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How to Determine What Type of Auto Insurance You Should Get

Buying auto insurance can be expensive. According to data, maintaining an annual auto insurance cover costs around $1100 to $1500. Therefore, you must know you're spending your premiums on a worthwhile policy.

Auto insurance is mandatory in most states. However, the needed auto insurance is minimal and often insufficient to cover most incidents and accidents that may affect your vehicle.

So, how much auto insurance should you get?

Here's a look into auto insurance and how you can determine the type you should get.

Why Do You Need Auto Insurance?

Having auto insurance is mandatory in most states. And even without legal mandates, it makes no sense to drive around without one.

Roads can be hazardous. Every other time you're traveling or using the road, you're at significant risk of experiencing an accident or incident that might be financially costly to you or the other involved party.

If you drive around without auto insurance, you also risk heavy fines and penalties from authorities governing safe road usage.

Auto insurance protects against heavy financial losses in an accident or incident. The degree of protection varies based on the type of auto insurance you take, making it essential to know more than the minimum mandated by the law.

The Basic Types of Auto Insurance

There are three main types of auto insurance coverage you can get. They include the following:

Collision Insurance

This auto insurance cover pays for your vehicle repair after an accident. Getting collision insurance is often mandated if you have a loan against the car since the bank doesn't want to end up with a wrecked vehicle if they have to repossess it.

Liability Insurance

This auto insurance cover pays for personal injury and death-related claims issued by a third party due to an accident you're involved in. It also pays for any third-party property damage resulting from the accident.

Most states mandate car owners to have liability coverage.

Comprehensive Insurance

This auto insurance cover covers damages incurred due to vandalism, theft, water, fire, and other perils. Like collision insurance, comprehensive insurance is often mandated if you have a loan against your car.

Therefore, if you've paid off your loan or paid cash for your car, you'll not be mandated to have comprehensive auto insurance coverage. However, it is still a highly recommended cover.

What's the Minimum Auto Insurance Coverage You Can Get?

The minimum amount of auto insurance coverage you need will depend on various factors, primarily your state's auto insurance mandates.

Typically, you must have the minimum auto insurance required by your state. Virginia and some report parts of Alaska are the only exceptions to this rule.

For all these states, the mandated type of auto insurance is liability insurance. That's because this auto insurance cover protects other road users in case of deaths, injuries, or property damage caused by you.

The payout from your liability auto insurance coverage will depend on the policy and its limits. Once you've exceeded the limits, you'll have to pay for the extra costs out of pocket.

Auto insurance liability coverages typically operate under the "25/50/15" format. This means that, depending on your policy and its terms, the insurer will enforce the following policy limits:

  • Maximum pay of $25,000 per person

  • Maximum pay of $50,000 per wreck for injuries you're responsible for

  • Maximum $15,000 for property damages you're responsible for

State laws may also define the minimum limits allowed for your policy. For instance, some states mandate a minimum limit of $15,000 for bodily injury claims.

However, this is often barely enough to cover medical costs resulting from a severe wreck for non-disabling injuries. According to data, the average cost of non-disabling injuries resulting from a crash exceeds $40,000.

How You Can Determine the Auto Insurance Coverage You Need

Auto insurance policies typically look different for everyone. That's because the exact coverage required varies significantly across individuals, mandating you take unique policies with unique limits and other coverage options.

The two most important considerations are your financial situation and your vehicle's financing or lease status.

Financial Situation

Premiums are the single most significant factor affecting how much your auto insurance will cost. Typically, excellent auto insurance policies with high coverage limits and low deductibles cost more in premiums.

However, they reimburse a significant chunk of the financial costs involving an accident or insured peril and require minimal out-of-pocket contribution from your end before the policy kicks in during claims.

For instance, a policy with a $1,000 deductible will cost less than a $500 policy. However, you must provide $1,000 in upfront costs to cover the peril out-of-pocket before your insurance kicks in in case you get involved in an accident or other insured incident.

A lower limit policy will also cost less premiums. However, you can quickly exhaust your cover in an insured peril and incur heavy financial costs.

Realistically, you don't have to pay the highest premiums for the highest insurance benefits. Carefully assess how much auto insurance premium you can afford monthly vis-à-vis how much you can pay out of pocket if you were in an accident.

Based on your financial situation, this will give you a good idea of how much insurance coverage you need.

Vehicle's Financing or Lease Status

If your vehicle is on loan or lease, there are important considerations you must make when choosing your auto insurance coverage.

Often, it is safer to combine collision and comprehensive coverage to ensure the financial costs for repairing the vehicle are well covered in case of an accident, theft, vandalism, or fire.

Also, more insurers encourage you to get gap insurance.

Lenders and banks often mandate that you have collision or comprehensive coverage for the loaned or leased vehicle. Gap insurance is an optional policy that covers the difference between what your insurance will pay when the car is totaled and what you owe the lender or bank.

Insurance typically pays the car's current cash value in case it's totaled. With gap insurance, you cover the remaining bit of the car loan, avoiding hefty rates that might be imposed by the lender for the remaining amount.

Consult About the Right Coverage

Getting auto insurance is mandatory and necessary for all drivers and car owners. The minimum coverage mandated by most states is often never enough. Consult an expert on how much cover you need for your vehicle for the best protection.


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