How To Determine How Much Auto Insurance Coverage You Need

Every automobile owner is required to have some kind of insurance coverage, except in states (Wisconsin and New Hampshire) where the driver can prove that he or she can pay all accident-related expenses out of pocket. Because each state has different minimum insurance requirements, figuring out how much auto insurance coverage you need is often challenging. The basic requirements do not always keep the vehicle owner completely covered. For this reason, many drivers will find that they must purchase additional insurance.

Required Auto Insurance -- Liability Coverage

Liability insurance is just what it sounds like -- it covers the person liable for an accident. When an accident happens, it is up to the driver who caused the accident to pay for the damages to other drivers, those drivers' vehicles and any other property damaged during the accident. Liability insurance covers those costs up to a certain amount previously agreed upon by the driver and his or her insurance company.

Liability insurance typically covers the vehicle owner and anyone else who has permission to drive the vehicle. It can also help to pay for legal costs, bail bonds and emergency first aid. Most states require liability insurance. In the event that a state does not, the driver must prove he or she is financially able to, out of his or her own pocket, cover the damages caused by an accident. Insurance agents refer to this as "financial responsibility." If a driver cannot offer proof of financial responsibility, then he or she must purchase liability insurance.

Required Auto Insurance -- Collision/Comprehensive Coverage

Some states require collision and comprehensive insurance if the owner of the vehicle has not completely paid off his or her vehicle or title loan. Insurance companies base these coverage types on both the value of the vehicle and the cost of repairing it.

Collision coverage addresses the cost of damages in the event that the vehicle covered by the policy is in a collision with another vehicle, or just about any other object. This coverage tops out at the cash value of the car. If damages to the car cost more than the car itself, the driver then receives reimbursement for the cost of the car and pays the rest of the repairs out of his or her pocket. Actual cash value means whatever the car is worth at the time of the accident. This takes into account vehicle depreciation and the car's current condition.

Comprehensive coverage covers the cost of damages that do not fall under the category of "collision." With sufficient comprehensive coverage, if something falls on a car and causes damage, those damages are covered. Comprehensive coverage also covers vandalism, fire, explosion, earthquakes and theft.

Optional Auto Insurance Coverage

Bodily injury coverage refers to health insurance coverage. Some states require bodily injury coverage, while other states consider it optional. Bodily injury coverage covers the costs of harm caused to the people involved in an accident, including the person who caused that accident. It covers the driver, any passengers and the people in the other car. Bodily injury coverage can be sold in "per person" limits or "per accident" limits.

Uninsured or underinsured motorist coverage pays on claims filed after an accident in which one of the drivers (usually the person who caused the accident) does not have sufficient insurance coverage. In such cases, uninsured or underinsured motorist coverage bridges the gap, usually making it unnecessary to pay anything out of pocket.

Whatever insurance package a driver decides on, it is imperative that the policy meets local and state requirements, as each state is different. Drivers must take it upon themselves to conduct research, so that they are completely prepared in the event of an auto accident.