There are six different types of coverage. You need at least the first three.
- Liability coverage
- Personal Injury Protection (PIP)
- Uninsured and underinsured drivers
- Collision coverage
- Comprehensive coverage (Other than Collision Coverage)
Each type of coverage speaks to a different consequence of a car accident - medical costs, property damage, and so on.
Each has its own price tag: You decide how much coverage you want; the insurer tallies your selections to figure your annual premium. Heres an overview of these types of coverage:
1. Liability coverage
Liability means, basically, how much you must pay for hurts you cause to others and to property.
Coverage for injuries to people is crucial. Medical costs run high, as do jury awards for a victims suffering and lost income. Benchmark medical liability coverage for most home-owners (and people with sizeable assets) is $100,000 per person and $300,000 for all involved.
Property liability must cover both car repairs and ancillary destruction, such as a flattened flower garden or a severed hedge. Because you might be held accountable for related losses caused when, say, you felled a power line, it may be wise to carry $100,000 coverage.
2. Personal Injury Protection (PIP)
This medical coverage pays for your medical bills. No matter who was a fault, this insurance pays for accident-related medical costs for you and your family, typically for three years. If passengers who are not family members are hurt, this should cover their bills too, up to specified amounts.
PIP medical coverage comes into play when the accident is deemed to have been your fault. (The other drivers insurance pays if the other driver was a fault.)
Not all states require this medical coverage; some only require $1,000 of coverage per person. Many experts recommend having at least $10,000 per person, but $100,000 per person (with a maximum of $300,000 for everyone in your car) may be wiser if you have assets to protect.
Note: Your regular health insurance may also cover some accident-related medical costs, but it may not cover injuries to non-family passengers. PIP medical coverage usually will though.
3. Uninsured and underinsured drivers
This coverage protects you if the other driver does not have insurance, or not enough insurance (or sellable assets) to pay for your losses.
Some states dont require this, and no-fault states insist that your regular policy cover this situation automatically. Uninsured-underinsured coverage should also pay for injury caused by a hit-and-run driver.
Many insurance folks say that if your house is worth more than about $300,000, you should at least consider $250,000/$500,000 coverage. The cost increase versus the potential loss makes this worthwhile for many drivers.
4. Collision coverage
Collision coverage pays for accident-related damage to your car. Because of the high cost of many cars - and the sums required to repair them - many experts say you should carry $50,000 of collision coverage on a car less than three years old. A deductible - the amount you pay before any insurance coverage kicks in - of $500 is about average. Damage not caused by the accident is paid for by comprehensive coverage (see below).
5. Comprehensive coverage (Other than Collision Coverage)
Often mentioned in the same breath with collision coverage, comprehensive covers all non-collision damage, including vandalism, flood and theft.
Comprehensive coverage has a deductible - the amount you pay before the insurance takes effect. As a rule, the larger your deductible, the lower your annual premium. If you choose, say, a $1,000 deductible, you pay the first $1,000 of the repair bill, and your insurer pays the rest.
If you need additional coverage, special provisions called endorsements come into play. For example, if you want your insurance to cover towing costs, or renting a car to replace yours while its in the shop, you buy the appropriate endorsement. It then becomes part of your policy.