How to Understand Car Insurance

How to Understand Car Insurance. When shopping for auto insurance, it's easy to get confused about which coverage to buy. You want to keep your payments low, but you also want to be sure you're adequately protected. Here's what it all means.

Suppose you hurt someone in an accident, and it is determined that you were at fault. The other person's medical bills would be your responsibility. That's what bodily injury liability insurance covers.

Imagine you drive your car into another car--or a mailbox, a bus stop or a streetlight. Your property damage liability will help pay for this damage.

Keep your tail covered. Uninsured motorist coverage pays for injuries received in accidents with those who don't carry liability insurance at all.

Make sure damage to your vehicle is covered if the other guy doesn't have enough insurance. Underinsured motorist coverage takes care of damages to your vehicle once the other person's coverage is exhausted.

Think about the price of fixing--or replacing--your car after an accident. The numbers add up quickly. Collision insurance will pay for accident-related repairs or replacement. Get the highest deductible you can comfortably afford to keep your premium down.

Cross your fingers, but realize that cars are stolen every day. Comprehensive insurance covers flood, vandalism, hail and fire damage--as well as theft.

Consider your own personal health insurance before taking out an auto insurer's medical payments insurance. This insurance will pay the medical bills if you or family-member passengers are hurt in an accident--and so will your health insurance in most cases. Keep in mind that passengers who don't have health insurance and/or aren't family members are not always covered. Ask your agent about the fine print.

Collect medical payments directly from your own insurance company no matter who is at fault. No-fault insurance, along with personal injury protection (PIP), is available in some states and takes care of lost wages, funeral costs and some other expenses.

Don't bother with rental or towing insurance. While the yearly payments aren't much, it's better to put the money aside yourself. Better yet, join an auto club that offers these services and additional benefits.


  • Uninsured and underinsured motorist insurance is mandatory in some states. It's recommended that you buy more in states with high premiums, because people are more likely to go without insurance when they can't afford it. Comprehensive and collision insurance are required if you have an auto loan or lease, but if your car is old or has depreciated a lot, you may want to drop this coverage.


  • If you were to hurt or kill another driver and your bodily injury liability insurance wasn't enough to help, you could be financially ruined. Don't skimp on this coverage.

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