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What Type of Auto Insurance Coverage Do You Need?

What Type of Auto Insurance Coverage Do You Need?

By Jeff Youngs, August 10, 2012
Every state except New Hampshire requires motorists to have liability insurance in order to legally operate a vehicle on public roads. The minimum amounts of coverage vary from state to state, and none of the minimums are high enough to adequately protect you if you are at fault in an accident and have significant assets to protect from a lawsuit.

Therefore, the first thing you need to consider is whether you prefer to have low car insurance premiums and greater asset exposure, or higher car insurance premiums and reduced asset risk.

If you decide that the latter course of action is the right one, you will want to maximize your bodily injury liability insurance, which is the coverage that pays damages in the event that you cause an accident that injures or kills another person. Experts agree that if you have significant assets to protect--investments, your own business, etc.--that you will want strong bodily injury liability insurance.

If you have assets to protect, you may also want to strengthen your medical payments coverage, especially if you frequently carry passengers who might be inclined to sue in the event of an accident. This type of coverage pays for medical care required by you and any occupants within your vehicle in the event that you cause an accident. Additionally, personal injury protection is a type of coverage that major breadwinners might want to carry, as it pays for a portion of lost wages while you recover from injuries sustained in an accident.

Another consideration is whether your vehicle is worth enough money to carry collision and comprehensive coverage. This type of insurance is required on vehicles that are leased or financed. If you own your vehicle, you will want to perform a cost/benefit analysis with regard to collision and comprehensive coverage. Generally, the less your car is worth the more likely it is that you'll want to have this type of coverage.

There are two additional types of car insurance coverage that require consideration. Most states require drivers to have Property Damage Liability insurance, which pays for damage to physical property, including other vehicles, structures, landscaping, etc. State minimums, however, are typically low and insufficient, especially if you collide with an expensive car or building, which could leave you exposed to a lawsuit to recoup losses.

Uninsured/Underinsured Motorist coverage is also available to you. In the event that you are not at fault in an accident, and the at-fault driver either has no insurance or is insured at state minimums that do not adequately reimburse you for injuries or physical damage, and the at-fault driver has no assets to access via lawsuit, this type of insurance will pay for financial shortfalls.

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