lawyer, to come after the remaining amount. If you’re a high wage earner, own property, or have assets, you should consider taking out a policy with higher limits when compared to someone who has little to protect.
Personal Injury Protection
Personal injury protection offers coverage for you and your family in case an injury occurs during an accident. However, individuals who already have medical coverage that protects everyone in the family typically elect to opt out of PIP protection. Some states do require the coverage, so you need to check with local laws before you decide what to do with about PIP insurance.
Comprehensive and Collision
Individuals who currently lease or have a car loan on their vehicle will be required by the lien holder to carry both comprehensive and collision coverage on their automobile. However, when trying to determine how much insurance to carry, it’s important to know what each type of coverage protects you against.
Comprehensive coverage protects you against any damages incurred in non-accidents, such as hail damage, flood, fire, or cracked windshield. Conversely, collision protects you against any damage incurred during a collision with either another car or object.
If you own and drive an older automobile, you should consider whether the annual premiums you’ll need to pay to maintain comprehension and collision coverage exceed the value of your vehicle. As a generally rule of thumb, if the annual premiums for comprehension and collision exceed 10 percent of your vehicle’s total worth, you might reconsider whether carrying the coverage makes financial sense.