Car Insurance Basics

Car insurance is one of those strange purchases: Everyone needs it, but no one ever hopes to have to use it.

But because you’re required by law to have it, and because it will offer you much needed financial protection in case you’re in an accident, you might as well buy insurance from the insurers rated the highest in overall customer satisfaction, right?

What Type of Auto Insurance is Best for You?

Buying car insurance is a big decision for drivers. Understanding what types of car insurance are available, and what you specifically need is key in choosing the policy and coverage that is right for you.

To help you better understand your car insurance needs, let’s first look at an overview of auto insurance.

What is Auto Insurance?

Driving a 2 ton pile of metal can be risky. Car insurance protects you financially from the risk of a collision or physical bodily harm, which can rack up quite an expense. Whether you are at fault in an accident or not, car insurance will pay for damage to your car or another driver’s car, theft, natural disasters that affect your vehicle and loss of income.

Each state has its own requirements as to what type and how much coverage you need. Bodily injury and personal property, for example, are required in each state, but at different minimum levels.

You will see coverage amounts for bodily and personal liability like this: 25/50/25

Where 25 is the amount of coverage ($25,000) your insurance company will pay per person for bodily damage in an accident, 50 is the total amount the company will pay for bodily injury per accident ($50,000) and the second 25 tells how much coverage you have for personal property damage ($25,000).

Here are each state’s requirements for liability coverage:

Alaska 50/100/25, Arizona 15/30/10, Alabama 20/40/10, Arkansas 25/50/15, California 15/30/5, Colorado 25/50/15, Connecticut 20/40/10, Delaware 15/30/10, Florida 10/20/10, Georgia 25/50/25, Hawaii 20/40/10, Idaho 20/50/15, Illinois 20/40/15, Indiana 25/50/10, Iowa 20/40/15, Kansas 25/50/10, Kentucky 25/50/10, Louisiana 10/20/10, Maine 50/100/25, Maryland 20/40/10, Massachusetts 20/40/5, Michigan 20/40/10, Minnesota 30/60/10, Mississippi 25/50/25, Missouri 25/50/10, Montana 25/50/10, Nebraska 25/50/25, New Hampshire 25/50/25, New Jersey 15/30/5, New Mexico 25/50/10, Nevada 15/30/10, New York 25/50/10, North Carolina 30/60/25, North Dakota 25/50/25, Ohio 12.5/25/7.5, Oklahoma 25/50/25, Oregon 25/50/10, Pennsylvania 15/30/5, Rhode Island 25/50/25, South Carolina 25/50/25, South Dakota 25/50/25, Tennessee 25/50/10, Texas 20/40/15, Utah 25/50/15, Virginia 25/50/20, Vermont 25/50/10, Washington 25/50/10, Wisconsin 25/50/10, West Virginia 20/40/10, Wyoming 25/50/20.

Types of Car Insurance

When looking at your policy you will see different types of coverage. Here we define each.

Bodily Injury Liability: This covers medical costs or lawsuits that are the result of an accident you caused where someone else was injured. This is required in each state, and it’s recommended you carry enough to pay for any such types of damage.

Property Damage Liability: Also required in each state, this covers any damage you cause to another vehicle or property, such as a house, light pole or mailbox you hit in an accident.

Collision Coverage: This pays for the repairs on your car, whether you caused the accident or not. For collision, you are required to pay a deductible before your insurance will pay for expenses. Choose a deductible you can afford.

Comprehensive Coverage: This covers anything non-collision related, like theft of your vehicle, vandalism, or acts of God, like hurricanes, floods or fire. This also has a deductible.

Personal Injury Protection (PIP): For medical expenses for you or anyone else who was riding with you at the time of the accident, PIP pays, regardless of fault. If you don’t have health insurance, this is a good option. It can also include death benefits and loss of income.

Under/Uninsured Property Damage: If another driver damages your car or property and doesn’t have insurance or doesn’t have enough insurance to pay for expenses, this will cover you.

Under/Uninsured Motorist Bodily Injury: If the other driver doesn’t have sufficient insurance to pay for your medical bills, this will pay for them.

Towing and Labor: Some insurance policies offer an option that will get you free towing service, bring you gas if you run out or unlock your car if you lock your keys in.

Rental Car Coverage: Buying this coverage will get you a rental car if your car is involved in an accident and needs repairs.

Insurance Rate Quotes

Car insurance premiums vary by driver and car type. There also may be a pretty wide range in rates from one company to another. If you are a 27 year old female who drives a 2007 Toyota Camry and has a clean driving record, you would pay between $40 and $51 a month for bodily injury and property damage coverage with Progressive, but you would pay $40 to $76 for the same coverage with State Farm. Each company has its own calculations for determining rates, so the best thing to do is get multiple quotes.

What’s Right for You? Now that you understand more about auto insurance, let’s look at what types are right for you. Here are some questions to ask yourself:

Do you want complete coverage, or just the bare minimum? For complete coverage, choose liability amounts like 100/300/100 to ensure you have maximum protection. For bare minimum coverage, check your state’s requirements, or go for the average 25/50/25.

Is your car financed or leased? If it is, add comprehensive coverage to protect yourself.

Do you have health insurance that would cover a car accident? If not, add Under/Uninsured Motorist Bodily Injury Coverage. If you elected for minimum coverage, you can stop here.

If you wanted maximum coverage, do you have people riding with you frequently? If so, add Personal Injury Protection (PIP).