Auto insurance

Although there aren't set guidelines to what proper insurance coverage is, understanding how your policy works can help you prevent a financial nightmare when you need to make a claim

There are six parts to the basic insurance policy. They include bodily injury, personal property liability, personal injury protection, comprehensive and uninsured motorist.

Bodily injury and personal property liability are the two major components of an 
insurance policy that involve liability coverage. These areas protect you against injuries caused to another person or property. All 50 sates and the District of Columbia require minimum liability insurance coverage. You can find out more information about your state by contacting the National Association of Insurance Commissioners. These requirements are listed as three numbers that define how much the policy will cover on an accident.

The amounts are listed by the thousand. California requires minimum liability coverage of 15/30/5. This means that the insurance will pay up to $15,000 for any individual injured in an accident, not to exceed $30,000 for all people injured and $5,000 is paid for property damage.

You should be aware that most state minimum will not provide sufficient coverage in the event of a serious accident.

You should carry liability coverage that is no less than 100/300/50. Then you will be able to provide $300,000 worth of injury coverage to all passengers, $100,000 to each individual and $50,000 for property damages.

If you have substantial assets that could be lost in a lawsuit, such as real property or financial portfolios, you should consider a supplemental liability policy. This give you added protection against any type of liability situation, whether in your car or at home. For $150 to $300 a year in premiums, you can have up to $1 million worth of protection.

Personal Injury Protection covers both medical expenses and lost wages for you and any passengers in your vehicle in an accident. People with good medical and disability policies may not need high PIP coverage. Instead, you should consider the lowest coverage allowed by state law. This will keep you from paying for unnecessary coverage.

Collision and Comprehensive coverages add significant costs to your premium. Collision provides coverage for losses or damages in any type of accident. Comprehensive coverage insures your car in the event of a theft or natural disaster.

If you have an older vehicle, the cost of repairing your car is most likely more than its value. In that case, you should waive both collision and comprehensive. The cost of the coverage will outweigh the payoff for you.

On newer cars, set a deductible on both your collision and comprehensive that is the highest amount that you can afford to pay for repairs. The higher the deductible, the lower the premium you will pay. Insurance professionals say that the majority of policies carry a $500 deductible on collision and comprehensive claims.

Uninsured motorists coverage protects you from accidents with motorists without insurance, and hit-and-run accidents. This coverage will also kick in when an at-fault driver doesn't have enough liability coverage to pay for the damages. Most states require this coverage by law.