What coverage you actually need
The minimum amount of auto insurance you need is based on laws in your state. Your lender may also require additional amounts of insurance to protect it against loss until you pay off your loan. The less insurance you have, the less you’ll have to pay in premiums, but you may end up paying more out of pocket in the event of a major accident.
The National Association of Insurance Commissioners provides explanations for the different types of auto insurance coverage you may need for your vehicle:
Property damage liability (required by states)
This coverage pays for damages you cause to someone else’s car or to objects and structures your car hits.
Bodily injury liability (required by states)
This coverage applies to injuries that you cause to someone else. You and family members listed on the policy also are covered when driving someone else’s car with their permission.
Uninsured and underinsured motorist coverage (some states require)
Uninsured motorist coverage reimburses you if an uninsured or a hit-and-run driver hits you. Underinsured motorist coverage pays when an at-fault driver doesn’t have enough insurance to fully pay for your loss.
Medical payments or personal-injury protection (PIP) (some states require)
This coverage pays for treating injuries to you and your passengers. Personal Injury Protection (PIP), which is available in “no-fault” states, can also cover lost wages and funeral costs.
Collision coverage (required by most lenders)
This coverage pays for damage to your car from a collision with another car, an object, or a pothole or from flipping over.
Comprehensive coverage (required by most lenders)
This coverage reimburses you for damage to your car that’s not caused by a collision. This includes theft, hail, windstorm, flood, fire, and hitting animals. Comprehensive coverage also will reimburse you if your windshield is pitted, cracked, or damaged. Some companies won’t charge you a deductible for windshield repairs.