When it comes to auto insurance, buyers have a broad range of coverage options to choose from. To avoid wasting money, it’s essential to sign up only for the coverage you need.
Liability Coverage
Liability insurance covers legal fees and payouts for injuries or damage to property caused while driving. When you buy this type of coverage, you buy protection up to payout limits. Low minimums, however, won’t protect your assets from large claims, so it’s advisable to insure above the legal minimum. A 100/300/50 policy that pays a maximum of $100,000 for injury to one person, a maximum of $300,000 for combined bodily injuries, and a maximum of $50,000 for property damage in one accident is ideal.
Collision & Comprehensive Coverage
This type of coverage pays for repair or replacement costs after an accident. Comprehensive coverage pays for vandalism, theft, fire, weather, and damage from almost all other causes. As your car ages and its value declines, however, these coverages become increasingly wasteful. An insurance company would pay next to nothing in the event of a complete loss of, say, a ten-year-old car.
Consider declining collision and comprehensive coverage if your car is worth less than $3,000.
Medical Payments & Personal Injury Protection Coverage
Medical payments coverage protects passengers in an auto accident and pays for treatment in the event of injury or funeral expenses in the case of death. Likewise, personal injury protection pays for medical expenses, funeral expenses, and lost wages for all passengers in your car, regardless of who was at fault. Since signing up is relatively inexpensive, you should buy a minimal amount of coverage to tackle out-of-pocket medical expenses and fill in possible gaps in your health insurance.
Uninsured & Underinsured Motorist Coverage
This type of coverage ensures you are compensated if involved in an accident where an uninsured/underinsured driver is at fault. Just to be on the safe side, increase your payout limit for uninsured and underinsured motorist coverage to match your liability coverage.
Rental Car Reimbursement Coverage
Although most insurers pitch this add-on as a safety net, the additional premium over time is likely to significantly exceed any benefits you collect. Even a modest level of rental car reimbursement coverage (typically $30 per day with a limit of $600 per claim) costs $20 to $60 per year. Consider declining it.
Towing & Road Service Coverage
Typically, towing and road service coverage will reimburse you for $25 per claim, but for $3 or $4 extra each year, you can get coverage for up to $75 per claim. We suggest declining this optional coverage if it’s expensive. When shopping for auto insurance, you’ll notice many companies claiming to offer better coverage, touting features such as “accident forgiveness,” “vanishing deductibles,” as exclusive offerings. Use a cost-benefit approach to carefully evaluate any optional coverage before deciding on a policy.
