What type of auto insurance policy do you need?

Guest Author - Rhonda Cliett

When it comes to auto insurance, comparison shopping is difficult due to the myriad of factors that affect the premium. Being aware of the combination of elements that contribute to your premium, will help you make an informed decision regarding the type of policy that you need.

Nearly everyone is familiar with the terms liability coverage and comprehensive coverage. But what exactly do these terms mean? And, which type of coverage do you need? Are there other terms of which you should be aware? Certainly your individual circumstances will determine what type of coverage you need, however, you will also need to comply with the minimum insurance regulations in your state. Generally, auto insurance coverage applies to the car not the driver. This means that your policy will cover if someone not listed on your policy is driving your car with your permission.

Liability Coverage
There are two types of liability coverage: bodily injury liability and property damage liability.

Bodily injury liability coverage pays for damages that you cause someone else. It also covers legal expenses. For example, if you (or anyone listed on your policy) has a wreck and it is your fault, bodily injury liability coverage will pay benefits to the injured party. Additionally, if you (or anyone listed on your policy) is driving someone else’s vehicle with their permission and you have a wreck, your bodily injury liability coverage will pay benefits to the injured party.

Bodily injury liability coverage is described in a combination of numbers such as 100/300. This means that your coverage pays up to $100,000 per person and $300,000 per accident

Property damage liability coverage works much the same way except that it covers actual property such as damage to someone else’s vehicle, fences, houses, or other structures your car might hit. It does not cover the cost of damage to your vehicle.

Property damage liability coverage is described in a combination of numbers such as 20/40/15. This means that your coverage pays $20,000 per person for injuries you cause to the other party, up to $40,000 for all, and $15,000 for damage you cause to the other party's property. Each state has minimum coverage requirements but you should consider obtaining higher coverage in order to properly protect yourself and your assets.

Uninsured motorist coverage protects you and your vehicle if you are in an accident caused by someone else who does not have adequate coverage. It covers out-of-pocket expenses for injuries as well as compensation for pain and suffering. It is important to obtain this type of coverage in order to protect you, your family, and your property. A general guideline is to purchase uninsured motorist coverage equal to the amount of liability coverage.

Personal Injury Protect (PIP) or Medical Payment coverage pays medical expenses incurred by you, your family, and your passengers. If you have good medical insurance coverage, you most likely do not need PIP. However, some states require it and many people simply feel more comfortable having this coverage in addition to their medical insurance. PIP coverage is not as comprehensive as one might think so it is a good idea to discuss the facts surrounding this coverage with your insurance agent when making a purchase decision.

Collision and Comprehensive
Collision coverage pays for physical damage to your car in an accident and comprehensive coverage pays for damage to your car resulting from vandalism, theft or fire. If your car is financed, your lender will require the purchase of this coverage. However, if your car is not financed, you have the option of whether or not to select this coverage. Collision and comprehensive coverage drastically increases your premium. If you have an older car with a low resale value you might decide that this coverage is not worth it. However, if you have a newer, more expensive car, the cost of repairing the damage may offset the cost of the increased premium. Many arguments can be made regarding the benefit of obtaining collision and comprehensive coverage. However, the individual factors relating to your situation, as well as the factors surrounding each accident, will determine whether or not collision and comprehensive coverage was a good buy. Unfortunately, once an accident has occurred, it is obviously too late to make a purchase decision.