Determining what you need and what you don’t in car insurance requires an understanding of what you pay for in a policy. This includes coverage amounts and options that you can apply that will affect your premium costs. You can determine the amount of coverage needed for your vehicle by obtaining a rate quote from your local auto insurance agent or by using the internet. 

Bodily Injury and Property Damage

These are liability coverages that are included on an auto insurance policy. All states have mandates for bodily injury and property damage coverage. Bodily injury coverage pays for medical costs if the other driver in an accident is injured. Property damage liability coverage pays for the repair and replacement of damaged property. If you have a new vehicle the full amount for these coverages may be needed. 

Comprehensive and Collision 

Auto insurance policies include many types of coverage. Two that pertain directly to the vehicle include collision and comprehensive. Collision is coverage available when you are involved in an accident that involves another vehicle. Comprehensive is coverage for non-collision accidents such as fire and theft. You may only need full coverage on your auto policy for a new vehicle. If the actual case value of your vehicle is low because it is old you may only need minimum amounts or no coverage at all. 

Policy Level Discounts

Discounts are options for an auto insurance policy that are available to decrease the amount of premium that is paid. These are needed to reduce your costs and you should make sure that all discounts that you have available are on the policy. Examples of policy discounts include safe driving, accident free, having a good credit score, and using electronic funds transfer for payments. You can also receive a discount for combining multiple policies with the same insurance company. 

Minimum Coverage Requirements

Most states have minimum amounts that are required for coverages on an auto insurance policy. A state may have a minimum amount of coverage even if it is not needed by the policy holder. When you look into an auto insurance policy, the insurance agent or company representative will recommend you have more than the minimum amount of coverage. However, you are free to select any amount that you want down to the minimum required in your state. If you are involved in an accident and minimum coverage amounts do not cover the total costs to the injured person, you can be held responsible for the remainder, so only lower your coverage if you’re sure you will be able to obtain the money to cover any costs that might occur. 

Rental Car Coverage

Auto insurance includes coverages that you may not need on your policy. One type of coverage that you may not need on your auto insurance policy is rental coverage. This coverage may not be needed if you have full coverage on your policy. Check with your auto insurance company to see the coverage that is and is not available on the policy.

Personal Injury Protection

This is coverage on an auto insurance policy that pays medical expenses and lost wages that result from an accident. Coverage is provided to the driver, passengers in your vehicle, and pedestrians that suffer injury in an accident with your vehicle. States that have this coverage require minimum amounts on auto insurance policies. If you are in a state that does not require this coverage you can elect to have the minimum amount of coverage or no coverage at all.

Take some time to look at your policy and find out exactly what you’re paying for. In many cases, you have more insurance than you really need or will ever use, which is how insurance companies profit. Depending on your willingness to take risks, you may want to cut your current policy down to the bare minimum and rely on the likelihood that you won’t need to use the insurance for anything big. However, it’s important to be prepared and know how to get enough money to cover expenses if a situation does happen and you have to pay a large amount out-of-pocket.

Photo credit: My car crash by Craig Dennis

Gina Hamilton is an insurance consultant and content contributor for Kanetix. Check here for car insurance quotes from Kanetix, from the U.S. to Canada; see London insurance companies to compare rates for Toronto.