What Type of Auto Insurance Do I Need?

Auto insurance is an essential part of protecting against the liability a driver may have if he damages property or injures other drivers. A certain amount of automobile insurance is required by law; other types of optional coverage are also available to protect car owners against damage to their own vehicle or themselves.

Liability Coverage

All car owners are required to carry a certain amount of bodily injury and property liability insurance coverage on their vehicle. These types of coverage will pay for injuries caused to people or damage done to property. The amount of auto insurance liability coverage that is required varies from state to state; at the bare minimum every driver must have liability insurance at least up to the minimums for their state. It is wise, however, to buy liability insurance in excess of state auto insurance minimum requirements, since minimums are often far lower than the liability that might be incurred in an accident. For instance, a state might only require $20,000 of property liability coverage, but if you happened to ram into and total a parked BMW that was worth $60,000, you would still be liable for $40,000 after the insurance paid out.

The amount of protection you buy should depend on the assets you have to protect. For instance, if you make a lot of money and own a home, you will want higher coverage levels to protect your assets if you cause damage; if you don't have much money and rent rather than own your home, you don't need as much protection, since you have little to lose.

Optional Coverage

You need several types of optional car insurance coverage to protect yourself financially and ensure that your transportation needs are met. Collision coverage insures your own vehicle against damage caused to it while driving. This coverage should be purchased on newer cars that are worth a significant amount of money; for cars that are worth $5,000 or less, you can consider forgoing this coverage if you would be able to afford buying a new car if your older car was damaged.

Comprehensive coverage insures a car against damage incurred from things like fires, hail and theft; similar to collision coverage, this type of coverage is important for newer cars that are worth more money and less important on cars that aren't worth much. Uninsured or underinsured motorist coverage is another type of optional insurance that provides financial protection against motorists without insurance or too little insurance to cover their liability. Considering many drivers have inadequate levels of insurance, uninsured motorist coverage can be good to have, especially if you drive an expensive vehicle. This type of coverage can also cover your own possible medical expenses that result from an accident with an uninsured driver.

Source:

edmunds.com: How Much Car Insurance Do You Need?

SmartMoney: How Much Auto Insurance Do You Need?