If you're caught driving a vehicle that isn't adequately insured, you may face an array of criminal and financial penalties, as well as the loss of personal assets. If you agree to lend your uninsured car to a friend, you're putting yourself and your friend at risk.
In the event that a police officer pulls you over for a traffic violation and finds that you don't have any standard car insurance coverage, you'll likely receive a ticket for failing to obtain the required level of coverage. Depending on the laws of your state and municipality, the officer may have to tow your vehicle from the scene. Usually, this kind of penalty requires you to enter a plea in court.
Standard Car Insurance Coverage
So, how much auto insurance do you need to protect your car, yourself, and your passengers? There are three types of car insurance that are regarded as basic or standard, including:
- Liability coverage.
- Comprehensive coverage.
- Collision coverage.
Liability Coverage
Liability coverage doesn't provide any protection for you and your vehicle, but it protects your wallet. If you're deemed at fault in an accident, this type of insurance covers the medical and car repair costs that the other parties sustain because of your negligence.
If you're wondering how much liability insurance you should carry, the answer is “a lot.” Even if you live in a state where liability insurance isn't mandatory, it's a good idea to purchase a minimum of $500,000 worth of coverage for both bodily injury liability and property damage liability. This way, you'll be covered for any costs incurred in getting the other party's vehicle repaired, as well as the medical bills and lost wages that result from the accident.
Without liability insurance, you'll have to pay the other driver's bodily injury and property damage costs with your own money. This may put you in a risky financial situation and potentially cause your future paychecks to be garnished. Regardless of the type of vehicle you drive, it's essential to have enough liability insurance.
Comprehensive Coverage
If you've had your vehicle damaged in a hailstorm or stolen from the parking lot, you'll agree that comprehensive coverage is important. Comprehensive auto insurance reimburses you for any repair or replacement costs that don't result from a collision. It covers anything from theft to damage from a storm, fire, flood, earthquake, or a falling tree.
Collision Coverage
Accidents can happen in many different ways. You may step on the brake pedal a second too late because your children are screaming in the rear seat or lose control of your car on an icy road. Fortunately, you can purchase collision insurance, which covers the cost of repairing or replacing your vehicle in the event of a collision with another car or object. This coverage applies even if you're at fault.
Extended Coverage
Besides standard car insurance coverage, you may also want to get an extra layer of protection. There are many extended coverage options for you to choose from, including:
- Medical payments coverage (MedPay): Even if you have health insurance, MedPay enables you to claim compensation for medical expenses that you and your passengers incur as a result of an accident, regardless of who is at fault.
- Personal injury protection (PIP): PIP works in the same way as MedPay, but it comes with more comprehensive coverage and higher coverage limits. However, it's more expensive and usually has a deductible.
- Guaranteed auto protection (GAP): As the prices of new vehicles continue to rise, the average duration of an auto loan has increased to six years or more. This makes GAP insurance more sought-after than ever. This type of insurance covers the amount you still owe on your car loan if your vehicle is totaled.
- Uninsured motorist (UM) and underinsured motorist (UIM): The Insurance Research Council reported that approximately one out of eight motorists drive around without insurance. UM helps pay medical expenses that result from an accident with an uninsured or hit-and-run motorist.
Premium Coverage
Premium car insurance coverage has all the bells and whistles, but it may also come with a premium price. The following are some of the most common types of premium coverage:
- Rental reimbursem*nt: Rental reimbursem*nt covers the cost of renting a vehicle while your car is undergoing repairs following an accident.
- Pay-per-mileage coverage: If your vehicle spends a lot of time sitting in your garage, you may want to consider getting pay-per-mile coverage. A GPS device will be installed in your car so that you'll be billed according to the number of miles you drive instead of an annual estimate.
- Roadside assistance: If you run out of gas while coasting down the interstate or have a flat tire after hitting a pothole, you'll be covered if you have roadside assistance. Roadside assistance covers the cost of having gas delivered to you, towing your vehicle to the nearest auto shop, getting your battery jumped, or replacing a dead battery.
- Umbrella insurance: Also called personal liability insurance, umbrella insurance refers to additional liability coverage that starts paying after you've reached the limits of your auto insurance policy. The level of coverage for this type of insurance typically ranges from $1 million to $5 million. Other than paying for any damages you're responsible for after an accident, umbrella insurance may also cover legal fees, false arrests, and slander. It's a must-have for anybody with a net worth of $500,000 or above.
- Custom equipment: If you've installed performance or aftermarket parts on your vehicle, you can buy custom equipment insurance to cover the repair or replacement of enhancements such as custom running boards, a custom paint job, or an audio system.
- OEM endorsem*nt: In an attempt to save money, insurers may use aftermarket parts when they repair or replace components in your vehicle. OEM endorsem*nt coverage ensures that only OEM (Original Equipment Manufacturer) parts will be used on your car.
- Glass coverage: If you regularly park your vehicle next to a golf course, you may one day wish you had purchased glass coverage. This type of coverage pays the cost of repairing or replacing any windows on your car. In some cases, insurance companies may offer glass coverage without a deductible. However, you have to make sure the cost of the extra coverage doesn't outweigh the benefits, especially if the policy covers only the windshield.
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