Understand car insurance coverage

Some auto insurance provisions are crucial, others are desirable, still others are just unnecessary.

Cover your assets and your family first.

Most states require bodily-injury liability insurance to cover medical treatment, rehabilitation and funeral costs incurred by your own passengers, other drivers, their passengers and even injured pedestrians. Other costs covered include lawyers' fees and non-monetary losses related to pain and suffering.

State minimum-coverage limits are too low to protect the assets of most motorists. Unless your income and assets are minimal, buy at least $100,000 per person, $300,000 per accident.

Property-damage liability covers repair or replacement of other people's cars and property. State minimum limits average about $15,000. With the average cost of a new car at $25,000, however, buy at least $30,000 in coverage.

When a hit-and-run driver, or someone who's inadequately insured, strikes your car, uninsured-motorist and underinsured-motorist coverage pays for the medical, rehabilitation, funeral, and pain-and-suffering costs of the victims in your car. This crucial coverage also insures your household members as pedestrians. Buy this coverage at the same limits as your bodily-injury liability coverage.

Personal-injury protection (PIP), often known as "no-fault," covers medical, rehabilitation and funeral costs for household members, as well as some lost wages and in-home care. Unless your health and disability coverages are slight, buy the minimum required.

If your budget permits, consider the following options:

Collision pays to repair or replace your car after an accident. If you have bought a new car with a loan, you'll be required to buy this coverage.

Comprehensive pays if your car or its contents are stolen, or if your car is damaged by fire, water or other perils. Lenders will also require this coverage.

For both, you'll have to choose a deductible: a dollar amount you fork over to the repair shop before the insurer antes up. The higher the deductible you carry, the more you'll save. Try to carry a deductible of at least $500 on each coverage.

For cars worth less than $5,000, comprehensive and collision probably aren't worthwhile. Over time, the premiums you'll fork over will probably exceed the payout, even if your car is totaled. Plus, in an accident that isn't your fault, you can figure that the other driver's insurance will cover your car. (To estimate your car's market value, consult the Kelley Blue Book.)

You can probably do without these:

Medical-payments pays the deductibles and co-payments not covered by your health insurer, or the insurer of any of your passengers. It also covers some funeral and rehabilitation costs. It's not useful unless you face very high health-insurance deductibles. If your state requires it, buy the minimum.