August 2007
What Insurance Coverage Do I Need for My Vehicle?
Insuring your vehicle can be confusing, particularly since laws vary from state to state. What is required by state law and what you should have can be different. Having the right coverage to fit your needs not only gives you peace of mind but also protects your pocketbook in the event of an accident. This report provides reviews of the various types of coverage available and describes which ones you should have.
Types of Auto Insurance Coverage
Let’s start with descriptions of the various coverages that can be found in an auto insurance policy.
- Bodily injury liability. This coverage pays the following if the policyholder caused an accident: medical, rehabilitation, and funeral (if necessary) of your passengers, the other driver, the other driver’s passengers, and any pedestrians involved. It also covers pain and suffering awards and legal costs.
- Property damage liability. This coverage pays to repair or replace another person’s vehicle or other property damaged by the policyholder’s vehicle.
- Uninsured and underinsured motorist coverage. If an accident is caused by a hit-and-run driver or a driver that has little or no insurance, this coverage pays the medical, rehabilitation, funeral bills, and pain and suffering of the policyholder and policyholder’s passengers.
- Collision. This coverage pays to repair or replace the policyholder’s vehicle whether the damage was caused by another vehicle, a roll-over, another object, or even potholes. This coverage usually has a deductible.
- Comprehensive. This coverage pays to repair or replace the policyholder’s vehicle if it is stolen or damage is caused by something other than a collision, such as a storm.
- Medical payments. This coverage pays the medical bills for the policyholder and the policyholder’s passengers.
- Personal Injury Protection (PIP). This coverage reimburses the policyholder for lost wages and in-home care needed resulting from an accident.
What coverage and amounts are required by law?
Coverage requirements vary from state to state. What are the driving laws in my state? from the Insurance Information Institute, provides a summary of the state laws for automobile financial responsibility/compulsory limits and the laws governing liability coverage.
For detailed state requirements, visit your state's Insurance Department or Commissioner web site. To find it, click on your state on the State Insurance Departments Web Sites page from the National Association of Insurance Commissioners (NAIC) website.
Which coverages and amounts do you need?
Most state requirements provide for only a minimum amount of coverage which are usually not enough to cover accident costs. Here are our recommendations, which are consistent with industry and consumer expert recommendations:
- Bodily injury liability—at least $100,000 per person and $300,000 per accident
- Property damage liability—at least $100,000 per accident
- Uninsured and underinsured motorist coverage—same as bodily injury
- Collision and comprehensive—choose the highest deductible you can afford
- Medical payments—you may want to carry at least $5,000 to protect any passengers that may not have health insurance.
- PIP—not necessary unless you don’t have separate health or disability insurance. If your state requires PIP and you have health insurance, you may wish to buy only the minimum required.
For more information
Car Insurance: Choosing an insurer that pays from Consumer Reports provides helpful tips.
Consumer's Guide to Auto Insurance (pdf) from the National Association of Insurance Commissioners. Visit the Insure U – Get Smart About Insurance site for additional information specific to various stages of your life.
These articles from the Insurance Information Institute provide more details on auto insurance and state laws.