A car accident can prove extremely expensive,
especially if personal injury is involved. In fact,
"under-insured" drivers could find themselves in
deep financial trouble, losing their savings, their
home--even future wages. So let's look at the
appropriate bottom limits to the four main aspects
of coverage: you can go higher, but going lower is
Liability: In order to protect your
financial future, liability insurance should be
your number-one priority. It covers costs resulting
from injuries to other drivers and their
passengers, as well as damage to their cars (it
doesn't cover you, your car, or your passengers).
Such damage can easily run into the hundreds of
thousands, or much more.
What level of liability should you get? Most
financial advisors recommend that you get insurance
at least equal to your personal net worth, though
many say you should actually double that amount.
Even if you don't have too many substantial assets
(such as a home, a retirement account or other
property), you should consider coverage of $50,000
for damage to property and $100,000 per individual,
with a cap of $300,000 per accident.
Medical insurance: Does your health
insurance cover you in the event of a car accident?
Then your need for similar coverage in an auto
policy is probably zero. If you don't have regular
medical insurance, then do by all means get an auto
policy with medical clauses that specifically
covers injuries resulting from car accidents, with
a cap of at least $250,000. But take note: it might
make more sense to put that money toward a general
Collision/comprehensive: If you're leasing a car, or still
making loan payments, you may be required to supplement liability
with collision or comprehensive insurance. If your car is especially
valuable, you should also seriously consider collision/comprehensive
insurance--just as you'd insure anything of great value. Coverage
is generally for the book value of the car, minus any deductible
(the amount you pay out of pocket before an insurance company's
coverage kicks in).
Uninsured/under-insured driver: When you
are hit by a driver without assets, without
adequate insurance, or without insurance at all,
you could get stuck with the bill. If you lack
major medical and/or disability insurance, you
should strongly consider this coverage.