What to Consider When Purchasing Your First Auto Policy

Buying your first car is an important milestone. The independence that comes with having your own set of wheels is a great privilege. At the same time, being a car owner means you've got an important choice to make: What coverages do you need in your first "on your own" car insurance policy?

It's tempting to ask your agent for the least expensive policy. After all, you have plenty of other expenses to cover now that you're a car owner. However, once you fully understand exactly what each part of your auto policy covers, you may decide that cheaper isn't necessarily better. Think about it: If your car was totaled in an accident, or you seriously injured someone, a few extra dollars of insurance coverage per month might be money well spent.

Here are some of the common coverages to consider for your auto policy.

Bodily injury liability:

If someone is injured as a result of an auto accident you caused, this coverage could help pay for your legal fees, as well as the person's medical bills and lost wages. This coverage often includes two separate limits: one that applies to each injured person ($50,000, for instance) and a second one that applies to each accident (for instance, $100,000).

Property damage liability:

If you damage another person's property, such as a fence or garage door, with your vehicle, this coverage can help protect you. Property damage coverage may help reimburse the other party for their losses, so you don't have to pay for them out of your own pocket.

Personal Injury Protection (PIP):

If you're injured in a car accident, this coverage may help pay your health insurance deductible (if you have one) as well as medical costs that exceed your health insurance limits. This coverage may also help pay for your lost wages and "loss of services," such as picking up your kids from school, while you recover. Worst-case scenario: PIP may help cover your funeral expenses. Keep in mind that PIP is not available in all states.

Medical payments:

Like PIP, this coverage may help pay for your medical bills related to a car accident. However, this coverage also extends to your passengers and a family member who was driving the car when the accident occurred. Also, if you or a family member are injured in another car or as a pedestrian, this coverage can help pay for medical expenses.

Uninsured/underinsured motorist:

This coverage can help protect you if you're hit by a driver who has no auto insurance or whose policy limits are too low to cover the accident's full costs. It can help pay for your medical bills and — depending on your state's insurance laws — possibly for damage to your vehicle.

Collision:

If you need to repair or replace your vehicle after a collision with another car or object, this coverage can help cover the costs.

Comprehensive:

This coverage can help pay for damage to your car that isn't related to an auto accident. Examples: theft, damage by animals, fire or falling objects.

Guaranteed Asset Protection (GAP):

If your vehicle is totaled in an accident or stolen, your insurance company typically will pay you fair-market value for the car. However, if you still owe a financial institution more than the car is worth, GAP coverage can help reimburse you for the cost difference.