Car Insurance Is Not Life Insurance

Don't expect your car insurance to act as life insurance if you're killed in an auto accident. If your heirs are paid anything, it won't be nearly as much as they're likely to get from a life insurance policy.

"Dying in an auto accident is only one way to die. You should always have life insurance," says Robert Katz, an Atlanta attorney. "I would not plan life insurance coverage through auto insurance."

Car insurance is meant to take care of your car -- and to help your family with funeral expenses if you're killed -- but not much more.

"The purpose of insurance is to financially bring you back to where you were before the loss," says Tim Dodge, director of research and media relations at Independent Insurance Agents and Brokers of New York.

Whether your survivors see any money at all depends on what kinds of coverage you have and who was at fault for the accident.

Liability coverage: Your own liability coverage would not pay your family after an accident. If you are killed in an accident another driver causes, his or her liability insurance would pay your family.

The payout is limited by how much coverage was purchased under the other driver's bodily injury liability policy. In some states, the minimum required coverage -- in some places as low as $12,500 -- would barely cover the costs of a funeral.

Medical expenses count against the total, reducing the potential payout.

While increasing your own liability coverage won't help your family if you are killed in an accident, the added protection could keep you from being sued if you cause a fatal accident.

Most drivers with assets to protect should carry coverage of at least $100,000. "Add-ons" for excess coverage can be bought for not much more. Katz, for example, says he pays an extra $136 every six months to increase his liability coverage to $1 million.