Choosing the Best Car Insurance for You
You know you need car insurance – all 50 states require drivers to insure their vehicles – but you may be confused by all the types of policies car insurance companies offer. In general, you will choose between full coverage and various policies that only cover certain types of damage. Although the policies available in your state will depend on state laws, this article covers the four main types of car insurance:
- Full insurance
- Liability insurance
- Physical damage insurance (non-liability)
- Uninsured motorist insurance
Full insurance
Full insurance is the broadest type of car insurance and covers most damages, including liability and other damage. If you have full coverage, your insurance company will pay for repairs and medical bills for both you and others involved in an accident that you caused, and for damages to your car caused by other factors, such as weather or fire.
Full insurance doesn’t guarantee that all of your costs will be covered. All insurance policies have limits that can affect your premium. The limit is the maximum amount of money the insurance company will pay for accidents or other damages. If damages exceed the limit, you are responsible for the difference. For example, if your policy has a limit of $30,000 but bills from an accident add up to $35,000, you are responsible for the last $5,000.
Most states require drivers to get policies that meet certain limits. For example, the required bodily injury limit in Illinois is $20,000 per person and $40,000 per accident. This requirement means that all policies sold in Illinois will cover drivers for up to $20,000 in medical bills for each person injured in the accident up to a total of $40,000 for the entire accident.
According to Tania Ramirez, office manager for State Farm insurance agent Augie Lacapra, minimum state limits are often too low to cover the costs of major accidents. Ramirez says many drivers are tempted by the cheapest car insurance policies available but don’t realize the risks of having a policy with low limits. If you owe more than you can pay for an accident, collection agencies will go after your assets, including your house, or they may garnish your wages. When you shop for a car insurance policy, an agent can help you analyze your assets and needs to find the policy right for you. Getting higher limits may cost you as little as $50 every six months but can save you a major headache if you’re involved in an accident.
Liability insurance
Liability insurance only pays for damages to other parties in accidents that you caused. For example, if you rear-end a car and have liability insurance, your provider will pay repair bills for the car you rear-ended but not repair bills for your car. Liability insurance is the minimum coverage required in most states. Depending on state laws and your needs, you can buy a full liability policy or choose between two main types of limited liability insurance:
- Bodily injury liability insurance - If you cause an accident, your bodily injury insurance will pay medical expenses for the other party and give you a legal defense if you’re sued. Bodily injury liability insurance does not cover your own medical expenses.
- Physical damage liability insurance - Like bodily liability insurance, physical damage insurance covers the damages to another person’s vehicle or property when you cause an accident. Coverage includes car repairs and property damage.
Physical damage insurance (non-liability)
Most states don’t require drivers to carry non-liability physical damage insurance, but you may want to buy this coverage if your car still holds much of its value. If you have a car loan, your lender may require you to buy physical damage insurance. These policies cover damages to your property or to stationary property – like fences or houses – that you may hit. The two main types of physical damage insurance are:
- Collision insurance - Collision auto insurance is a limited type of insurance that covers damage to your car if you hit another car or a stationary object, such as a tree or building. Insurance companies will compensate you for the damage to your car but this may not fully cover your costs. For example, if you have an accident in a car worth $2,000 the moment before the accident happened, the insurance will only compensate you for that value. The company won’t pay for repairs that are more than $2,000 or for the full cost of a new car.
- Comprehensive insurance - Comprehensive coverage is not as comprehensive as the name implies. In fact, it covers most things that could damage a car – fire, theft, broken glass, severe weather – but not accidents. As with collision insurance, your policy only covers the actual cash value of the car – how much the car is worth the moment before the damage occurred. If you drive a clunker, the cost of comprehensive insurance might not be worth the potential value.
Uninsured motorist insurance
Although all states require drivers to have car insurance, some drivers don’t have coverage or are underinsured. If they cause an accident, you may be responsible for paying for all your medical bills and car repairs. Uninsured motorist coverage will protect you from this possibility. Some states require all drivers to carry uninsured or underinsured motorist car insurance. If your state doesn’t require this type of coverage, consider adding it to your policy anyway. You may have uninsured motorist coverage already – check with your agent if you’re not sure.
Auto insurance policies vary greatly by state, insurance company, and lender requirements – lenders often require drivers who still owe money on their car to purchase full insurance. An insurance agent can help you get a policy that meets minimum requirements and recommend add-ons that are right for your lifestyle and needs. Think about the amount of financial risk you’re willing to take when you’re choosing your coverage limits, and shop around to find the policy that’s right for you.
By: Jessica Bayliss
10-15-2009
Jessica Bayliss is a freelance writer specializing in finance and education. She has degrees from the University of Illinois and Texas A&M-Kingsville and is still learning all about what college forgot.
