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Standard automobile insurance policies provide both required and optional coverages. In most states, auto policies must contain liability insurance that provides for payment of damages caused by the policyholder. Coverage for damages to the policyholder's auto normally is not required (although it is purchased by most automobile owners).

Required Liability Insurance

The liability coverage required by most states in auto insurance policies protects the policyholder from having to pay the costs and damages suffered by another automobile driver or owner due to the fault of the policyholder. Bodily or personal injury liability usually has two limits -- one limit covers the amount of damages from personal injury suffered by one person and a second limit covers the damages from personal injuries suffered by everyone other than the policyholder in a single accident. A third limit is stated in the policy for property damage caused in the accident. For example, a policy with 100/250/50 limits would pay up to $100,000 for any one person's bodily injuries, $250,000 for bodily injuries of all injured third parties, and $50,000 for property damage of others resulting from an accident caused by the policyholder.

The amount of required liability insurance varies from state to state. Policyholders may and often do purchase higher than required amounts of liability insurance.

Additional Coverage Required in Many States

Many states require some form of additional automobile insurance. Medical payments insurance covers, up to policy limits, medical expenses of the policyholder and others in the policyholder's auto who are injured in an accident, regardless of which driver was at fault in causing the accident. A broader personal injury protection (or PIP) coverage would provide compensation for other losses from an accident, such as lost income, pain and suffering, or funeral expenses.

Some states may require "uninsured motorist coverage" to pay for damages when the other driver causing an accident is uninsured or "underinsured motorist coverage" to pay damages when the other driver has insufficient insurance to pay for the damages from an accident caused by that driver.

Optional Auto Insurance

Many automobile owners purchase additional insurance coverage that is not required by state law but is a prudent safeguard. "Collision coverage" pays the owner of an automobile the costs (up to fair market value) of repairing the policyholder's vehicle that is damaged in an accident. There usually is a "deductible" of an amount that varies according to the cost of the coverage in repairs that the policyholder has to pay before the insurance coverage goes into effect. "Comprehensive coverage" is similar to collision coverage except that collision coverage concerns accidents that are the fault of the policyholder while comprehensive coverage concerns events causing damage to the automobile that are acts of God or are caused by unknown persons in incidents such as theft or vandalism.

Additional Coverages

An automobile owner may also purchase other coverages that will reimburse the owner for expenses such as towing, car rentals, roadside assistance, or replacement of property stolen from the auto.

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