What does car insurance cover? It depends on the coverage you buy. Almost all states have minimum insurance requirements, although they vary by state. Regardless of the coverages you choose, they will always include minimum liability. Some other coverages you can choose from are PIP, Gap Insurance, Comprehensive Motorist, and Uninsured. Understanding coverages can help you decide what to buy to meet your needs.
How does car insurance work?
When you buy an auto insurance policy, you select different coverage options to protect you and your car. Depending on the coverage you select, your insurance company will pay up to a certain limit per type of coverage. The coverage protects you if you are injured, the other person if you are injured, or if you cause property damage to your own or someone else’s car.
Some types of coverage have a deductible, which is the amount you must pay before the insurance company pays its share. You can raise or lower your deductible amount based on your needs and financial situation. The more types of coverage you buy and the higher your coverage limits, the less likely you will have to pay out-of-pocket for damages after an accident, except for the deductible. But, with higher limits and more coverage, the price of insurance is higher.
Minimum Liability Coverage
Minimum liability coverage is the minimum amount of coverage you can purchase as required by your state. Each state has its own minimum requirements, but almost all require a certain amount of liability insurance. Depending on the state, you may be able to decline certain coverages, even when they are offered. For example, in Maryland, insurance agents must offer PIP coverage, but you can decline it.
Bodily Injury Liability
Bodily injury liability pays for the injuries of the other driver and their passengers if you cause an accident. This coverage pays for your medical bills, lost wages, and pain and suffering from the accident. Most states require a minimum amount of bodily injury liability. There is no deductible to use this coverage.
Property Damage Liability
If you cause an accident and damage someone’s property, property damage liability pays for it. Property damage is most often to someone’s vehicle, but it can also be to a fence, mailbox, utility pole, railing, or building. Like bodily injury liability, this coverage is generally required and does not have a deductible.
Uninsured and Underinsured Motorist Coverage
Although not required in all states, uninsured or underinsured motorist coverage protects you if someone hits you and you don’t have any insurance or enough coverage to pay for your injuries and property damage. In most cases, this coverage is used when you are the victim of a hit and run, which is when another driver is at fault and leaves the scene without providing insurance information. If you want uninsured motorist protection, consider this coverage, even when it’s not needed.
PIP, short for Personal Injury Protection, is coverage required by some states, though some allow you to waive coverage. PIP insurance pays if you or your passengers are injured in an accident, no matter who is at fault. It also covers you as a passenger in someone else’s vehicle. If you include PIP coverage in your car insurance, it covers (up to the maximum limit selected):
- medical costs
- lost wages
- funeral expenses
- domestic services
Domestic and child care services are only covered if they are needed while you are recovering from your injuries. The amount you can buy varies by state, and there is no deductible to use this coverage.
Medical payments coverage pays for the medical expenses you incur if you are injured in an accident, regardless of fault. If you choose this coverage, it follows you when you are walking, cycling, on public transport, in your own or someone else’s car or if you are a passenger. Like PIP, there is no deductible to pay for coverage.
Full coverage car insurance
With minimum liability coverage, you lose physical damage coverage for your own car. If you want the insurance company to pay for your car repairs on a covered claim, consider full coverage auto insurance. The national average cost of full coverage auto insurance is $1,674 per year. However, your rate may be different depending on your driving history, location and coverages, and the deductible selected.
Collision insurance pays for damage to your car caused by hitting another vehicle, object, or property, regardless of fault. A deductible will apply to this coverage, and is based on the deductible you select for the policy.
Comprehensive insurance, also called non-collision coverage, pays for damage to your car that isn’t covered by the collision. This includes:
- Broken windows or windshield
- hit an animal
- car theft
- weather events
Like collision, the deductible you choose for comprehensive coverage applies when you file a comprehensive claim.
Other types of coverage
Most insurance companies offer additional coverages that you can get in addition to full coverage. While options vary by state, other types of coverage could include:
- Gap insurance: This coverage is for drivers who finance or lease their cars. If your car is totaled in an accident, gap insurance will pay the difference if your totaled car is worth less than it owes.
- New car replacement: If your car is only a few years old and you have comprehensive coverage, you may qualify for this coverage. With a new car replacement, if your car is totaled, you get the value to replace your car with the same year, make and model instead of the depreciated value.
- Roadside assistance: This coverage pays for service to help you if your car breaks down. Coverage varies, but typically includes towing, key lockout, fuel delivery, battery jump starting, and tire changes.
Who is covered by my auto insurance policy?
People listed as insured drivers on your car insurance policy are covered to drive your car. If you give someone unlisted or in your household permission to drive your car, they are also covered. Keep in mind that if you have an accident, it falls under your insurance policy.
What does car insurance not cover?
Your car insurance policy will detail what is and is not covered in your policy. There are some things that are not covered by car insurance:
- Damage beyond coverage limits: When you buy auto insurance, you choose the limits you will pay. The policy declarations page will describe your limits, which is the maximum amount your auto insurance company is required to pay. You take care of the rest, which is why most insurance experts recommend buying as much coverage as you can afford.
- Special vehicles: High-value, exotic, performance, or vintage cars may not be eligible for coverage under a standard auto insurance policy. Some companies offer specialized insurance policies, which are adapted to the needs of this type of vehicle.
- Maintenance and repairs: Auto insurance does not cover regular maintenance and normal wear and tear. You are responsible for paying to keep your car running, including regular manufacturer-recommended maintenance. Some insurance companies may offer mechanical breakdown insurance, which may provide some coverage.
- Carpool: If you carpool, there is a coverage gap where you are not covered. You should check what coverage the rideshare company provides and whether you need to get specific rideshare insurance.
What is the best car insurance company?
The best auto insurance company is the one that meets your needs and coverage requirements. You may have to shop around to find the right insurance company for you.
How do I know how much car insurance I need?
The amount of car insurance you need is up to you after you meet the state’s requirements. Consider whether you need minimum or full coverage and what limits and deductibles are best. Once you determine how much coverage you need, get quotes from multiple companies to get the best price.