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Auto insurance costs vary depending on many factors, including how much coverage you buy. But how do you know how much coverage you need?
Understand your state’s minimum liability coverage
You can start by understanding how much auto insurance coverage your state requires you to carry. According to the Insurance Information Institute (www.iii.org), most states require drivers to carry a minimum amount of liability coverage. Carrying more may be wise, though: You could be wiped out financially if found legally responsible for bills that exceed the coverage on your auto insurance policy.
If you are leasing a vehicle, the leasing company will probably dictate the amount of auto insurance liability coverage you need. You can always protect yourself by buying more than the minimum.
The Insurance Information Institute recommends auto insurance coverage of $100,000 of bodily injury protection per person and $300,000 per accident. If your net worth is more than $300,000, consider buying additional liability auto insurance coverage, the institute says. Umbrella policies, also known as excess liability policies, are also available. They go into effect when your underlying auto insurance coverage is exhausted.
Other types of coverage
Other kinds of coverage are available on most auto insurance policies. For example, property damage liability covers damage you cause to other vehicles or property. In some states, you can also add personal injury protection (PIP) to your auto insurance coverage, which covers medical treatment for yourself and your passengers. If you have good health insurance, you might want the minimum PIP on your auto insurance policy. Consider just enough to cover deductibles or other expenses not covered by your other policy.
You will also have to decide whether to add uninsured/underinsured motorist coverage to your auto insurance policy. Unfortunately, not all drivers are insured. If an uninsured driver hits you, this coverage will pay your medical bills. (In some states, uninsured coverage will pay vehicle expenses as well.) Again, consider what your health insurance covers when deciding whether to buy this type of auto insurance coverage.
Collision and comprehensive auto insurance coverage are optional. Some people drop this coverage when the premiums cost more than 10 percent of the value of the car. The amount you pay in premiums is based on the market value of your car.
Another kind of auto insurance coverage includes paying for a car rental while yours is in the shop for repairs.
These are just some of the types of auto insurance coverage available. The type -- and amount -- you need depends on your personal circumstances. Your state insurance commission’s web site can help you navigate the choices and explain your options.