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Submitted by: Jim Bassett

In this current state of the economy, a growing number of people are dropping or greatly reducing their auto insurance in an attempt to get their budgets under control. With more uninsured and under insured drivers on the road, it can be dangerous for all drivers and passengers involved. But many car owners are wondering how much is car insurance going to affect their household budget.

Many people may feel the urge to purchase the bare minimum of insurance that is required by their state. The law regulates the minimum requirements; however it doesn’t mean that these are the recommended standards for all people. Drivers, who are involved in accidents, whether it is their fault or another driver’s fault, may not be fully covered if only the minimum insurance is obtained. It is recommended that many factors are considered- price and condition of your car, total asset value including your house and the driving ability of every person in the household-before selecting the right car insurance.

Most states require that liability insurance is purchased and the amount varies according to your state. Bodily injury liability will protect you if you cause injury or death while driving your car. In the case of a serious accident, enough liability should be purchased in case you are sued, to protect your personal assets from being seized or compromised. Bodily injury liability covers injury to people, not vehicle damage, and is typically used to cover medical expenses of the injured. It is generally recommended that you purchase $100,000 (per person)/$300,000 (per accident) limits of bodily injury liability. However, if you do not have much personal assets (if you do not own a house, for example) the minimum requirements for liability insurance might be a good risk for you to take.

Personal Injury Protection (PIP), no-fault, or Medical Payments coverage pays for the medical expenses, lost wages and other costs incurred of the injured driver and passengers in your car. There may also be coverage if you are injured by a vehicle as a pedestrian. PIP is required in some, but not all, states. If your medical health insurance and disability insurance adequately covers medical expenses and lost wages, the minimum coverage can be selected for PIP. It’s important to read and understand what is covered by your health and car insurance in regards to medical treatment.

Uninsured motorists coverage pays for your medical bills if an uninsured driver or hit-and run driver hits you. Similarly, underinsured motorists coverage insures you in the event that the motorist who strikes you does not have enough insurance for your medical bills. Given the large number of uninsured motorists, this coverage is beneficial, even in states with no-fault insurance. Uninsured/underinsured auto insurance coverage is optional, and can be declined by the driver. However, before declining this coverage, you should take into consideration whether you live in a state with statistically higher numbers of drivers who carry little or no auto insurance.

Collision and comprehensive auto insurance coverage is responsible for a majority of the car insurance premium. Collision coverage pays for damages to your car when your car hits, or is hit by, another vehicle or other object. The larger the deductible (amount you have to pay out of pocket towards damages, before insurance starts to pay), the lower the insurance premium. If you wish to lower premiums, you should select as large a deductible that you would be able or willing to pay in the event of an accident. If you own an older model car (typically more than 10 years old), you could consider dropping this coverage, since coverage is generally limited to the cash value of your car. If you own an expensive or newer car, this coverage is important in order to protect the value of your car in case damage should occur.

Comprehensive coverage pays for losses resulting from incidents not involving a collision with another car. For instance, comprehensive insurance covers damage to your car if it is stolen or if damaged by flood or fire. To lower premiums, you should select as high a deductible as you feel comfortable paying up front. Collision and comprehensive insurance is usually required by law, with each state setting the minimum amount of coverage needed.

It may be easy to try and cut corners when it comes to car insurance by purchasing the bare minimum. However, car accidents are common and can result in large medical and car repair bills. Car owners should realize that the question is not how much is car insurance going to cost them, but how much is car insurance going to save them in the event of a catastrophe. It is important to perform a proper risk assessment which takes into account your driving ability, local traffic environment, current health insurance policy, and other household members to determine what coverage is needed. Then, in case of an accident, there will be a better chance that your out-of-pocket expenses will be covered and your assets protected.

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