An auto insurance policy is actually a package of different coverages. Most states require you to purchase a minimum amount of certain kinds of coverage. But if you're interested in protecting yourself from a lawsuit or from wicked repair bills, then it makes sense to buy more than what's required.
Liability Insurance
Liability coverage is the foundation of any auto insurance policy, and is required in most states. If you are at fault in an accident, your liability insurance will pay for the bodily injury and property damage expenses caused to third parties in the accident, including legal bills. Bodily injury expenses include medical bills and lost wages. Property damage expenses pay for the repair or replacement of things you wrecked. The third party may also decide to sue you in order to collect "pain and suffering" damages.
Remember, if you cause a serious accident, minimum insurance may not cover you adequately. That's why it's a good idea to buy more than what your state requires.
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Liability Lingo: Insurance types usually refer to liability coverage limits as a series of three numbers. For example, your agent might say that your policy carries liability limits of 20/40/10. That stands for $20,000 in bodily injury coverage per person, $40,000 in bodily injury coverage per accident, and $10,000 in property damage coverage per accident.
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Collision And Comprehensive Coverages
Collision
If you cause an accident, collision coverage will pay to repair your vehicle. You usually can't collect any more than the actual cash value of your car, which is not the same as the car's replacement cost. Collision coverage is normally the most expensive
component of auto insurance. By choosing a higher deductible, say $250 or even $500, you can keep your premium costs down. However, keep in mind that you must pay the amount of your deductible before the insurance company kicks in any money after an accident.
Insurance companies often will "total" your car if the repairs the company must pay exceed what the car is worth.
Comprehensive
Comprehensive coverage will pay for damages to your car that weren't caused by an auto accident: Damages from theft, fire, vandalism, natural disasters, or hitting a deer all qualify. Comprehensive coverage also comes with a deductible and your insurer will only pay as much as the car was worth when it got wrecked.
Because insurance companies normally will not pay you more than your car's book value, it's helpful if you have a rough idea of this amount. Most insurance adjusters use the Kelley Blue Book. The National Automobile Dealers Association also publishes the Official Used Car Guide, which is updated each month. If your car is worth less than what you're paying for the coverage, you're better off not having it.
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