How Much Coverage Should I Buy?

Figuring out how much auto insurance coverage you need can be confusing. Not having enough can be a costly mistake, but having more than you need can also put a sizable dent in your wallet. Set forth below is a breakdown of common auto insurance coverage to help you decide what you need.

Liability

No matter where you live, the most important part of auto insurance coverage is liability insurance. In many states, driving without proof of liability insurance is illegal. Even if this were not the case, if you were at fault in an auto accident, would you be able to pay the other party’s damages and medical expenses? Most of us would not.

In the insurance industry, the minimum recommended liability coverage is 100/300/50. These numbers mean that, for one auto accident, your insurance company will pay $100,000 per person for bodily injuries; $300,000 in total bodily injuries; and $50,000 in property damage. While the insurance industry recommends this coverage, it is not necessarily the amount required by your state. Most state requirements are much lower; however, you should keep in mind that hospital stays can be quite costly, and many popular new vehicles cost upwards of $30,000.

Comprehensive and Collision

Comprehensive insurance covers your vehicle against damage such as chipped windshields or other, non-auto-accident-related damage. Collision insurance covers damages done to your vehicle, regardless of fault. For instance, if someone else causes the accident, but their insurance coverage is not sufficient to pay the entire amount necessary to cover your car repairs, your collision insurance coverage will pay whatever amount is left (after any applicable deductible has been paid).

Uninsured/Underinsured

Despite the fact that liability insurance is required in 45 states, 17 percent of drivers throughout the U.S. do not have it, and some do not have enough coverage. For this reason, many states require that you also obtain uninsured/underinsured motorist coverage. This coverage is intended to protect you in case one of these drivers hits your car.

Medical Payments (aka MedPay)

This type of coverage will pay medical bills and lost wages for you and your passengers, regardless of who caused the accident. If you already have health insurance through your employer, however, you may want to skip this coverage.

Rental Reimbursement

This may sound like a good idea at first, but if you think about it, the money you pay each year towards this insurance could be set aside in an emergency account, earning interest, and if you ever need it, it will be there. Besides, if the accident is not your fault, the other guy’s insurance company will pay your rental cost.

Gap Insurance

The difference between what the car is worth and what you still owe on it is the reason gap insurance was created. If you own your car free and clear, you will likely want to skip this one, but if you still owe, you should give this option some thought.