Nearly every driver in America is required to have car insurance. Auto insurance can help you avoid financial ruin, pay for your vehicle’s repairs, and cover your medical expenses after an accident.
Understanding the basics of car insurance can help you if you’ve never bought it before. An auto policy can include multiple coverage types, so it is important that you understand them all. Car insurance isn’t as complicated as it seems.
You will choose the coverages and amount you need when you buy an auto policy. Most states have specific requirements regarding the minimum coverage that you must purchase. This means you won’t be able to buy any coverage below what is required.
The Bankrate insurance editorial team can help you understand the most popular types of car insurance coverage. After we have discussed the coverage types, we will help you to determine which best coverage suits your needs.
These are the most popular types of car insurance
Most auto insurers offer basic coverage, along with optional endorsements that will enhance your protection. These are the most popular types of optional and standard coverages:
Liability insurance
Liability means you are legally responsible. Liability refers to injuries and damages you cause in a car accident. Standard auto insurance policies offer two types of liability : property damage and bodily injury.
Bodily injury liability
Your bodily injuries liability coverage will pay for the damages to other parties, as well as their medical expenses and lost wages. As long as the driver of your vehicle has permission, they are covered. If you rear-end another vehicle, and the driver sustains a broken leg, bodily injury liability coverage would cover x-rays, surgery, and any other medical care. It also covers time away from work. The minimum amount of bodily injuries liability that you are required to carry is set by most states.
Liability for property damage
Property Damage Liability covers any property damage you may cause to another person as a result of an auto accident. Property damage is usually a result of an accident with a vehicle, but it can also cover items such as fences, buildings or lamp posts. This coverage would pay for damages if you hit a pole accidentally or ran into a mailbox of a neighbor.
Your property is not covered by your property damage liability. You will need optional collision and comprehensive coverage to cover damage to your vehicle. You will need to have a homeowners renters, condo owners, or condo owners policy. However, some auto insurance companies may provide limited personal property coverage. You must also purchase minimum property damage liability coverage in most states.
Coverage for uninsured or underinsured motorists
This coverage covers your medical expenses in the event that another driver hits you. However, it does not cover liability or provide enough coverage to cover your injuries. This insurance covers you and any other covered drivers on your policy, as well as anyone who borrowed your vehicle, if you are hit by an uninsured or underinsured driver. Uninsured or underinsured motorist coverage is similar to a liability policy that protects you against uninsured drivers. This coverage is similar to liability, but it covers your vehicle’s damage.
You can be covered by uninsured or underinsured motorists if you’re a pedestrian, or if the at-fault driver flees the scene. Depending on your state’s regulations, uninsured or underinsured motorist coverage might be mandatory or optional.
Vehicle coverage
You may also want to consider additional coverage options for your vehicle. These include collision and comprehensive. Although these coverages aren’t required by law, lenders will most likely require them if your vehicle is under a loan or lease. Talking with an agent to get a quote on collision and comprehensive coverage can help you decide if it is worth the additional protection.
Collision
This coverage pays for the repair of your car if it is damaged in an accident. Collision coverage may cover damage to your car if you hit another vehicle, a pole or a tree. If you are not responsible for the accident that caused damage, your repairs will be covered by the at-fault driver’s liability for property damage. Collision coverage applies only to your vehicle and does not include damage to other drivers’ cars.
Collision coverage doesn’t cover mechanical failures or normal aging. For example, if your transmission fails, you cannot use collision insurance to fix it. This coverage is not required unless you have a car loan or lease. This coverage is relatively affordable and can provide financial protection to repair or replace your vehicle in case of an accident.
Comprehensive
Comprehensive coverage, also known as “other than collision coverage”, covers many types of losses that are not related to a collision. It can also cover damage from vandalism, theft and fires. Comprehensive coverage can pay for damages if your vehicle is set on fire or left outside by hailstorms.
According to the Insurance Information Institute (Triple-I), comprehensive coverage is typically optional and costs less than $200 per year. Your financial institution will likely require you to have comprehensive coverage if you have a vehicle loan or lease. You may also want to add comprehensive coverage to your policy if your vehicle has a higher value.
Property damage by uninsured motorists (UMPD).
If you are struck by an uninsured motorist, your property damage coverage (UMPD) will cover it. This coverage will typically cover your vehicle’s damage, but it may also cover any damage to your car or property from an uninsured driver. Uninsured motorist coverage is required by many states. This covers both bodily injury as well as property damage. However, you can usually decline this coverage in writing. UMPD coverage is not available in every state. There may also be a small deductible. This usually ranges between $100 and $300. Talk to your auto insurance agent about the process for a property damage claim by an uninsured motorist if you are unable to purchase UMPD. Your collision coverage can be used by many companies to cover your damages.
Additional coverage
Coverage for medical payments (MPC).
MPC (Medical Payments Coverage) covers injuries sustained by you or any passengers in your car during an accident. MPC only pays for injuries resulting from auto accidents. It does not usually cover lost wages. You may also be covered if you are pedestrian struck by a motor vehicle.
The maximum amount that your insurance company will pay for medical expenses is limited. This limit is usually per person. If you have $5,000 MPC, you will have $5,000 coverage per person. A licensed agent can help you determine the amount of medical payments coverage that you require.
Personal injury protection (PIP).
Personal Injury Protection (PIP), covers you and any person riding in your vehicle for injuries, regardless of who caused them. This type of insurance may be required if you reside in a state with no fault. You are not legally required by law to have PIP if you reside in an at fault state. However, you may be eligible to purchase it to provide additional protection. PIP, similar to medical payments coverage may also cover rehabilitation and funeral expenses. If you are unable to complete your tasks because of injuries from an accident, PIP could also provide work loss benefits and other non-medical expenses such as childcare or household services.
Gap insurance
Even new vehicles, particularly, can lose value as soon as they are removed from the lot. Your loan amount may be greater than the vehicle’s market value due to depreciation. Gap insurance is a simple policy that covers the difference between your vehicle’s depreciated price and your loan amount.
Gap insurance can often be obtained from your lender. However, it is sometimes possible to purchase gap insurance from your insurance company as an endorsement for your auto insurance policy. Your insurance company may restrict the age of a vehicle that is eligible for gap insurance. Gap coverage can be provided for new vehicles or older models. The Triple-I warns you that gap insurance provided by lenders can be more costly than buying it through your auto insurer.
Replacement for a new car
Your auto insurance may offer new car replacement coverage if your vehicle is older than one year. The value of new vehicles is rapidly declining. Without this coverage, your claim settlement may not be enough to replace your vehicle with a comparable model. The new car replacement endorsement covers the difference in the vehicle’s value and the cost of buying a comparable new car.
Roadside assistance coverage
Most auto insurance companies offer towing coverage. It is almost always an optional option. Towing and other service calls are covered by roadside assistance, also known as towing coverage. This coverage will pay for towing and gas costs if your vehicle is damaged or dies.
Rental car coverage
Contrary to popular belief this coverage does NOT automatically cover your rental car while you are on vacation. However, if your coverage includes comprehensive and collision coverage your vacation rental vehicle may still be covered. Rent-a-car coverage covers the cost of renting a vehicle for a period when your vehicle isn’t able to be driven due to covered losses. Two numbers are usually separated by a slash to indicate the coverage. The first number represents the daily limit, while the second the total limit. If you see a limit of 30/900, your company will be charged $30 per day and up to $900 for a rental car. Many companies offer different coverage limits, so you can select the right limit for your requirements. Let’s say you require a vehicle that can seat six people. You may consider increasing your car rental limit to allow you to rent a vehicle that seats six people.
You should know that most rental companies have a limit on how many days they will pay for your car. This is to encourage you to get a replacement vehicle in a reasonable amount of time if your vehicle has been totaled.
How do I find the best coverage?
Many states require drivers to have certain minimum levels of liability coverage. Three numbers are used to indicate these minimums, such as 25/50/10 for liability insurance. In this example, the 25 indicates that $25,000 may be paid to one person for bodily injury. In this example, the second number refers to the maximum accident payout of $50,000. In this example, the third number refers to property damage maximum payments of $10,000.
Although state minimum coverage can help keep your premiums down, it can leave you vulnerable to financial stress in the case of an at-fault incident. If the damage to your vehicle is greater than your insurance limits, then you will have to pay the difference out-of-pocket. The state minimum coverage does NOT cover damage to your vehicle. It may also not include PIP or medical coverage. To complete your policy, you may consider adding optional coverages or higher liability limits to your coverage.
It is a great way to compare the different types of coverage and rates available with each provider. Talk to a licensed agent for assistance and receive quotes on different levels of coverage.
Questions frequently asked
Which is the best auto insurance company?
Every consumer will have a different best car insurer. Different drivers may need different discounts. Some will require specific coverage while others will prefer a wider range. Others will seek the lowest premium. Finding the right insurance policy for you starts with knowing what is most important to you. You can compare quotes from different auto insurance companies to get the coverage you need at an affordable price. Triple-I recommends that you get at least three quotes.
Do I need to adjust my coverage to include a teen driver in my policy?
You should include your teen driver as active driver to any policy that covers them if they have just obtained their driver’s licence. You should also add your teen’s vehicle to your policy if you have bought a vehicle. Because teens are less experienced on the roads, they can be costly to insure. It may seem tempting to reduce your auto insurance to save money when adding a teenager, but insurance professionals generally recommend against it. Teens are more likely to be involved in accidents because they have less experience. You can also save on insurance by adding a teenager driver.
How can I determine how much coverage I need
It is important to know how much coverage you need before purchasing auto insurance. Do you have a vehicle loan or lease? You will need full coverage, including collision and comprehensive, if you have a loan or lease on your vehicle. Most insurance professionals recommend that you buy limits greater than the minimum state requirements for liability coverage to avoid financial hardship in the event of an accident at fault. A licensed agent can provide several levels of coverage to help you choose the best level of protection for your needs.