Getting behind the wheel comes with risks, even for the most careful of drivers. Every year, about 6 million police-reported traffic accidents happen in the U.S., according to the National Highway Traffic Safety Administration¹ — an average of more than 16,000 per day. Fortunately, auto insurance can protect you against the financial fallout of accidents. But what kind of coverage do you need? Let's cover the three main types of auto insurance coverage; liability, collision, and comprehensive.

Liability coverage: protecting others

If you're found to be at fault in an accident, liability auto insurance covers (up to policy limits) the cost of damages and injuries you cause to other people. It typically includes:

• Bodily Injury Liability: Generally covers (up to policy limits) medical expenses, lost wages, and pain and suffering for people injured in an accident you caused, and may also cover legal fees or settlements if the injured party sues you.
• Property Damage Liability: Generally covers (up to policy limits) the cost of repairing or replacing damaged property of others in an accident you caused, such as vehicles, buildings, walls, fences, and equipment².

Requirements

Drivers are legally required to have liability coverage in the District of Columbia and all U.S. states except New Hampshire, where you can instead show proof of sufficient funds to cover an at-fault accident². However, the minimum amount you're required to carry varies by state. For example, Texas requires 30/60/25 coverage, which means $30,000 for injuries per person, $60,000 for injuries overall, and $25,000 for property damage4. On the other hand, Florida only requires 10/20/10⁵. You can find a full listing of minimum auto insurance coverage requirements by state here.

How it works

Legal requirements aside, liability insurance is important because it compensates other parties for damages you accidentally cause. Without it, you could face a huge sudden bill, financial stress, and even a lawsuit. For example, imagine you're driving down the freeway and suddenly find traffic at a standstill. You hit the brakes but can't slow down fast enough. You rear-end the car in front of you and end up liable for $18,000 in property damage and $13,000 in medical bills. If you have a liability policy with sufficient policy limits, your insurer would pay for damages. If you don't, you'd owe $31,000 out of pocket and could get sued if you're unable to cover it.

Collision coverage: protecting your vehicle in accidents

Collision auto insurance covers damage to your vehicle when you collide with another object or overturn, no matter who is at fault. For example, it can help pay to repair or replace your vehicle in the following scenarios⁶:

• You're at fault in an accident with another vehicle.
• Another driver causes an accident but lacks sufficient insurance to cover your damages.
• Your car is hit by a driver who flees the scene.
• You hit a stationary object like a tree or a pole.
• Your vehicle overturns by accident.

Requirements

Collision coverage isn't required by law but is often mandatory if you finance or lease a vehicle. Lenders and leasing companies typically want to ensure their assets are protected if collisions occur. If you own your vehicle outright, it's optional.

How it works

If your vehicle is damaged in a collision or rollover and you have collision coverage, you pay your deductible and the insurance covers the rest, up to your policy limit. For example, if you're pulling into a parking spot and accidentally hit another car, you'd be responsible for the damages to your car and theirs. Liability would cover their car but collision would cover yours. If your vehicle ended up with $12,500 in damages and you had a $200 deductible, you'd only pay the $200 deductible and your insurer would cover the rest. Without collision coverage, you'd be responsible for the full $12,500.

Comprehensive coverage: protection beyond collisions

Comprehensive auto insurance protects your vehicle from damage that results from non-collision events outside of your control, such as⁷:

• Theft
• Vandalism
• Natural disasters
• Floods
• Animal strikes
• Fires
• Falling objects
• Burglaries
• Explosions
• Glass breakage

Requirements

Collision coverage isn't required by law but is often mandatory if you finance or lease a vehicle. Lenders and leasing companies typically want to ensure their assets are protected if collisions occur. If you own your vehicle outright, it's optional.

How it works

If your vehicle is damaged in a collision or rollover and you have collision coverage, you pay your deductible and the insurance covers the rest, up to your policy limit. For example, if you're pulling into a parking spot and accidentally hit another car, you'd be responsible for the damages to your car and theirs. Liability would cover their car but collision would cover yours. If your vehicle ended up with $12,500 in damages and you had a $200 deductible, you'd only pay the $200 deductible and your insurer would cover the rest. Without collision coverage, you'd be responsible for the full $12,500.

Comparing Liability, Collision, and Comprehensive Coverage

Now that you know the basics of liability, collision, and comprehensive auto insurance coverage, here's a side-by-side comparison showing how they differ but work together.

Choosing the right coverage for your needs

The amount and types of auto insurance coverage you need will depend on a variety of factors. A good place to start is with what's required. Check your state's auto insurance requirements. All states (except for New Hampshire) and the District of Columbia require drivers to carry a minimum amount of liability coverage. From there, if you're financing or leasing the vehicle, check the minimum insurance requirements of your lender or leasing company.

Once you know what you need, consider what you want. Collision and comprehensive have the potential to save you a lot of money, but you'll have to weigh the costs and benefits for your situation. The average cost to add collision and comprehensive is about $600 per year or $50 per month, but your InsureMe Advisor can compare multiple insurance companies to see how much it will cost for you specifically. Then, ask yourself:

• What is the current market value of my car? If your car's value is on the lower end, the cost of coverage may not justify the payout after deductibles.
• How much can I afford to pay out-of-pocket for repairs or a replacement? If you can't cover a repair or replacement expense, full coverage can be a good idea.
• What is my history of accidents and damages? If you have a history of accidents or damages from non-collision events, you're at a higher risk of claims so coverage can provide valuable protection.
• Do I drive in high-traffic or hazardous areas often? Exposure to heavy traffic or areas prone to non-collision events increases the likelihood of claims which can make coverage more beneficial. 
• Am I comfortable with the financial risk of skipping this coverage? Consider whether the savings on premiums outweigh the potential out-of-pocket repair or replacement costs. Assess your risk tolerance.

Generally, the higher your vehicle's value and the higher your risk of damages, the more valuable full coverage insurance becomes. However, your need for coverage can be offset by factors like a backup vehicle, a high risk tolerance, or your ability to self-insure.

No matter how much coverage you decide to get, improve your odds of getting a competitive deal by having your InsureMe Advisor shop around for you. Compare quotes from multiple insurers and look for low premiums, high customer ratings, and discounts, such as good driver incentives or bundling policies. You can also consider adjusting your deductible amount to better suit your budget and situation. Choosing a higher deductible will lower your monthly premium cost but increase your costs when you file claims.

Drive with peace of mind

Auto insurance policies aren't one size fits all. Insurers offer various coverage types and customization options to suit different needs. However, liability is typically a must-have to meet legal requirements and protect against damages you may cause to others. Collision and comprehensive may or may not be optional but safeguard your vehicle against a wide range of risks.

The best policy configuration for you will depend on factors like your driving habits, location, vehicle value, financial situation, and risk tolerance. If you'd like help ensuring you have the coverage you need at a competitive price, InsureMe Advisors are happy to explore your situation and offer guidance.