How much auto insurance do you need? Learn about the various car insurance policies to obtain the coverage you need.

It is a necessity that any auto driver cannot avoid. Car insurance is a coverage required by law. The financial devastation surrounding an automobile accident is enormous. Car repair, medical costs or replacement costs are too high to risk without adequate coverage.

Normally, auto insurance policies are divided into two distinctive categories, the first party insurance and third-party liability. The owner of the policy is the first party, who is contracted with the insurer (the second party) for the coverage. In an accident, the third party is the other person whose property has been damaged by the policy-owner. Usually, the third-party liability insurance covers the damages that are attributable to the policy-owner. On the contrary, first-party insurance covers the damages that happen to the policy-owner or their passengers.

In most states, a minimum amount of third-party liability coverage is a requirement by law. Normally, the first-party coverage is not. Skimming on auto insurance could easily annihilate someone's life savings and credit regardless of whose fault the accident. Low cost insurance rates are irrelevant if the insurance company negates the claim.

Understanding the various car insurance policies is an integral part of making the best insurance decision. Many people either buy too little or too much insurance.

Various Car Insurance Policies

First Party
Various types of first-party coverages exist. Some are critical and others are nothing more than inflated premiums. Used to repair damages to the policy-owner and his or her passengers, first-party coverage is advantageous when any of the following occur:

1. The driver at fault cannot be found (i.e. a hit and run)
2. The policy owner was not the cause of the accident
3. No one was at fault in the accident
4. The driver at fault is adequately insured to repair the policy owner's damages

Collision, comprehensive, uninsured/under-insured motorist, and MedPay/Personal Injury Protection (PIP) insurance are the most important types of first-party coverages.

In the event of an accident, collision / comprehensive coverage:

1. Guarantees the policy owner's car will be repaired
2. Ensures that the car will be replaced regardless of who caused the accident.
3. Premiums are based on a deductible of either $250 or $500.

Comprehensive coverage and collision coverage are very similar. For example, comprehensive is based on a deductible, generally of the same amounts as collision. Additionally, they are both often when purchasing a new car on a loan, to protect the lender. Hypothetically, if an accident occurred, comprehensive coverage would pay to repair or replace the policy owner's vehicle and personal property inside of it if it was damaged or lost due to other agents, (e.g., theft, fire, vandalism, flood)

Both Collision and Comprehensive coverage can be replacement value (RCV); which is what it would cost to replace the car with a new one. Moreover, the two types of coveragewill pay what is would cost to repair the car to its prior condition or replace it with a vehicle in similar condition. This is referred to as actual cash value (ACV). In summation, RCV carries a higher maximum benefit, but also a higher premium.

In the event that the driver at fault cannot be found, has no insurance, or has too little insurance to cover the damages, uninsured / under-insured - uninsured / under-insured motorist coverage (also called UM/UIM coverage) pays the policy owner and his or her passengers for pain and suffering, lost wages, etc. As other policies endeavor to coalesce the same kind of coverage as UM/UIM, there are numerous benefits to this type of coverage:

1. Compared to other policies, it is more diverse than disability plans or health or disability plans - it can cover loss of limb, pain and suffering, funeral expenses, etc.
2. It has much higher coverage than other types of medical-expense car insurance, such as MedPay and PIP (described below).

UM/UIM coverage is far more expensive than medical payments (MedPay covers medical and funeral expenses to the policy-owner and his or her passengers, regardless of who is at fault in the accident.) In general, the maximum coverage for MedPay and PIP is much less than the limits allowed by UM/UIM.

Third-Party Liability
Bodily injury and property damage are two types of third-party liability policies. For example, if someone were injured in an auto accident, bodily injury liability would pay for the other person’s, damages. Conversely, property damage pays the property damage to the other person. If a car accident occurs and one person files a suit against the policy owner, the insurance coverage will provide monetary protection up to the limit of the policy.

Insurance analysts deem an optimal bodily injury insurance policy as a 100/300 insurance. That is $100,000 coverage for one person's injuries, $300,000 per accident. The first number, 100 is the dollar amount (in thousands) of total coverage in the event that one person is injured or killed, and the second number, 300 is the total dollar amount (in thousands) for an entire accident.

UM/UIM coverage is defined by the same notation as bodily injury coverage (i.e., 100/300). Normally, insurance companies will only approve the purchase of UM/UIM coverage up to the person’s current bodily injury limit. In most cases, purchasing the maximum UM/UIM is highly recommended.

Similarly as noted above, in property damage, the third number listed on the policy is the coverage to replace or repair others' property. In example, if the car insurance policy were 100/300/25, it would offer $25,000 worth of coverage auto coverage to fix or replace another car.

In most states, there is a specific requirement amount for third-party liability coverage. Generally, states require property damage insurance in the region of $15,000. However, the average cost for a new automobile is over $20,000; therefore, a minimum coverage of at least $25,000 generally makes sense.

There are states that do not carry any policy requirements. They are referred to as "no-fault" states. On the contrary, insurance analysts consider the best policy should have more third-party liability coverage than law requirements. Generally, in minor injuries, huge damages are awarded to the plaintiff by juries. Not to mention, in the event of a lawsuit, the minimum required policy is very unlikely to pay the liability costs. Moreover, no-fault laws do not protect major injury suits. They only defend car drivers from petty claims.

Quick strategies to lower premiums while maintaining full-protection:
Choose Auto, Wisely- Insurance premiums vary with different makes and models. Check the insurance coverage before making a final new car buying decision.

Place multi-users on one policy. Many insurance providers offer family discounts for insuring multiple vehicles on the same policy.

Raise Deductibles - The higher the deductible, the lower the premium.

Shop Around – The more auto insurance research you do, the more cost effective your auto decision will be. Price-compare different insurance policies and premiums for the best rates.

Obtain Car Insurance Discounts

1. Combine auto with homeowner's coverage under the same insurer.
2. Maintain a solid driving record on the current policy for a period of time.
3. Install an insurer-approved anti-theft device.

The basic premise of insurance is to protect low-probability situations with minimal cost premiums.