Personal Auto Insurance
Bodily injury liability and property damage liability are all that is strictly required, and the minimum amount of coverage and varies state by state.
Bodily injury liability
This covers money to pay for any injuries or death that occur to the other driver or their passengers in an accident for which you are responsible. This includes any medical bills they have, and if a lawsuit is filed, it will cover any judgments for both loss of income and pain and suffering. It’s a good idea to have well above state minimums on bodily injury liability since a lawsuit that asks for more money than your insurance will provide can go after your personal assets.
Property damage liability
This covers costs to pay for anything you’ve damaged or destroyed with your car, including other cars, fences, landscaping, and decorative lawn flamingos. You don’t generally need very high coverage amounts like you do with bodily injury liability, but again, if you run up a tab higher than your insurance will pay, it’ll come out of your pocket.
This covers the damage to your own car if you’re in an accident. It isn’t required, but if you get hit and there is major damage, this is where you’ll get the repair money instead of the payments going out of pocket. You’ll also need to choose a deductible when you choose collision coverage – the lower the deductible, the higher your insurance cost will be. To explain the deductible concept real quickly, here’s an example: if you have a $500 deductible, you’ll have to pay the first $500 with the insurance company paying the rest. Lastly, if you have a loan on the car, you might be required to have collision coverage, but otherwise, since it’s your car, it’s your loss if you don’t carry this coverage.
This covers damage to your car for all other reasons than being in an accident – think trees falling, theft, floods, and elephants escaping from the carnival. It’s frequently expensive to carry comprehensive coverage simply because of the number of things you can use it on. So, if you have a beat up car, you might not want to pay extra for this coverage. However, like with collision coverage, you may be required to carry it if you have a loan.
Ultimately, getting collision or comprehensive coverage depends on how likely it is you think your car will be damaged, versus how much you want to save on your insurance. Also, keep in mind that it may not be financially worthwhile if your car is very old or not worth much – over a few years, you could pay more in increased premiums than the car is worth. One other thing to know is that you aren’t forced to repair you care with the money you get from your insurance company. For example, if your car is a total loss, and it’s covered under either your collision or comprehensive coverage, your insurance company will cut you a check for the fair market value of your car, minus your deductible. It’s up to you what you do with the money.
Uninsured motorist bodily injury coverage
State laws requiring drivers to carry insurance are helpful, but there’s a lot of people who go without it, and you might have the bad luck to meet bumpers with one. I live in an insurance-required state and I carry the maximum on uninsured motorist bodily injury coverage. This coverage will pay for medical expenses for you and your passengers if you’re hit by a person who doesn’t have insurance to cover them. Keep in mind that this only applies if the other driver is at fault – if it’s your fault, you’re on the hook for your own bills. The coverage is usually listed as a maximum amount per person, which includes you and all your passengers.
Underinsured motorist bodily injury coverage
This is similar to the above, but covers you in case your vehicular antagonist has one of those lovely state-minimum policies with such low coverages you’re unlikely to get your own whole box of bandages. If you run up bills that go over their insurance’s limit, your coverage will kick in. Another good idea.
Uninsured and underinsured property damage coverage are helpful if you don’t have collision coverage and are hit by someone who doesn’t have any insurance or is underinsured. I still wouldn’t recommend it as a good replacement for collision coverage, but it will at least give you something for your smushed Saturn or physical injury when the other driver won’t be able to pony up a cent. However, it doesn’t do you any good if you were at fault – so if you don’t have collision, drive especially carefully.