- What are the risks involved?
- What is the minimum level of insurance required in my state?
- What risks does this minimum level of insurance cover?
- What other risks can be covered?
- Can I afford to cover these additional risks?
- What are the assets I would like to protect?
Each state prescribes a minimum level of insurance to be carried by each car owner. The limitations of minimal insurance coverage differ from state to state. Minimum insurance generally covers bodily injury liability, property damage liability, and personal injury protection coverage. Some states require uninsured and underinsured motorist coverage as well.
Besides these, other types of coverage available are comprehensive physical damage liability, collision coverage, medical payment coverage, and rental car reimbursement.
You must possess a clear understanding of risks and the extent of coverage provided by your state's minimum insurance policy in order to assess your vulnerability and decide if any additional insurance is required.
Here is a breakdown of the various components of coverage:
Bodily Injury Liability
This covers liability arising from bodily injuries and deaths of other persons for whom you are responsible. Medical bills, loss of income, and pain and suffering are covered by bodily injury claims. If the other party in the accident files a suit against you, this type of coverage also provides for legal defense. Bodily injury to you or damages to your car are not protected by this type of coverage. A serious accident may put your personal assets at risk if the judgment in the lawsuit is against you.
Property Damage Liability
This covers liability arising from damage to someone else's property, such as a car, fence, or house, by your car. If the other party in the accident files a suit against you, this coverage provides for legal defense.
Uninsured, Underinsured, or Hit-and-Run Driver Coverage
This covers bodily injury suffered by you and/or your passengers in a crash involving an uninsured driver. Some states with high traffic volumes and large numbers of registered vehicles require this as part of minimum coverage, while in some states it is voluntary.
Personal Injury Protection Coverage
The medical expenses, hospital expenses, and funeral expenses of the insured are covered, within limits, by this type of coverage.
Other risks, such as damage to your own car (due to collision with another vehicle or object, theft, animals, fire, or flood) and other consequent risks, also need to be covered. These risks and corresponding types of coverage are discussed below:
Comprehensive Physical Damage Liability
This type of policy covers damages to your vehicle not only due to collision but also due to flood, theft, fire, or animals.
Collision Coverage
This type of policy covers damage to your own car when it is hit by or hits another vehicle or any other object.
Medical Payments
This type of policy covers medical expenses incurred by you and/or your passengers as a result of an accident. It may also cover your expenses if a vehicle injures you while you are walking on the road.
Rental Car Reimbursement
This covers the expenses of renting a car if your car is not drivable and is being repaired due to an accident.
If you can afford more coverage, it is worth protecting yourself and your car to the maximum extent possible.
