By law, anyone who operates an automobile must be able to provide proof of ability to pay for damages for which he is liable. In some states, this can be handled by the posting of a surety bond, but this requires substantial personal financial assets and risk. Most people opt to purchase auto insurance coverage from an insurance company instead.
The most basic type of coverage is liability. This pays for accidents for which you are at fault. Liability normally consists of three different types of coverage. The first amount listed is how much the insurance will pay for each person injured in the accident. The second amount represents the total the company will pay for all injuries, and the third amount represents property damage. Each state has established minimum coverage amounts for liability insurance. However, merely meeting the legal basics may not be sufficient for your situation. For example, in some states, the minimum requirement for property damage is as little as $25,000. If the costs exceed that amount, you can be held personally liable for the balance.
If your car is financed, your lender will most likely require you to carry collision and comprehensive. This type of insurance applies if your own car is damaged by vandals, stolen, or otherwise harmed. In large part, this coverage is intended to protect the lender while there is still a note owed. If your car is paid for, you may keep the coverage or drop it, depending on your financial situation and the value of the car.
Uninsured motorist insurance is fairly self explanatory. If you are involved in an accident and the at fault party is not insured, this coverage will pay. However, since the laws vary between states, confirm with your agent that you are not paying for double coverage. In some instances, you will already be covered under your collision policy.
There are numerous other options you can add to your policy. Some companies offer new car replacement, meaning that if your auto is totaled during the first year or so, it will not be depreciated. This can be a valuable addition if you purchase a car with no down payment or delayed payments, which can cause you to owe more on the car than it is worth. Towing pays for having a wrecker take your car to a repair facility if it is disabled or wrecked. Rental coverage provides you with a rent car if yours is in the shop or stolen.
The deductible is the amount you must pay out of your own pocket before the insurance company will make payment on a claim. You can save money by carrying a higher deductible. However, you should be sure that the deductible amount is within your financial means to meet, should an incident occur.
Rates for auto insurance coverage vary a great deal. It is always worthwhile to compare several quotes before selecting a company. Make sure, however, that you are comparing exactly the same coverage, including the liability amounts and the deductible. Homeowners can sometimes, but not always, save by packaging their car insurance with their other policies.