Coverage Beyond the Car

Figuring Out What Type of Auto Insurance You Need

The RateQuote Team

If you own a vehicle, you need insurance. The good news? Insurance companies offer a ton of options and you can scale up or down, selecting certain types of coverage depending on your needs.

RateQuote can help you understand the basics of auto insurance and the types of policies you can choose.

First, a vocab lesson:

This is the term for the payment for insurance coverage. Depending on the insurance company, you may pay it monthly, quarterly or annually.

The deductible is how much money you’ll pay out of pocket before your insurance company hops in to help you out. You’ll decide on your deductible when choosing a policy. Typically a higher deductible equates to a lower premium.

A claim is a request for payment and/or support from your auto insurance company following an accident or incident involving your vehicle.

There are three basic types of auto insurance:

In the case of an accident that’s your fault, liability insurance covers only the property and people outside of your vehicle. Within a liability policy, insurance companies set coverage limits for property damage and bodily injury.

Property damage: This portion of the policy would go toward other cars that were damaged, as well as buildings, landscaping or other structures.

Bodily injury: The portion of the policy would cover medical care (immediate and long-term) for people injured outside of your vehicle. This would include passengers in the other car(s) or pedestrians.

Collision insurance covers your car when you’re involved in a collision, whether it’s with another car or an object like a tree or guardrail. If the accident is caused by someone else, their insurance may pay for your repairs, or you can file a claim with your own provider. It only covers the cost of repairing or replacing your own car, minus the deductible. Collision is an optional coverage option, although some lenders may require it.

Comprehensive insurance steps in to cover any damage to your car caused by incidents like a tree falling on your car, someone taking it for a joy ride, or a hail storm. Sometimes it’s called “other than collision” coverage. Comprehensive coverage is optional, but may be required by your lender.

How to decide what you need:

Nearly every state requires that car owners, at a minimum, purchase liability insurance.

Liability insurance protects you from major financial burden if it’s determined that you’re at fault. Within the scope of liability coverage options, you can select the amount of insurance you’d like to have. Making that choice is dependent on your existing assets – because if you don’t have enough coverage in the case of an accident, you’re at risk of litigation.

Liability Coverage is Expressed in Three Numbers: X/Y/Z

XBodily injury liability limit per person
YBodily injury liability limit per accident
ZProperty damage liability limit

Each number represents thousands of dollars, so 50/100/50 is $50,000/$100,000/$50,000. And that’s the lower end of the spectrum for recommended liability coverage for a person with an older car and few assets – say a college student or a retiree.

The most commonly recommended level of liability coverage is 100/300/100. This is most appropriate for a homeowner who drives daily and has a little bit of savings.

At the higher end of the spectrum might be a number like 250/500/100. This coverage would be best for someone with a more expensive home or large savings. Again, you’re protecting your assets in the case of liability beyond coverage limits.

A simple rule of thumb is to calculate your net worth – the value of your home, cars and savings minus any debt. The middle number, Y, should be at least that high.

Now that you’ve got an idea of where you want to land with your liability insurance, it’s time to think about adding comprehensive and collision coverage.

Lease your car, or paying a loan on it? You’re probably required to have comprehensive and collision insurance. But since both of those types of coverage are triggered by a deductible, adding both (or either) policy is not significantly more expensive than liability itself.

As we noted earlier, deductible amounts are inversely related to the rate. So if you keep enough money in savings for emergencies, it makes more sense to choose a higher deductible in order to get a lower premium.

The last thing to know about comprehensive and collision – it’s only affected by the value of the property being insured. If your car is worth $5,000, that’s the maximum payout you’ll receive in the event the car is totaled.

The bottom line:

You should get comprehensive and collision coverage if:

  1. You're driving a car that's less than 10 years old
  2. You have limited savings to repair or replace your car on your own
  3. You live in an area that floods, hails, or experiences tornadoes

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