Your auto insurance policy is a collection of different coverage. Here’s how they break down:
- Bodily Injury Liability (BI) – pays for the medical expenses of people injured in a crash in which you’re at fault. You’ll often see the coverage limit described as a “20/50” policy or a “100/300” policy. These numbers describe the maximum dollar amount the policy will pay for a single person’s injuries and the maximum for all the injuries sustained by all the occupants of the other car. For example, a 100/500 policy will pay a maximum of $100,000 for a single person’s injuries, and up to $500,000 total for the injuries of everyone in the car you hit.
- Property Damage Liability – pays for damage done to the other car if you’re at fault in an accident. Property liability is often referred to alongside BI as a third number, so a 200/500/100 liability package will cover up to $100,000 for damages to the other car.
- Uninsured/Underinsured Motorist Coverage – helps cover costs if you are hit by someone without insurance, or minimal coverage. This coverage should typically match your Bodily Injury liability limit.
- Collision – covers repairs to your car after an accident.
- Comprehensive – covers costs if your car is stolen or damaged outside of an accident. For example > a cracked windshield.
California requires car owners to carry liability auto insurance. If you don’t carry insurance, the state could impound your vehicle.
How much coverage should you carry?
A good rule of thumb: Make sure you’re covered for an amount equal to the total value of your assets (Add up the dollar values of your house, your car, savings and investments).
Collision and comprehensive coverage
Collision and comprehensive coverage is worth having if you would want to repair or replace your car after an accident. These policies have a deductible (the amount you have to pay out-of-pocket before coverage kicks in), and they pay out based on the current value of your car, not what you paid for it. Choose the highest deductible you can afford, because a higher deductible reduces your premium. You’re seeking coverage for major damages to your car, not for every little ding. It’s better to spend $500 of your own money on minor repairs every so often than pay an extra $50 a month whether you need repairs or not. Save collision insurance for when you have car repairs that cost thousands, not hundreds. If you have a good driving record and haven’t had an at-fault accident in years, if ever, opting for a higher deductible on collision might be a good bet. Just make sure you can afford to pay it if your luck runs out. You can probably cancel your collision and/or comprehensive coverage when the annual cost equals or exceeds 10 percent of your car’s book value. Otherwise, you could end up paying more over time than you would recoup for repair or replacement of your damaged, stolen, or totaled vehicle.
Your liability coverage pays for bodily injury and property damage that you cause in accidents. Don’t get caught short by reducing your liability limits to the state minimums. Buying more coverage might seem like an odd way to save, but the benefit comes if you have a costly claim, which can put your personal assets at risk. You may want to even consider an Umbrella policy.
One of every six drivers today may be uninsured, according to the Insurance Research Council. If you get hit by an uninsured at-fault driver, you’ll have to pay for repairs out of your own pocket and sue the at-fault driver for damages. Protect yourself by buying uninsured/underinsured motorist protection with the same limits as your liability coverage.
When Buying A Car Choose Wisely
Vehicle damage is the biggest cost component for auto insurers. Your premiums will vary by auto model. When comparing models, ask your car dealer to show you the “Relative Collision Insurance Cost Information Booklet,” produced annually by the National Highway Traffic Safety Administration.
The Highway Loss Data Institute also posts data on collision, bodily injury and property-damage liability, and other types of losses by vehicle model at hldi.org/research/hldi/composite_intro.html. Or ask your insurer for premium quotes on the different models under consideration.