Understanding Your Auto Insurance Needs - Step 2

There's no shortage of optional auto insurance coverages. Collision coverage pays for damages to your vehicle that are caused by a crash. Comprehensive coverage pays for damages to your vehicle if it's vandalized, stolen, or flooded, or if you hit an animal. Both comprehensive and collision coverage make you pay a deductible before they kick in any money to your claim. Typically, insurers offer $100, $250, $500, and $1,000 deductibles for both coverages. The lower the deductible you choose, the higher your premium.

As an add-on to your auto insurance liability coverage, you can purchase an umbrella policy, which will kick in only after your liability coverage has been exhausted. Typically, you have to buy at least 100/300 limits of auto insurance liability in order to purchase an umbrella policy. Most insurers won't sell you an umbrella policy unless you buy your auto liability insurance from them. You can get between $1 million and $5 million worth of liability coverage from an umbrella policy.

Medical payments (known as MedPay) coverage is available in all states, and is similar to PIP in that it pays for medical expenses that arise from an auto accident. MedPay covers all of your medical expenses up to the policy limits, but does not

pay for lost wages.

Rental car and towing reimbursement coverages are extra options, too. This pays for part or all of the expense of renting a car while your car is disabled due to a crash, theft, or other loss in which your comprehensive or collision coverage kicks in.

If your car needs to be towed after an accident or theft, towing reimbursement will pay for part or all of the bill.

Some insurance companies, such as Allstate Insurance Co., Farmers Insurance Co., and GEICO, offer mechanical breakdown insurance, which are essentially extended warranties that pay for parts and labor when your car conks out because of wear and tear. Normally, you're required to pay a deductible before this coverage kicks in.

If you've leased a car, you should know about gap insurance. Many lease contracts already include gap insurance, which pays for the difference between what your insurer pays and what you owe on your lease in case your car is totaled. If you have a leas

e contract that doesn't include gap insurance, you can purchase it from an insurance company, such as Auto-Owners Insurance Co., Progressive Insurance Co., or State Auto Insurance Co. However, in order to buy gap coverage, you have to purchase comprehensi

ve and collision insurance from that same insurer. Continue to Step 3: Know your tolerance for financial risk

By Joe Frey
insure.com