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Your car insurance policy may only be top of mind when you need it most, like in the event of an accident, but understanding your coverage ahead of time may ensure you’re sufficiently covered. There are several different car insurance policies and coverage types, each designed to kick in in different scenarios. Bankrate’s insurance editorial team aims to help you understand what car insurance covers, how to meet your state’s requirements, the coverage options available and how to find the right car insurance company for you.
How does car insurance work?
Car insurance protects drivers financially in the event of an accident or another type of covered incident. If you are responsible for an accident and cause someone else’s injuries or damages, liability coverage typically covers the costs related to the accident, up to the policy limit. But even if you don’t cause the accident, your car insurance may also cover damage to your vehicle, though it will depend on the type of coverage included in your policy.
Car insurance is required to drive legally in almost every state, so it’s important to maintain at least the state-required minimum car insurance policy even if you don’t think you need it. Driving without car insurance may result in a fine, license suspension or even jail time depending on the state you live in.
Every state has its own car insurance requirements, but the typical car insurance policy consists of several types of coverage. When buying a car insurance policy, you may be able to select a range of coverage options. Based on the coverage you select, your insurance company will pay up to a certain limit per coverage type or cover certain types of damage. Car insurance may financially protect you if you are injured, the other party if they are injured or if you cause property damage to your car or someone else’s.
Some car insurance coverage types have a deductible, while others do not. A deductible is how much you pay out of pocket for a covered claim. Essentially, the deductible amount reduces the payout amount the insurance company pays. You can increase or decrease your deductible amount depending on your needs and financial situation.
Additionally, you could raise your coverage limits to reduce your financial risk in the event of an accident. Having higher limits could offer substantially more financial protection and may not require significantly higher car insurance costs.
Minimum liability coverage
Minimum liability coverage is the least amount of coverage you can buy as legally required by your state. Each state has its own minimum coverage requirements, but almost all of them require a certain amount of liability insurance. On average, minimum coverage costs $622 per year nationally. Depending on the state, you can decline certain car insurance coverage types, even when offered.
Bodily injury liability
Bodily injury liability pays for the other driver and their passengers’ injuries if you cause an accident. This coverage helps pay for their 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, but there is a coverage limit. If you exceed your coverage limit, you’re responsible for the additional costs.
Property damage liability
If you cause an accident and damage someone’s property, property damage liability would pay for it. Property damage is most often caused to someone’s vehicle, but could also be a fence, mailbox, utility pole, guard rail or building. Just like bodily injury liability, this coverage is usually required and has a coverage limit, but does not have a deductible.
Uninsured and underinsured motorist coverage
Though not required in all states, uninsured motorist coverage and underinsured motorist coverage financially protects you if someone hits you and does not have any insurance or enough coverage to pay for your injuries and, in some cases, property damage. Uninsured motorist coverage may have the same limits as your liability coverage, but they can also differ depending on the amounts you choose and what is available in your state.
In some instances, uninsured motorist coverage may apply to a hit-and-run accident, when another driver is at fault and leaves the scene without providing insurance information. In the case of a hit-and-run, there may be stricter stipulations about how soon you have to report the accident and file a claim. Additionally, some states prevent the coverage from applying in cases where the at-fault driver is unidentified.
Personal injury protection
Personal injury protection (PIP) is required by some states, though some allow you to waive coverage. PIP insurance pays up to your coverage limits if you or your passengers are injured in an accident, regardless of fault. It also covers you as a passenger in someone else’s vehicle. If you include PIP coverage on your car insurance, it may cover:
- Medical costs
- Lost wages
- Funeral expenses
- Household services
Childcare and household services are only covered if 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
Medical payments coverage pays for medical expenses you incur if you are injured in an accident, regardless of fault. If you select this coverage, it follows you when you are walking, riding a bike, on public transportation, driving your own car or someone else’s or if you are a passenger. Like PIP, there is no deductible to pay for coverage, but you have a coverage limit. Medical payments coverage is available in states where PIP is not offered.
Full coverage car insurance
With minimum liability coverage, you miss out on physical damage coverage for your own car. If you want the insurance company to pay for repairs to your car in a covered claim, consider full coverage car insurance. If your vehicle is financed or leased, you will likely be required to carry full coverage. The national average cost of full coverage car insurance is $2,014 per year.
However, your rate may differ based on your driving history, location, coverage types and selected deductibles.
Collision coverage pays for the damage to your car caused by hitting another vehicle or object, regardless of fault. A deductible will apply to this coverage based on the amount you select.
Comprehensive coverage, also called other-than-collision coverage, pays for the damage to your car not covered by collision. This includes:
- Broken windows or windshields
- Hitting an animal
- Theft of the car
- 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 add-on coverage types to round out your policy’s coverage. While options vary by state, other types of coverage could include:
- Gap insurance: This coverage is for new vehicles that are financed or leased. If your car is totaled in an accident or stolen and unrecoverable, gap insurance would pay the difference between your totaled car’s worth and what you owe.
- New car replacement: If your car is only a few years old and you have full coverage, you may qualify for this coverage. With 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 assist you if your car breaks down. Coverage varies but usually includes towing, key lockout, bringing fuel, battery jump start and tire changes.
- Rental car coverage: If your vehicle is under repair due to a covered claim, your insurance can help pay for a rental car.
Who is covered by my car insurance policy?
The people listed as insured drivers on your auto insurance policy are covered to drive your car. If someone not listed on your policy has permission to temporarily drive your car, they are also usually covered. This is called permissive use. For example, if you let your neighbor drive your car and they get into an accident, your insurance policy will likely cover the damages as if you were the driver of the vehicle. Keep in mind that if they get into an accident, it falls under your insurance policy and can affect your insurance premiums. Also, insurance companies have different criteria for what is considered permissive use, so before you hand over your keys, check with your company to ensure the driver is covered.
What does car insurance not cover?
What does car insurance cover and exclude? To find out, check your auto insurance policy for details regarding what is and is not covered in your policy. There are a few things that are not covered by car insurance with many insurance companies:
- Damage beyond coverage limits: When you purchase car insurance, you choose coverage limits. The policy declarations page will outline your limits, which is the maximum amount your auto insurance company must pay in a covered claim. You handle the rest of the expenses out of pocket, so most insurance experts recommend buying as much coverage as you need to be financially protected.
- Specialty vehicles: High-value, exotic, performance or vintage vehicles may not be eligible for coverage or properly covered under a standard auto insurance policy. Some companies offer specialty insurance policies tailored to meet the needs of these types of vehicles.
- Maintenance and repairs: Car insurance does not cover your vehicle’s maintenance and normal wear and tear. You are responsible for keeping your car running, including regular maintenance the manufacturer recommends. Some insurance companies may offer mechanical breakdown insurance, which could provide some coverage.
- Rideshare: If you rideshare, there is likely a gap in coverage where you are not covered when not actively completing a ride. You should check to see what coverage the rideshare company provides and consider what personal rideshare insurance you could purchase to offer more financial protection.
- Delivery: If you use your car for delivery purposes, like delivering pizzas, your car insurance will likely not cover any damages that occur while driving for hire. Driving for hire is any driving you do with your personal vehicle that earns you money. Some insurance companies offer delivery coverage on your personal policy, or a commercial policy, for these purposes.
- Racing: If you damage your car while racing or participating in other motorsports, standard auto insurance will not cover the damages. This includes racing on the street or highway with another driver or on a racetrack.
- Illegal activity: Illegal activities directly related to the cause of a car insurance claim would not be covered. For example, if you were found guilty of insurance fraud by intentionally staging an accident, your claim would be denied and you could even face jail time.
Frequently asked questions
When searching for the best car insurance company, you should consider your wants and needs from an insurance company and policy. Each driver has unique needs, like taking part in rideshare or meeting lender requirements, so it is important to find a company that can honor your needs. To find the best car insurance company, consider getting quotes from different carriers to compare coverages, discounts and rates for your personal and household criteria.
Most states have minimum coverage requirements, which can help you determine how much car insurance you need. You must meet at least the minimum requirements in your state to legally drive. However, many drivers may need full coverage if their vehicle is financed. Other drivers may also want additional optional coverages, like rental car reimbursement and roadside assistance. Consider which coverage types you need and what coverage amounts will protect you financially before researching insurance companies, so you can work with a company with the type of car insurance coverage you need. Licensed agents will know the minimum requirements for your state, so speaking with one can ensure you are confident in your coverage amounts.
Depending on the coverage you have on your vehicle, you might be able to file an insurance claim if you damage your car. Collision coverage is typically used when you are at fault in an accident, and your car is damaged. Collision insurance will pay to repair your car or replace it based on its market value, less your deductible amount. Remember that your auto insurance policy does not cover intentionally damaging your car.
Some people may consider paying out of pocket for a car accident to avoid a premium increase, but this decision should be made thoughtfully. If you’re involved in an accident with another person and agree to pay out of pocket, the other driver could still file a claim later. If the other person decides to file the claim, not only will you be on the hook for you’ve already paid out of pocket, but the claim would still count against you.
However, if you get into a car accident that only involves your vehicle and only results in minor damage, paying for the repairs yourself may make sense if the bill is lower than your collision deductible. In general, insurance professionals agree that you should file a claim for most accidents unless they result in no injuries and very little damage.
Yes, standard auto insurance includes theft and vandalism coverage as long as you carry a full coverage policy. Your comprehensive coverage would cover both your vehicle and parts if they were stolen, as well as damage to your vehicle caused by the thieves. Personal property within your vehicle is generally not covered unless you add an endorsement for it, but it may be covered by your homeowners or renters insurance.