Car insurance protects the motoring public and the insured.
Car insurance serves the primary dual purposes of providing protection for the insured against claims brought by other parties for damage to property and bodily injuries, and providing protection for the insured's vehicle against damage or loss.
Mandatory Liability Auto Insurance
At least a minimum amount of liability protection is required in most states.
Most states require owners and operators of automobiles to have a minimum amount of liability insurance protection. Liability protection is proof of the motorist's financial ability to pay for damages in caused by an accident. Minimum levels of liability protection vary by state.
There is a limit on the maximum amounts liability protection pays per person, per incident, that exceeds most state minimum requirements. The insured might want to increase the liability coverage from the state's minimum required coverage to gain greater protection and peace of mind.
Collision Coverage
Unlike liability coverage, which protects the insured, collision coverage protects the insured's vehicle. A common misconception is that collision coverage protects the vehicle against damage or loss regardless of how it happened, such as theft or vandalism. However, collision coverage protects the vehicle only when it is in an accident with another vehicle or object and the insured is at fault.
This coverage has a deductible, which is the out-of-pocket amount the insured pays per incident before the insurance kicks it to pay the balance. Increasing the deductible decreases the cost of the protection. State laws do not mandate collision coverage. However, most lenders do require it when financing or leasing a vehicle.
Comprehensive Coverage
Comprehensive coverage provides additional protection for the vehicle against damage or loss from non-collision incidents: theft, vandalism and acts of nature. The deductible also applies to comprehensive coverage, as with collision coverage. Most lenders also require comprehensive when a vehicle is financed or leased.
Full Coverage
Full coverage protects against acts of nature.
The insured is considered to have "full auto coverage" when liability, collision and comprehensive are included in the same policy. Additional protection can be built into a policy with the inclusion of uninsured motorist coverage and personal injury protection, or PIP, which protects the insured against personal-injury claims brought by third-party vehicle passengers.
An accident could be costly to a driver who lacks PIP and uninsured motorist coverage. PIP, for example, covers passengers in the insured's car if the insured causes an accident. Uninsured motorist coverage is important because "Unlicensed and uninsured drivers are involved in more than 20 percent of the fatal crashes on America's highways," according to Laura Kotelman of the the Property Casualty Insurers Association of America.
Appropriate Level of Auto Insurance
The decision to build an auto insurance policy beyond the minimum state requirement considers the financial position of the insured. Collision and comprehensive coverage might not be justified for older vehicles. On the other hand, coverage that protects passengers, and protects against uninsured drivers, is always a wise choice if the coverage is available independent of collision and/or comprehensive. This issue should be discussed with a competent auto insurance specialist.
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