What Car Insurance Coverage is Right for You?

What kind of coverage do you need, and how much?

If you’re going to drive, you need car insurance (it’s the law in almost every state). But what kind of coverage is right for you? In this article, we’ll take a close look at each coverage option: Do you need it? And if so, how much coverage do you need?

Liability Insurance

Need it? Of course you should buy liability coverage. It's required by virtually every state, but, even if it isn't required, you should still get it. You want liability insurance to protect your assets if you cause an accident. If you think about it, you also want it to make sure that someone that you hurt by carelessness is fairly and adequately compensated. That's only fair.

How much? First, check the minimum amount of car insurance required in your state. You should get at least that much. Actually, you should probably get higher liability coverage than the minimum.

Personal Injury Protection (PIP)

Need it? If you live in a no-fault insurance state, this coverage is required. If it is offered in your state as an optional coverage, get it!

How much? When buying car insurance, purchase as much as you can get of PIP coverage. It is relatively inexpensive and can be invaluable if you have a car accident. That’s because car accident liability claims can take months or years to resolve. PIP no-fault coverage is paid to you sooner and can keep you going while you are recovering from your injuries and resolving legal claims.

Uninsured Motorist (UM) and Underinsured Motorist (UIM)

Need it? These coverage options come strongly recommend, and will protect you if you are injured by a driver with no insurance or a driver with very low limits of coverage. Learn more about uninsured and underinsured motorist coverage.

How much? When buying car insurance, get the highest UM/UIM limit that your insurance company will give you and you can afford.

The highest limit of UM/UIM coverage that insurance companies will sell you is the same limit as you liability coverage. That's another good reason to purchase as much liability coverage as you need and can afford when buying car insurance -- so you can purchase that much UM/UIM insurance.

Medical Payments Insurance (Med-Pay)

Need it? If you have good health insurance and it covers you and those who usually ride in your car with you, you may not need medical payments coverage when buying car insurance, or may only need a small amount.

How much? Let your circumstances and your budget be your guide.

Collision Coverage

Need it? If you have an older vehicle, you may not want to pay the cost of collision coverage when buying car insurance, on the theory that the car isn't worth enough to justify the expense of the insurance. But remember that you will have to pay out of your pocket to repair your vehicle if you cause an accident or are in a single-car accident.

If your vehicle is being financed, the finance company will require you to have collision insurance to protect its interests if the vehicle is damaged or destroyed. Once the loan is paid, you have the option of eliminating this coverage.

How much? Actually, the question is what amount of deductible should you choose? This coverage automatically pays up to the actual cash value (ADV) of your vehicle, or in some cases, up to the replacement value (RCV).

If you are a safe driver, when buying car insurance, choose the highest collision deductible that you are comfortable with. The higher the deductible, the lower the premium you will be charged. But don't forget that you must pay the amount of the deductible out of your pocket.  

Comprehensive Coverage

Need it? If you have an older vehicle, you may not want to pay the cost of comprehensive coverage when buying car insurance, on the theory that the vehicle isn't worth the cost of the insurance. But remember that you will have to pay out of your pocket to repair your vehicle if it is damaged or destroyed through fire, theft or vandalism.

Again, as with collision coverage, if your vehicle is being financed, the finance company will require you to have comprehensive insurance to protect its interests. But once the loan is paid, you have the option of eliminating this coverage.

How much? Here, also, the question is not how much coverage you should buy, but how high a deductible you should choose. The higher the deductible, the lower the premium, but you have to pay the deductible out of pocket if your car is damaged or destroyed.

Towing

Need it? If you are a member of a road service company, such as AAA, you don’t need this coverage. If you aren't, this is a convenience that you will have to decide whether you want to pay for.

How much? You probably won't have a choice. Companies tend to offer one version of this coverage which has a limit on the amount that they will pay per occurrence.

Rental Reimbursement

Need it? If you have multiple cars, so that you would have transportation if your car is in the shop being repaired, you might not need this coverage.

How much? Here, also, you won't be given much choice, if any. You’ll either choose or decline coverage.

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