There are some compelling claims for shopping around for car insurance to get a better deal, but those catchy ads should have you wondering just what kind of car insurance you need and what kinds are unnecessary. You don't want to pay too much and have more insurance than you need, but you don't want to be dinged with a huge bill if something unforeseen does happen. Almost every state requires drivers to carry a minimum amount of auto insurance, but the actual amount of insurance required varies from state to state. Here's a handy guide to identifying some of the basic types of coverage, as well as information to help you decide your limits and deductibles.
Tort Versus No-Fault
Your state is either a tort law state or a no-fault state. In a tort law state, the person who is responsible for the accident (the "at-fault" party) is responsible for paying for damages incurred. In a no-fault state, each driver's insurer pays for the damages in an attempt to curb accident-related lawsuits. Whether you live in a tort law or at-fault state affects your liability coverage and the minimum amount you must carry in that state.
Bodily Injury Liability
Bodily Injury Liability (BIL) policies pay for the medical expenses of the people you injure in an accident when you're at fault. There are two numbers associated with this coverage. The first is the maximum of what your insurance company will pay for a single person's injury and the second is the maximum amount paid for all injuries incurred in the accident. For example, 20/40 or $20,000/$40,000 means your insurance company will pay up to $20,000 for one person's injuries and a maximum of $40,000 for injuries of all injured parties. If you live in a no-fault state, you may still be required to carry BIL coverage to cover cases of death or dismemberment.
How Much Do You Need? SmartMoney says that your BIL limits should correlate with your own assets in the event of a lawsuit. "If you have substantial assets, buy $300,000 in bodily injury on your auto policy and $300,000 on the liability portion of your homeowner's policy. Then spend another $150 to $300 for a $1 million umbrella policy, which covers you against all manner of liability claims."
Property Damage Liability
You might notice a third number along with your BIL coverage, such as 20/50/10. That third number is the maximum your insurance company will pay for damage done to the other party's car if you're at fault in an accident. In the above scenario the "10" would be a $10,000 limit for damages.
How Much Do You Need? Save Money Easily recommends at least $25,000 in PD coverage in order to avoid paying out of pocket in case of an accident.
Personal Injury Protection
Primarily in no-fault states, personal injury protection (PIP) is coverage for medical expenses for you and anyone riding in your car. It also may cover lost wages and funeral expenses.
How Much Do You Need? The Wall Street Journal says that if you already have health and disability insurance, you should "just buy the required minimum" here, as defined by your state's laws.
Uninsured Motorist Coverage
What happens if you get into an accident with someone who does not carry insurance or has minimal coverage? What happens if you are injured in a hit-and-run accident? That's when this type of coverage kicks in.
How Much Do You Need? This coverage typically does not cost very much and the Wall Street Journal advises that it's worth paying for peace of mind to cover the costs your health insurance might not. A good rule of thumb is carrying the same limits as you do for BIL.
Collision And Comprehensive Coverage
These two types of insurance cover repairs to your car. Collision covers repairs following an accident that occurs while your vehicle is moving. Comprehensive covers the costs if your car is stolen or damaged while parked (i.e. scratched or vandalized). Both types of insurance usually involve a deductible (such as $500) that you have to pay toward repairs before your insurance coverage comes into play. Collision and comprehensive coverage are both optional and are usually purchased by people who are interested in repairing their cars following an accident.
How Much Do You Need? Both Smart Money and the Wall Street Journal recommend that you pay for the highest deductible that you can afford, such as $1,000. "Save collision insurance for when you have car repairs that cost thousands, not hundreds," writes the Wall Street Journal. "Remember, if you submit a claim for every little thing, your premium will increase."
Keep in mind that when shopping around for car insurance, you should have a copy of your current policy handy so that you can make sure you're comparing similar types of coverage.