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The Ultimate Guide to Choosing the Right Auto Insurance Coverage

February 16, 2024


Choosing the right auto insurance coverage is one of the most important financial decisions you can make as a driver. The coverages you select will protect you and your vehicle in the event of an accident, damage or theft. Having inadequate coverage could leave you vulnerable to major out-of-pocket expenses if something goes wrong. 

Choosing the right auto insurance coverage is one of the most important financial decisions you can make as a driver. The coverages you select will protect you and your vehicle in the event of an accident, damage or theft. Having inadequate coverage could leave you vulnerable to major out-of-pocket expenses if something goes wrong. 

This guide will provide an overview of the different types of auto insurance coverage available, factors to consider when selecting coverage, and tips for getting the most protection for your money. We’ll cover everything you need to know to make informed choices about liability, collision, comprehensive, uninsured motorist, medical payments, rental reimbursement, roadside assistance, gap insurance, and usage-based insurance options.

Understanding these coverages is key to putting together a policy that truly fits your needs and provides sufficient protection on the road. Our goal is to help you pick auto insurance coverage that you can have confidence in so you can drive with greater peace of mind. Read on for our top tips and advice for choosing the right auto insurance to protect you and your vehicle.

Liability Coverage

Liability coverage is one of the most important parts of an auto insurance policy. This type of coverage helps pay for injuries or damage that you, as the policyholder, cause to other people or their property while operating your vehicle. 

Liability coverage is required in most states. If you are found legally responsible for an accident, liability insurance helps pay for the other driver’s medical bills, lost wages, pain and suffering, vehicle repairs, and other damages up to the limits of your policy.

There are two main types of liability coverage:

Bodily Injury Liability

Bodily injury liability covers injuries that you cause to other people in an accident, such as medical expenses, rehabilitation costs, lost wages from missed work, and pain and suffering damages. The coverage pays if you are found legally responsible for the injuries.

Most states require drivers to carry a minimum of $30,000 per person and $60,000 per accident in bodily injury liability coverage. However, experts often recommend getting at least $100,000 per person and $300,000 per accident if possible, as medical costs can add up quickly after a major accident.

Property Damage Liability 

Property damage liability helps pay for damage that you cause to another vehicle or property, such as a building, fence, utility pole, etc if you are at fault. Most states require a minimum of $25,000 in coverage. But again, it’s wise to get more if possible, such as $100,000 which is a common limit.

The more liability coverage you can afford, the better. If your liability limits are too low and can’t fully cover the other party’s damages, you could end up paying a lot out-of-pocket. Liability insurance protects your assets and future earnings.

Collision and Comprehensive Coverage

Collision and comprehensive coverage are optional coverages that provide additional protection for your vehicle. It coverage pays to repair or replace your vehicle if you are in an accident that’s your fault. Comprehensive coverage pays for damage to your car from non-collision events like theft, vandalism, fire, hail, and hitting an animal.

Whether collision and comprehensive coverage are worth adding depends on a few factors:

– The value of your car – If your car is older or worth less than $1,000, the extra premiums may not be worth it. But for newer cars, the coverage is likely worthwhile.

– Your ability to pay repair bills – Can you afford and are you willing to pay thousands out of pocket if you have an at-fault accident or your car is damaged or stolen? If not, the extra coverage provides peace of mind.

– Where you live – If you live in an area with high rates of accidents, vandalism or severe weather, the added protection may be more beneficial.

– Your driving record – Drivers with accidents on record or high-risk profiles should strongly consider collision and comprehensive to control out-of-pocket costs.

The deductible amounts also impact the cost of coverage. Higher deductibles mean lower premiums but more money you’ll have to pay out of pocket for a claim before insurance kicks in. A $500 or $1,000 deductible is usually a good middle ground for balancing premium and out-of-pocket costs. Evaluate your budget and risk tolerance to choose deductibles.

Collision and comprehensive provide vital protection for many drivers. Analyze your personal situation to decide if the extra coverage is right for you. Protecting your vehicle investment is wise for most car owners.

Uninsured/Underinsured Motorist Coverage

Uninsured and underinsured motorist coverage protects you if you’re in an accident caused by a driver who doesn’t have sufficient insurance. 

Uninsured motorist coverage pays for your medical bills, lost wages, and other damages if you’re hit by a driver with no insurance. Underinsured motorist coverage kicks in when the at-fault driver’s liability limits are inadequate to cover your losses.

Many states require drivers to carry uninsured/underinsured motorist coverage. The minimum amounts vary, but typically match your liability limits. For example, if you carry 100/300/50 liability limits, the state may require 100/300 UM/UIM limits.

This coverage is critical if you live in a state with high uninsured driver rates or if you drive an expensive vehicle. Without it, you could be stuck paying tens of thousands of dollars out-of-pocket if an uninsured or underinsured driver hits you. 

Even if your state doesn’t require UM/UIM coverage, it’s wise to carry higher limits. Otherwise, you may only receive the state minimum payout, which likely won’t be enough to cover major injuries or vehicle repairs.

When shopping for auto insurance, don’t skimp on uninsured/underinsured motorist coverage. The small premium investment could save you from financial ruin if an at-fault driver lacks adequate coverage. Discuss options with your insurance agent to ensure you have sufficient protection.

Medical Payments Coverage

Medical payments coverage, sometimes called MedPay, can help pay for medical expenses for injuries to you or your passengers after a car accident, regardless of who was at fault. 

Here’s how it works:

– Covers medical expenses like hospital bills, ambulance fees, and funeral costs for you and your passengers, up to the limits of your policy (usually $1,000-$10,000).

– Payments are made on a no-fault basis, meaning it doesn’t matter who caused the accident. The coverage kicks in simply because the injury occurred in your vehicle.

– Differs from health insurance in that it only covers car accident-related injuries for a limited time, usually up to 1-3 years after the accident. Health insurance covers a wider variety of medical expenses.

Pros of Adding Medical Payments Coverage:

– Provides an extra layer of protection beyond your health insurance. Health insurance may not cover all accident-related expenses.

– Can be used to cover copays and deductibles that health insurance doesn’t cover.

– Passengers who don’t have health insurance can benefit.

– Relatively inexpensive addition to your policy, often just a few dollars per month.

Cons of Adding Medical Payments Coverage:

– Duplicates coverage if you already have comprehensive health insurance. Although it can help fill gaps.

– Limited payout, usually only a few thousand dollars. Major injuries would exceed this limit.

– Only covers medical expenses, not lost wages or other non-medical costs.

Deciding on medical payments coverage requires weighing the pros and cons. It can provide an extra safeguard for expenses that may fall outside your regular health insurance. But for those with robust health coverage, it risks being redundant. Check your health insurance policy details to see if there are car accident coverage gaps that MedPay could fill.

Rental Reimbursement Coverage

Rental reimbursement coverage is an add-on auto insurance policy that pays for the cost of renting a car if your vehicle is damaged in an accident and is out of commission. This coverage kicks in while your car is being repaired and reimburses you for transportation costs up to the limits of your policy.

Rental reimbursement can be extremely useful if you rely on having access to your vehicle every day and would face difficulties without a replacement rental car. It provides peace of mind knowing you will have transportation if your car is inoperable after a collision.

Some tips on getting the most out of a rental reimbursement policy:

– Discuss coverage limits with your insurer. Many policies have a maximum daily limit, such as $30/day, and a maximum policy limit, such as $900 per accident claim. Make sure these limits fit your potential rental needs.

– Ask about the reimbursement rate. Most policies reimburse based on a generic rental car rate rather than the actual rental costs. Make sure the rate is reasonable for your area.

– Inquire about exclusions. Some policies may not cover certain types of vehicles.

– Consider your expected repair times. Will the policy limits provide long enough coverage during extended repairs?

– Ask about loss of use coverage. This can extend the rental period beyond the repair time if your vehicle is totaled.

With the right coverage limits, rental reimbursement coverage can be an affordable way to ensure you maintain transportation in the event your car is damaged. Discuss options with your insurance agent to structure the right policy for your needs.

Roadside Assistance Coverage 

Roadside assistance coverage is an add-on option you can get with your auto insurance policy that provides services like towing, battery jump starts, flat tire changes, fuel delivery, and lockout assistance. Here are some of the key pros and cons to consider when deciding whether to add roadside assistance to your policy:

Pros

– Convenience – Having roadside assistance means help is only a phone call away if your car breaks down or you get into an emergency situation on the road. You don’t have to find and call a tow truck company yourself.

– Potentially lower costs – Roadside assistance through insurance often comes with unlimited towing miles up to a certain dollar amount per incident. This may be cheaper than paying out of pocket each time.

– Available across the U.S. – Most insurers provide roadside assistance coverage anywhere in the U.S. so you’re covered even when traveling far from home.

– May reduce risk of accidents – Having prompt assistance for emergencies like tire changes or jump starts can prevent more hazardous situations on the road.

Cons

– Added monthly premium – Roadside assistance increases your insurance premium, so it’s an extra recurring cost. The increase is usually $4-$8 per month.

– May duplicate other services – Many people already have roadside assistance through AAA, auto clubs, or cell phone plans. No need to pay for duplicate coverage.

– Usage limits – Most insurers limit the number of roadside assistance calls per policy term. After hitting the limit you’d pay out of pocket.

– May not cover full cost – The dollar limit per roadside assistance incident may not fully cover the total cost of a major towing or repair job.

Overall, roadside assistance is a relatively affordable add-on that provides valuable peace of mind for many drivers. But consider whether you already have access to roadside help before paying extra. Compare costs to see if a cell phone plan or auto club membership could meet the same need at a lower annual cost than going through insurance.

Gap Insurance – Protection For Your Vehicle’s Value

Auto Gap insurance provides financial protection if your vehicle is totaled or stolen and you owe more on your auto loan than the vehicle’s actual cash value. This situation often arises when you purchase or lease a new vehicle that depreciates rapidly in the first few years.

For example, say you purchase a new $30,000 car by financing $28,000 over 5 years. A year later, you’re in an accident that totals the car. But now the car may only be worth $22,000 due to depreciation. Your insurance will only pay the current cash value of $22,000. Without gap insurance, you’d be stuck owing $6,000 to the lender for a car you no longer have. 

Auto Gap insurance covers the difference between what your insurance pays and what you still owe on the loan. This protects you from owing thousands out-of-pocket in the event of an accident or theft.

When Gap Insurance Is Worth It

Gap insurance provides the most value when you:

– Purchase or lease a new vehicle that will depreciate rapidly

– Make a low down payment on your vehicle 

– Finance your vehicle for longer terms like 5-6 years

– Drive high annual mileage increasing depreciation

The first few years of a vehicle’s life is when it depreciates the fastest. But your loan balance decreases much slower over those years since it’s spread out over the full loan term. This creates a gap between the vehicle’s worth and remaining loan balance.

New car buyers often only put 0-20% down, so they start out owing nearly the full purchase price. With rapid depreciation, their loan balance remains high while the car’s cash value drops. Gap insurance protects against this declining value.

For older used vehicles with slower depreciation, gap insurance is less critical. You also may not need it if you put down a sizable down payment of 20% or more. But for newer vehicles and small down payments, gap coverage provides vital financial protection.

Usage-Based Insurance

Usage-Based Insurance (UBI) is a relatively new type of auto insurance plan that bases your premiums on how much you drive and your driving habits. With UBI, your insurance company will use a telematics device installed in your car or a mobile app on your phone to track your driving data, such as miles driven, time of day, hard braking, speed, etc. The insurer then uses this data to calculate your auto insurance rates each month or policy term.

How Does Usage-Based Insurance Work?

– You sign up for a UBI policy and get a telematics device or mobile app from your insurer to track your driving.

– The device or app transmits your driving data to your insurance company.

– The insurer analyzes your driving data to determine your premiums based on your mileage, driving behavior, time of day driven, and other factors. The less you drive and the safer you drive, the lower your rates.

– You pay a premium that aligns closely with your actual driving habits and risk level each month or policy term.

Pros of Usage-Based Insurance

– Usually results in lower rates for safe, low-mileage drivers.

– Premiums align closely with your actual driving and risk.

– Gives you control to lower your rates with safe driving habits.

– Can lead to increased savings over time as you continue to drive less and more safely.

Cons of Usage-Based Insurance

– Privacy concerns over constant tracking of driving data.

– Potential for higher rates if you drive more miles or exhibit riskier driving behaviors.

– Doesn’t account well for rare events like emergencies or bad weather driving.

– Upfront cost of telematics device or limitations of mobile app tracking.

Overall, usage-based insurance can provide significant savings and fairer rates for safe, low-mileage drivers. But it requires closely monitoring your driving habits and limiting high-risk behaviors to maximize those savings. Carefully weigh the pros and cons to decide if a UBI policy is the right choice for your needs.

Conclusion

Choosing the right auto insurance coverage can seem complicated, but breaking it down into the key types makes it more manageable. When shopping for car insurance, it’s important to understand the core coverages:

Liability coverage helps pay for damage and injuries you cause to others. Consider 100/300/100 minimums or higher limits.

Collision coverage pays to repair or replace your car after an accident. It covers accidents you cause. Consider adding this if you have an auto loan or lease.

Comprehensive coverage pays for damage from theft, vandalism, fire, floods, animals, and other non-crash incidents.

Uninsured/underinsured motorist coverage pays for injuries to you and your passengers caused by an uninsured or underinsured driver. This protects you from high medical bills.

Medical payments coverage pays for injuries to you and your passengers, regardless of fault. It covers medical bills not addressed by health insurance. 

Roadside assistance coverage pays for towing and labor if your car breaks down. It’s inexpensive for peace of mind.

Consider all these options when selecting insurance. And choose appropriate limits and deductibles for your budget and risk tolerance. With the right coverages, you can have protection and peace of mind.

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