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Auto insurance 101: choosing the right coverage for you

Listening to an insurance agent explain auto coverage options makes most people's eyes glaze over, and trying to digest website information without anyone to guide you is even worse. One inexplicable term flows into another, and before you know it, you're signing on the dotted line without completely understanding what you just agreed to. But the basics really aren't that complex, and it pays to have a grasp on them so you don't end up buying coverage you don't need.

Should you go heavy on liability coverage?

Liability insurance protects against claims of bodily injury and property damage if you cause an accident. You're ?liable? for the incident, so you or your insurer must pay for the resulting repairs and medical bills. With the lone exception of New Hampshire, all states require that you carry this coverage. The question becomes just how much liability insurance you should carry.

All the states that require liability coverage have minimums, but these may not be adequate for your personal situation. For example, the American Institute of CPAs indicates that the minimum coverage requirements in Pennsylvania are $15,000 for bodily injury to one passenger, $30,000 for bodily injury to multiple passengers, and $5,000 for property damage liability. If you cause an accident and the other driver's $30,000 car is totaled and its passengers collectively require medical care totaling $100,000, you won't have enough coverage if you purchased the state's required minimums - you'd be personally on the hook for $95,000. The other driver can, and probably will, sue you for the difference.

If you don't own much in the way of other assets, this might not be a big concern. But if you do, you could lose your property if the other driver's lawsuit is successful. The Wall Street Journal recommends that you carry liability coverage equal to the value of your assets, less any outstanding loans against them, such as a mortgage.

Do you need collision and comprehensive coverage?

Collision and comprehensive coverage pays for damage to your own vehicle, less the amount of the deductible. So if your deductible is $500, you pay that first no matter if the repairs cost $750 or $7,500. The higher the deductible you're willing to contribute to repairs, the lower your premiums will be, so it's tempting to commit to paying less out-of-pocket in exchange for a higher deductible. Ask yourself if you can easily lay your hands on the amount of the deductible if your car is damaged to the extent that you can't drive it. Paying a little more in premiums could be worth it if you think you might find yourself short on cash with no way to get to work.

The flip side to this collision/comprehensive coverage question is whether you need it at all. Insurers pay out only the current value of a vehicle if it's totaled or stolen, not what you paid for it. If you're insuring a rust-bucket second car, you might want to think twice about paying higher premiums for this type of coverage. On the other hand, if you're financing your vehicle, the lender will probably require this insurance.

Personal injury protection might be double coverage

Personal injury protection - often called PIP - is another type of coverage that may not suit everyone. It pays for your medical expenses in the event of an accident, and it's mandatory in some states. If this isn't the case where you live, it may not make sense for you to pay for this extra coverage if you are already paying for health and disability insurance. You could end up paying two or three times for the same type of coverage if you elect to carry PIP insurance.

Keep track of your mileage

Insurers assume that you drive the same average number of miles each year as everyone else in your age group does. They base the amount of your premium on the premise that you're out on the road, at risk for an accident, as you cover all these miles. The U.S. Department of Transportation says men between the ages of 35 and 54 usually drive in excess of 18,000 miles a year. If you don't come close to driving this much, notify your insurer to lower your premium.

*Statistics and figures used in this article are up-to-date as of May 2016.

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