Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.
Bodily Injury Liability coverage- This is mandatory coverage in most states. Bodily injury liability coverage pays for medical bills, lost wages, rehabilitation, treatment, and/or funeral costs for anyone injured or killed by your car. This coverage will pay for “pain and suffering” damages when a third party successfully sues. Many experts agree that this is the most important type of coverage to carry. The biggest mistake consumers make is being underinsured on bodily injury liability coverage. Consumer Reports recommends that you should purchase at least $100,000 per person and $300,000 per accident. If you have sizable assets, consider increasing those limits to $250,000 per person and $500,000 per accident. Such added coverage will raise your premium about 10%…but if you have considerable assets it is worth it. Consumer Reports also recommends “that people with a high net worth should purchase an umbrella policy,” to insure against a lawsuit that could go beyond your auto policy limits. Typically you have to purchase higher insurance rates to qualify for an umbrella policy.
Property Damage- This coverage pays to repair or replace another person’s vehicle or other property damaged by your car. States typically require only $10,000 to $25,000, but we suggest at least $50,000 in property damage coverage.
Uninsured & Underinsured motorist coverage- This covers medical bills, rehabilitation, and funeral costs, as well as losses for pain and suffering for you or the passengers in your car when an accident is caused by a hit-and-run driver or someone who has little or no insurance. You should get the same amount of Uninsured and Underinsured motorist coverage as you purchase in bodily injury coverage. If someone who has no insurance hits you, your medical costs will be covered.
Collision and Comprehensive– Collision coverage pays to repair or replace your car Collision coverage pays to repair or replace your car no matter who or what caused the accident. Comprehensive pays to repair or replace your car if it’s stolen or damaged as a result of a storm or other natural event. Coverage kicks in for the amount above your deductible. Choose the highest deductible you can afford to pay out of pocket–at least $500. Once the cost of this coverage equals 10 percent of your vehicle’s book value, you might want to cancel it, since you will collect no more than your vehicle’s market worth. Antique vehicles or cars with collector value sometimes are insured through a separate rider; or you may have to find a separate, specialty insurer.
Personal-injury protection. PIP reimburses you for lost wages and in-home care needed as a result of an accident. If you have separate health and disability policies, you can buy just the state-required minimum for PIP. The other policies should cover the balance of your needs.
Medical-payments coverage. Sometimes called med-pay, this covers medical bills for you and your passengers, regardless of who’s at fault. When this coverage isn’t automatically included in your policy, its costs are minimal. You may not require any if you have good health insurance. To protect passengers who may not have their own health coverage, you may want to carry at least $5,000 of this coverage.
Roadside assistance. This coverage pays to have your vehicle towed. If you already have an auto-club membership or your car’s manufacturer provides this service for free, don’t buy this extra coverage.
Rental reimbursement. This coverage typically costs $30 per year and pays for a rental car–usually for up to 30 days–if your vehicle is stolen or is in the shop for repairs sustained in an accident. There’s usually a cap on the amount you’re reimbursed per day and per occurrence.