The Retirement Corporation of America

Insuring Your Car

LIKE HOMEOWNER'S INSURANCE, auto insurance is a combination of different kinds of coverage. As you've learned, most states require you to carry at least some auto liability coverage in case you hurt another person or damage the other driver's car in an accident. But that may not be enough to adequately protect you from lawsuits or cover horrendous repair bills. So you need to buy more car insurance than the minimum required in your state.

What Car Insurance Covers

The typical standard car insurance policy includes six kinds of coverage: bodily-injury liability, property-damage liability, uninsured motorist, medical payments, collision and comprehensive. In "no-fault states," you can also buy personal injury protection. It provides medical and wage-loss benefits to anyone injured in a car accident, no matter who's at fault.

Liability. You should have $300,000 of injury liability and property-damage coverage to defend yourself against lawsuits. If the court awards a judgment to the other driver, your insurance pays, not you.

Uninsured Motorist. As its name implies, this pays you for injuries if the other driver isn't insured. Before you buy it, check to see if you're already covered by your health and disability coverage at work.

Medical Payments. This coverage pays for injuries to you as well as to passengers in your car.

Collision. It pays for damage to your car up to its "fair market" value according to the Blue Book values used by insurers. This is where most arguments over auto claims come in because you may well disagree with the value put on your car—especially if it's an older car with collector value. Insurance companies will "total" your car and just give you the Blue Book value for it if they decide it will cost more to repair it than it's worth. Collision coverage is also the biggest chunk of your car insurance premium. It's optional and you may not need it if you drive a clunker and you're willing to pay for car repair bills out of your own pocket.

Comprehensive. This covers damage to your car caused by anything other than an accident. Theft, vandalism, fire, flood—even hitting a deer—all qualify. Like collision, this coverage is also optional. But it's worth having if you live in an area where these things happen.

Add-Ons. Several other kinds of optional coverage are available. Some common ones that are smart to have are:

1. Coverage that pays towing charges if your car breaks down on the road.
2. Rental-car coverage which takes care of the cost if you have to rent a car while your own is being repaired if it's damaged in an accident or stolen.
3. Auto replacement coverage. This guarantees you that the insurer will completely repair your car or replace it even if those costs exceed its depreciated value.