Auto insurance isn't a "should I or shouldn't I?" proposition. Most states have laws requiring you to purchase at least some minimum level of auto insurance, and lenders require it.

In reality, though, there is often a large gap between the insurance you're required to carry and what you should consider carrying. As you review your auto insurance needs it is advisable:

1. that you have a broader scope of coverage (i.e., more types) than the state or lender mandates, and
2. that your coverage limits in most areas of coverage exceed the required minimums. The point is that you should ideally have an appropriate amount of auto insurance based on your unique needs and tolerance for risk and the possibility for financial loss.

Personal factors
Aside from finances, other personal considerations will enter the picture as well. Such factors as your location, how much driving you do, the way you drive (i.e., aggressively or defensively), and the size of your assets should all play a part in determining the range and amount of coverage you need. You should try to tailor your coverage to your unique situation, but there are some general guidelines you can work with as well.

General guidelines
Since auto insurance coverage is typically broken down into component parts, each of which provides a different type of protection, it's best to look at each part individually.

Liability coverage
Liability coverage consists of two separate parts:

1. bodily injury liability, which covers you for losses that result when you or certain other people injure or kill someone with your car; and
2. property damage liability, which covers you for losses that result when you or certain other people damage someone else's property with your car.

The bodily injury portion of this coverage is the most crucial aspect of your auto insurance. The reason: liability claims against you for medical bills, lost income, and pain and suffering if you should ever seriously injure  someone in an accident can easily mount to hundreds of thousands of dollars. This is one area where you definitely don't want to be underinsured. Property damage claims can also be huge, especially if you were to ever cause severe damage to someone else's expensive, brand-new car. Among other things, you could also strike and damage a power pole, resulting in losses to the companies (phone, electric, etc.) serviced by that pole.

In most states, the required minimum liability coverage doesn't come close to covering the costs associated with a serious accident. That means if you took to the road with the minimums, you could expect to pay the majority of the claim out of your own pocket if you're sued. This is particularly dangerous if you have a home and other large assets worth protecting. Consequently, it may be advisable to carry both bodily injury and property damage liability coverages well beyond state minimums.

Medical payments coverage
If you or your family members are involved in an accident, whether in your insured car or in someone else's insured car, medical payments coverage will pay medical expenses incurred as a result of the accident. Your non-family passengers may also qualify for this coverage if they're injured in your car.

Since the other driver's insurance should cover these costs if he or she is at fault (and has proper levels of insurance themselves), medical payments coverage comes into play when the accident is your fault. 

If you have extensive health insurance coverage for yourself and your family, you might think that medical payments coverage is redundant and unnecessary. Be aware, though, that your health insurance won't cover passengers who aren't related to you if they're hurt in an accident in your car. Medical payments coverage often will.

Uninsured/underinsured motorist coverage
This provides coverage for losses you and others suffer as a result of an accident that is the fault of another driver who either doesn't have adequate auto insurance, or has no insurance at all.

In no-fault states, this type of coverage may not be essential because your auto insurance will have to cover your losses even if the other driver was at fault. In other states, however, this coverage is very important. If you were in an accident caused by a driver who had no insurance and no assets to compensate you, you might have no recourse. Uninsured/underinsured motorist coverage ensures that your insurance company will cover whatever expenses the driver can't meet through insurance and other resources. It may also cover your losses if you're hurt by an unidentified hit-and-run driver.

The number of uninsured, underinsured, and hit-and-run motorists on the road makes this coverage extremely important. Although the cost of this coverage is generally low, it often pays only for losses arising from bodily injuries, and not for property damage.

Collision/comprehensive coverage
Collision and comprehensive are actually two separate types of coverage. Collision covers you for losses you suffer when your vehicle is damaged in an at-fault collision with another vehicle or other object. Comprehensive covers you for losses suffered when your vehicle is damaged by fire, vandalism, flood, and a variety of other events.

In virtually every state, both are optional coverages that you can purchase for an additional premium. So should you buy them or not? In general, the answer is yes. If you don't buy them and your vehicle is damaged, you will have to pay for the vehicle's repair or replacement out of your own pocket (unless the accident was caused by another driver). Keep in mind, however, both types of coverage are subject to deductibles. They also generally only cover you up to the actual cash value of your vehicle. For this reason, it is generally not cost effective to have collision and comprehensive on much older, virtually valueless vehicles. With more expensive vehicles, the need for these coverages is much greater. You will have to weigh the cost against the potential benefits. Bottom line: if you drop your damage protection coverage, you could be responsible for the entire cost of repairing or replacing your vehicle and for this reason we do not recommend it.

Endorsements
Endorsements are optional provisions you can add to your auto insurance policy for an extra premium, to expand your coverage. Typical endorsements include coverage for items such as towing and labor, car rental costs, extraordinary medical expenses, and certain recreational vehicles. The number and type of endorsements will determine the size of your premium increase. Endorsements are not necessary in most cases, but may be highly advantageous if your situation, needs and lifestyle necessitate them.

Learn More...

Auto Insurance Overview | Understanding The Basics | Coverage Options
Safety & Tips | Choosing A Policy | Filing A Claim | Car Rentals & Motorcycles

Please Note: The information contained in this Web site is provided solely as a source of general  information and resource.  It is a not a statement of contract and coverage may not apply in all areas or circumstances.  For a complete description of coverages, always read the insurance policy, including all endorsements.