Auto insurance can be confusing. Most policies look like they were written in a foreign language. Here are simple explanations for the five basic types of auto insurance coverage so you can decide for yourself what you need and what you don't.
Collision Coverage - This pays for repairs made to your car no matter who was at fault. If you purchase or lease a car your dealer will require you to carry this coverage.
I recommend getting the highest deductible you can afford. Increasing your deductible from $100 to $500 will save you 10% to 20% on your insurance.
Comprehensive Coverage - This coverage pays for damages to your car from fire, theft, and vandalism. It also pays for damage from natural disasters like hailstorms and hurricanes.
You should carry comprehensive coverage, but again, get the highest deductible you can afford.
Liability Coverage - This coverage pays for your legal fees and any claims made against you if your car kills or injures someone, or damages someone else's property.
If you don't have a lot of assets you can go with the minimum your state requires. However, if you do have a lot of assets you should get the highest amount you feel will protect you from lawsuits.
Uninsured Motorist Coverage - This coverage pays for damages done to you, your passengers, and your car that are caused by uninsured or underinsured drivers and hit-and-run drivers.
With more than 15% of the population driving without insurance, and hit-and-run accidents on the rise, this is good coverage to have, especially if you live in states that have a high number of uninsured drivers like Mississippi (26%), Alabama (25%), California (25%), New Mexico (24%), and Arizona (22%).
Medical Coverage - This coverage, also known as personal injury protection, pays your medical expenses and your passenger's medical expenses if you're involved in an automobile accident.
Consider eliminating this coverage if you already have medical insurance that covers you.
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The author, Brian Stevens, is a former insurance agent and financial consultant who has written extensively on auto insurance coverage.
