What does car insurance cover?
What exactly does car insurance cover? It is determined by the type of coverage purchased. Almost every state has minimum insurance requirements, which vary by state. Whatever coverages you select, it will always include minimum liability. Other optional coverages include PIP, gap insurance, comprehensive, and uninsured motorist. Understanding the coverages can assist you in deciding what to purchase to meet your needs.
How does car insurance work?
When you purchase auto insurance, you can choose from a variety of coverage options to protect yourself and your vehicle. Your insurance company will then pay up to a certain limit per coverage type based on the coverage you choose. Coverage protects you if you are injured, the other person if they are injured, or you cause property damage to your own or another person's car.
Some coverage types include a deductible, which is the amount you must pay before the insurance company will pay its portion. Depending on your needs and financial situation, you can increase or decrease your deductible amount. Except for the deductible, the more coverage types you purchase and the higher your coverage limits, the less likely you will have to pay for damages out of pocket after an accident. However, higher limits and more coverage come at a higher cost for insurance.
Minimum liability coverage
Minimum liability coverage is the bare minimum of coverage required by your state. Each state has its own set of minimum requirements, but almost all of them require some level of liability insurance. Depending on your state, you may be able to decline certain coverages even if they are offered. In Maryland, for example, insurance agents are required to offer PIP coverage, but you have the option to decline it.
Bodily injury liability
If you cause an accident, bodily injury liability pays for the injuries of the other driver and their passengers. This insurance covers their medical bills, lost wages, and pain and suffering as a result of the accident. Most states require a certain level of bodily injury liability. There is no deductible associated with this coverage.
Property damage liability
Property damage liability compensates you if you cause an accident and damage someone else's property. The most common type of property damage is to someone's vehicle, but it could also be a fence, mailbox, utility pole, guard rail, or building. This coverage, like bodily injury liability, is usually required and does not have a deductible.
Uninsured/underinsured motorist coverage
Uninsured and underinsured motorist coverage, though not required in all states, protects you if someone hits you and does not have insurance or enough coverage to pay for your injuries and property damage. This coverage is typically used if you are the victim of a hit-and-run, which occurs when another driver is at fault and flees the scene without providing insurance information. Consider this coverage even if it is not required if you want protection against uninsured drivers.
PIP
PIP, or personal injury protection, is a state-mandated coverage in some states, though some allow you to opt out. PIP insurance covers you and your passengers in the event of an accident, regardless of who is at fault. It also protects you if you are a passenger in someone else's car. If you add PIP coverage to your car insurance, it will cover (up to the maximum limit):
- Medical expenses
- Lost wages
- Funeral expenses
- Childcare
- Household services
While you are recovering from your injuries, childcare and household services are only covered if they are required. The amount you can purchase varies by state, and there is no deductible when using this coverage.
Medical payments
Medical payments coverage pays for your medical expenses if you are injured in an accident, regardless of who is at fault. If you choose this coverage, it will follow you while you are walking, riding a bike, taking public transportation, driving your own or someone else's car, or riding as a passenger. There is no deductible to pay for coverage, as there is with PIP.
Full coverage car insurance
You don't get physical damage coverage for your own car if you only have minimum liability coverage. Consider full coverage car insurance if you want the insurance company to pay for repairs to your car in the event of a covered claim. Full coverage car insurance costs $1,674 per year on average in the United States. Your rate, however, may differ depending on your driving history, location, and the coverages and deductible you choose.
Collision
Collision insurance covers damage to your vehicle caused by colliding with another vehicle, object, or piece of property, regardless of fault. This coverage will be subject to a deductible, which will be determined by the deductible you choose for the policy.
Comprehensive
Comprehensive insurance, also known as other-than-collision coverage, pays for damage to your vehicle that is not covered by collision insurance. This includes the following:
- Broken windows or windshields
- Hitting an animal
- Theft of the car
- Vandalism
- Weather occurrences
The comprehensive deductible, like the collision deductible, applies when you file a comprehensive claim.
Other types of coverage
Aside from full coverage, most insurance companies offer add-on coverages. Other types of coverage that may be available in your state may include:
- Gap insurance: This coverage is available to drivers who finance or lease their vehicles. If your car is totaled in an accident, gap insurance will pay the difference if the value of the totaled car is less than what you owe.
- New car replacement: If your car is only a few years old and you have full coverage, you may be eligible for this coverage. If your car is totaled, you will receive the value to replace it with the same year, make, and model, rather than the depreciated value.
- Roadside assistance: This coverage pays for assistance if your vehicle breaks down. Coverage varies, but typically includes towing, key lockout, bringing fuel, jump starting a battery, and tire changes.
Who is covered by my auto insurance policy?
Your car is insured for the people listed as insured drivers on your auto insurance policy. You are also covered if you give someone not listed or in your household permission to drive your car. Keep in mind that if they are involved in an accident, it will be covered by your insurance policy.
What does car insurance not cover?
Your auto insurance policy will specify what is and is not covered. There are a few things that car insurance does not cover:
- Damage in excess of coverage limits: When you buy car insurance, you choose the limits you'll pay for. The policy declarations page will outline your limits, which are the maximum amounts that your car insurance company is required to pay. The rest is up to you, which is why most insurance experts recommend purchasing as much coverage as you can afford.
- Specialty vehicles: High-value, exotic, performance, or vintage vehicles may not be covered under a standard auto insurance policy. Some companies provide specialty insurance policies that are tailored to the needs of these vehicles.
- Maintenance and repairs: Regular maintenance and normal wear and tear are not covered by car insurance. You are responsible for paying for the upkeep of your vehicle, including regular maintenance as recommended by the manufacturer. Some insurance companies may provide mechanical breakdown insurance, which may provide some protection.
- Rideshare: If you rideshare, there is a coverage gap in which you are not covered. Check to see what coverage the rideshare company provides and whether you need specific rideshare insurance.
Frequently asked questions
What is the best car insurance company?
The best car insurance company is one that meets your needs and requirements for coverage. It is possible that you will have to shop around to find the best insurance company for you.
How do I know how much car insurance I need?
After you've met the state's requirements, you can decide how much car insurance you need. Consider whether you require minimum or full coverage, as well as the best limits and deductibles. Once you've determined how much coverage you require, get quotes from several companies to find the best deal.