Auto insurance helps you to protect you and your family against financial loss in the event of an accident or other cause of loss. It covers the injuries and damages caused by an accident and for which you are legally responsible. It may also cover the costs of repairing or replacing your vehicle if it is damaged or stolen.
Liability Coverage
Liability simply means a financial obligation. Liability coverage is designed to reduce the amount of financial responsibility you face in the event of an accident.
– Bodily Injury Liability (BI): This type of coverage provides protection for injury for which you may be responsible, and provides for legal defense in case of a lawsuit. This is usually mandatory in most states. When choosing this type of coverage, you indicate the maximum amount that will be paid per person and per incident. Purchasing liability limits that account for current assets and future earnings protects you from financial risk.
– Property Damage Liability (PD): If your car damages someone’s property, this coverage protects you from cost and lawsuits. Coverage limits are the maximum amounts that will be paid per accident. Again, consider both current assets and future earnings in determining this limit. Limits that are too low mean you could be responsible for any amounts beyond the limits, forcing you to liquidate property, savings and other assets.
Physical Damage Coverage (COMP and COLL)
These types of coverage focus on damage to the vehicle from all angles.
– Comprehensive Coverage (Other Than Collision or OTC): This type of coverage protects your car from incidents other than accidents, such as damage by flood or fire, or stealing. You choose the deductible, and the insurance company pays the amount to fix your car minus the deductible. Choose a deductible amount you can comfortably pay out of pocket to keep premiums low. If you finance or lease a car, the company will probably require this coverage. If you have a newer car or one in excellent condition, this coverage is recommended.
– Collision Coverage: In case of an accident, your car is covered under this plan. Insurance pays to fix your vehicle less the deductible you choose. To keep your premiums low, select as large a deductible as you feel comfortable paying out of pocket. This may be required in cases of financing or leasing, and it’s recommended for newer cars.