Did you know that your car insurance coverage requirement can vary by what state you are in? Unless you live in New Hampshire, you are legally required to have liability insurance on your car. While it is safe to carry at least the minimum that your state requires, it is a good idea to have more coverage in order to protect you and your assets if you are involved in an auto accident.
There are many different types of car insurance coverages available through your insurance carrier. Understanding what they cover and the costs are a good way to manage your risk and have awareness around your spending.
Here are the different types of car insurance coverages:
Bodily injury liability
Bodily injury liability insurance protects you by paying for another driver’s medical bills in an accident where you were at fault. Every state has its own minimum liability requirements, which you can find here.
For California, you will see that the minimum insurance requirements are 15/30/5. The first two numbers are important to pay attention to:
- 15 – indicates the maximum amount your insurance company will pay for bodily injury claims for an individual person. In this instance, the 15 represents $15,000 in coverage
- 30 – indicates the maximum amount your insurance company will pay for bodily injury claims for a total accident. In this instance, the 30 represents $30,000 in coverage
While this is the minimum coverage you need to drive in California, it is a good idea to increase this to protect your assets. The average injury settlement is around $50,000, so having the minimum is typically not enough coverage.
Property damage liability
Property damage liability insurance protects you by paying for damage to another person’s property if you are at fault in an accident. Every state has its own minimum liability requirements, which you can find here.
Returning to the previous example, California’s minimum insurance requirements are 15/30/5. The third number is also important to review:
- 5 – indicates the maximum amount your insurance company will pay for property damage claims in an at-fault accident. In this instance, the 5represents $5,000 in coverage.
The majority of cars on the road are worth over $5,000, especially if it is a new or luxury car. While it is unlikely that you will crash into a Ferrari, there are a lot more Mercedes, BMWs, and Teslas on the road.
Collision insurance covers damage to your car when you are at fault in the accident. If you financed or leased your car, your lender may require you to have collision insurance on your auto policy.
You are not only covered if you hit another car, but also if you hit a pole or tree. For this coverage, you will select a deductible amount, usually between $100 and $1,000. You will need to pay the deductible first before this coverage will payout.
Comprehensive insurance covers damage to your car, even when you are not at fault for the accident. The types of damage that are covered include fire, vandalism, theft, or hitting an animal.
Some policies will include coverage for cracked windshields, whether it’s from a rock on the highway or a fallen tree branch. For this coverage, you will select a deductible amount, usually between $100 and $1,000. You will need to pay the deductible first before this coverage will payout.
Understanding your auto insurance coverage is important to manage your risk and ensure you are properly covered. If you would like to work with a financial planner to walk you through your options, I would love to help you!
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Disclaimer: This blog is for informational purposes only, and should not be considered advice or recommendations. All opinions expressed herein are solely those of Amaral Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made to another parties’ informational accuracy or completeness. You should consult your financial advisor, tax professional or legal counsel prior to implementation.