To answer the question, “How much auto insurance should I carry?” there are a variety of factors that you have to consider. Some are very individual, such as the deductible you choose to carry, while other factors are actually determined by the state you live in, whether or not you own your vehicle outright, and whether or not your vehicle has been customized in anyway (e.g. custom paint, upgraded stereo system, GPS navigation).
To make it easy to figure out just how much auto insurance coverage you need, consider your auto insurance as broken up into six elements:
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BODILY INJURY LIABILITY: Bodily Injury Liability is a component of your auto insurance that is a requirement in most states. This coverage is geared toward providing coverage in the event of an accident with another vehicle. It is used to pay for any injuries sustained and lawsuits filed by occupants of the other vehicle involved (driver or passenger), as well as any passengers in your vehicle, in the event of an accident. Bodily Injury Liability Coverage is usually made available in increments per person and a maximum amount of coverage per accident, so for example, you could have $100,000 coverage per person with a maximum coverage of $300,000 per accident.
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PROPERTY DAMAGE LIABILITY: Property Damage Liability is very similar to Bodily Injury Liability Coverage, only instead of covering injuries and lawsuits concerning the people involved in an accident, it covers the repair and replacement of any property damaged in an accident – from the other person’s vehicle to any items he or your passengers may be carrying (e.g. laptop). Most states require that you carry some property damage liability coverage but many states require a super-low minimum of $5,000, far less than it would take to replace most cars let alone the electronics that are commonly carried.
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PERSONAL INJURY PROTECTION: Personal Injury Protection (PIP) is an auto insurance policy component that covers medical and funeral costs for you that result from an accident you are in. However, if you have health insurance, life insurance, and disability insurance, you really do not need any more PIP than the total of your insurance deductibles.
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UNINSURED MOTORIST PROTECTION: Uninsured motorist protection covers the same as PIP but is accessed only in the case of an accident with a motorist who is uninsured or underinsured. Given that there is a surprisingly high number of drivers that fit this bill and auto insurance rates for $100,000 worth of coverage is typically less than $50 per year for $100,000, there is no reason to forgo the extra protection provided by PIP.
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COLLISION AND COMPREHENSIVE: Collision coverage covers the cost of repairs to your vehicle (or replacement) in the event of an accident; comprehensive coverage, on the other hand, covers you against theft, natural disaster (e.g. wind storm, hail damage), vandalism, etc. Comprehensive coverage is normally required anytime that you have a lien on your vehicle but, especially if your car would be expensive to replace, it is well worth it.
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POLICY ADD-ONS, EXTRAS, AND UPGRADES: There are also various policy add-ons, extras, and upgrades that you may want to carry, such as extra rental coverage (so that if you do need a rental car after an accident, you can avoid paying anything out of pocket), glass coverage (provides 100% coverage if a rock chips your windshield, for example), etc.
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