MANY DRIVERS VIEW AUTO INSURANCE as protection in case they wreck their car or the vehicle gets stolen. But the policies serve another, equally important purpose: They protect you in case you’re sued. Here are the key elements of an auto policy:
Liability coverage. This tells you the maximum the policy will pay if you cause an accident in which somebody is hurt or which damages another vehicle or other property. Because of the risk of lawsuits, you may want to purchase an umbrella liability policy to provide additional protection. To qualify for umbrella coverage, the insurer may insist you raise the liability limits on your auto policy—which is probably a good idea.
Uninsured and underinsured driver coverage. This protects you if you’re involved in an accident caused by another driver who either doesn’t have insurance coverage or is underinsured. Even though you weren’t responsible for the accident, your insurance company will often help pay your medical and auto repair bills if you have uninsured and underinsured driver coverage.
Collision and comprehensive. If you have an accident or your car is stolen, this covers the cost of repairing or replacing your own vehicle. Got a car that is only worth a few thousand dollars? You may want to drop collision and comprehensive coverage, because the financial loss would be modest if your car were totaled or stolen.
Deductibles. If you need collision and comprehensive coverage, consider raising the deductibles so you lower the premium. As always with insurance, the goal is to protect against big financial hits, not minor losses. You can also hold down your insurance costs by improving your credit score, maintaining a good driving record, claiming a low-mileage discount if you drive relatively little and favoring cars that are cheaper to insure. A sports car often comes with a large insurance bill, while minivans and SUVs are relatively inexpensive to insure.
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