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How Coverage Limits Work for Car Insurance

Here's what you need to know...
  • The state-mandated minimum liability coverage limits are too low for proper protection, so consider raising them
  • There are several other coverage types that you should consider
  • If you increase coverage, your premiums will increase. Look for discounts to keep your premiums down
  • Comparison shop for car insurance; this will help you get the coverage you need for the best price

The different car insurance coverage limits work by offering various amounts of protection based on the amount of car insurance you purchase. When you choose your auto insurance, you must select a specific amount of coverage for each option.

Read on to learn about the various auto insurance coverage limits and then make sure that you enter your ZIP code into the FREE quote tool above for an instant quote comparison online!

How Coverage Limits Work

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The limits that you choose are the maximum amount of money per accident that your auto insurance company will pay.

If your liability limits are for 25/50/25 this correlates to coverage of $25,000 for a single person injured in an accident, $50,000 for all bodily injuries in an accident and $25,000 for the property damages.

Your premium rates will be based on the amount of coverage you select. Each state has set a minimum limit for the amount of liability coverage you must carry. Typically, those limits are too low to fully protect you.

The real trick is choosing the right amount of coverage so that the coverage limits are enough to cover all of the costs, from medical care to auto repair, without you having to pay anything out of pocket (besides your deductible).

The reason that this can be tricky is that there is no real consensus on how much coverage you need to have.

Some insurance agents will recommend that you purchase as much coverage as you can afford, while others will suggest specific amounts based on your driving history and the cost of your vehicle.

Many industry experts recommend liability amounts of 100/300/100 to adequately protect you in the event you cause an accident which results in significant bodily harm and property damage.

In addition to liability limits, no-fault states require that you carry personal injury protection or PIP in a specific amount to pay for your own medical costs in an accident. Other coverage options like collision and comprehensive can be purchased based on your vehicle.

What type of car insurance coverage is available?

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The most basic types of car insurance coverage are:

  • Liability — There are two types of coverage included in liability.
    • Bodily injury – If they are in an accident and do not have enough insurance to cover the other driver’s medical costs you could be sued.
    •  Property damage — This coverage will pay for repairs or replacing the other car if it is damaged in the accident.
  • Collision — This coverage is for accidents involving other cars or structures like buildings or poles. It will cover your own vehicle.
  • Comprehensive — Comprehensive coverage will pay if your car is damaged by things like hail, fire, or vandalism.
  • Uninsured motorist underinsured motorist — This will kick in if you are not at fault in an accident, but the offending party does not have enough insurance to cover your damages.
  • Personal injury protection coverage — Personal injury protection coverage is required by some states now. This coverage pays for the medical costs of the policyholder. This is a very important coverage to have if the policyholder does not have health insurance.

Factors to Consider When Purchasing Your Auto Insurance Limits

The first thing that you will want to do is to look up the statistics on the average cost of auto accidents in your state.

You can find this information in a number of places but it might be easiest to do a search for accident statistics with your state’s name attached (i.e. accident statistics in New York).

Some sites will break down the costs for different types of accidents, such as accidents with minor injuries, accidents involving multiple vehicles, accidents with serious injuries and so on.

Once you have found the statistics for your state, choose a level of coverage that will cover the average cost of a serious accident in your area. This will cover most types of accidents.

If you live in a city with a lot of accidents with serious injuries, you may want to consider increasing your liability coverage.

For collision and comprehensive coverage limits, you want to ensure that you purchase enough coverage limits to cover the full cost of your vehicle.

Collision coverage is the insurance that pays for damages to your vehicle when you cause an accident. Your insurance company will not pay more than the blue book value of your vehicle, so there is no point in carrying more insurance than necessary.

Your comprehensive coverage protects you from costs incurred by damage from natural disasters, vandalism, theft, etc. and the same policy applies, you don’t need any more than the blue book value of your vehicle.

Another thing to consider is your personal financial situation. When you cause an accident, if you live in a tort state you can be sued for losses that are incurred in an accident.

There are those individuals who will tell you that if you don’t have a lot of assets to worry about that you shouldn’t be concerned about getting sued.

The truth is that if you are sued and you lose your case (and if you caused the accident, you probably will lose), your future assets could be in jeopardy as well.

If you eventually purchase a house, for example, the people who sued you can petition the court for your home, as well as your car, money you have in the bank and so on.

You don’t want to risk this; purchase enough liability coverage to cover a serious accident (again, refer to your state’s statistics).

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Saving Money on Your Additional Coverage

Purchasing higher levels of coverage means that your insurance premium is going to increase. If you purchase comprehensive and/or collision insurance, then you can save money by increasing your deductible amount.

The key to choosing your deductible is selecting one that you can afford. There are several levels to choose from, but to have a real effect on your premium; you should have at least a $1000 deductible.

If you are cash poor and can’t afford the $1000 deductible, it is better to pay a higher premium and keep the lower deductible.

In order to save money on your other liability insurance, you are going to have to depend on discounts offered by your insurance carrier.

The discounts offered vary and some insurance companies offer a myriad of discounts while others only offer a couple of different discount options. Contact your insurance company to determine whether or not there are any discounts that you aren’t currently getting that you qualify for.

Lastly, you will want to ensure you are getting the best price on your insurance by getting an auto insurance quote. Using a quote tool is an easy way to determine how much your insurance is going to cost you.

Of course, to get the best discounts, you need to get quotes from several companies.

To save time, you should use a free quote tool offered by an independent source as opposed to one offered by a company that is biased in its own favor.

These rate quote tools allow you to get the quotes that you need from all of the companies that you want so that you can compare them side by side. Plus, this is much faster and easier than visiting individual websites.

Finding a Car Insurance Provider that Meets Your Needs

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Choosing the right insurance company is just as important as choosing the right per accident limits. When choosing your insurance company there are some things that you want to consider.

  1. First of all, you want to consider the reputation of the company. You should only consider auto insurance companies that have an excellent reputation for paying claims. If you have an accident, you don’t want to fight with your insurer to get money for repairs.
  2. Second, you want to consider how they treat you as a customer. You can check the Better Business Bureau and your state’s Department of Insurance to see how a company resolves any issues they have.
  3. Third, you should also consider the length of time the company has been in business as well as their financial security. You can check how an insurance company is doing financially by checking with A.M. Best, Fitch, Standard & Poor’s.

Once you get a quote, our rate quote device can save your profile (and your quotes) so that you can do the research that you need. Once you are done, come back to your profile, click on the company that you have chosen, and finish the process of purchasing your auto insurance.

You should try it for FREE now by entering your ZIP code below!

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