What Does Car Insurance Cover?

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Learn about the different types of car insurance coverage and how they protect you financially after an accident.

Car insurance is designed to protect you from the financial burden of paying for any medical bills or repairs after an accident. While most states require minimum liability insurance, insurers may offer other types of insurance. You should research the requirements in your state to determine which type of car insurance you need.

Your state’s minimum coverages and limits will be included in your car insurance policy. While minimum car insurance requirements vary by state, the main types of insurance coverage you could be required to get are:

  • Liability insurance covers expenses resulting from an accident that you are responsible for. This insurance typically covers bodily injury liability as well as property damage liability.
  • No matter the fault, you can get personal injury protection (PIP), or MedPay to pay for your medical bills after an accident.
  • Uninsured or underinsured motorist coverage pays for damages caused by drivers who don’t have car insurance or do not have enough.
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Insurance coverage for car accidents.

The coverage you choose will affect how your car insurance works. Each car insurance policy pays out differently so let’s take a look at how each type of coverage works.

Insurance that covers liability protects you from any damage you may cause

Liability insurance covers the costs of any injuries, deaths, damages or consequences resulting from a car accident. Except for New Hampshire and Virginia which require liability coverage, all states require it.

These are the two types of auto policy liability coverage:

  • Liability for bodily injury. This coverage covers injuries and deaths that you cause due to an at-fault accident.
  • Property damage liability covers the repair costs of a vehicle that you or someone driving your vehicle hit and any property damage you cause, such as fences or buildings.

The coverage of liability in a policy is often expressed using three numbers, such as 100/300/50. This includes:

  • For every person who is in an accident, $100,000 for bodily injury.
  • $300,000. Per accident for bodily injury.
  • $50,000 per accident for property damage
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Your policy limits will cover your car insurance. You will then be responsible for any additional costs.

Scenario: Two people are in a car and you rear-end it. Although there aren’t any serious injuries, both victims experience whiplash and visit their doctors. A dented bumper was also found on the car. Your liability coverage covers both the cost of the bumper repair (bodily injury), and for doctor visits (bodily injuries).

PIP and MedPay provide coverage for your injuries, regardless of fault

No matter the fault, personal injury protection or medical payments will cover your medical expenses following a car accident. They also pay for medical expenses of passengers who are injured.

Personal injury protection, sometimes called “no-fault insurance” may also cover lost wages due to injuries from an accident, child care or funeral costs.

Scenario: A passenger and you are driving together when you get into an accident. Both of you are injured, and you end up missing a few weeks from work because of your injuries. Your policy covers PIP because you live in a state of no fault. This pays for your hospital bills as well as your lost wages.

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When the at-fault driver isn’t insured, uninsured or underinsured motorist coverage covers them.

Uninsured motorist coverage covers the costs incurred by an uninsured driver who hits you. Uninsured motorist coverage may also be available in some states if there is an accident with an uninsured driver. According to an Insurance Research Council 2017 study, 1 out of 8 drivers don’t have car insurance.

Many states have minimum requirements for uninsured and underinsured motorist coverage. It’s important to understand how these types of coverage work.

  • Comprehensive and collision coverage cover your vehicle in the event of damage.Collision and comprehensive insurance are optional in every state, but may be required by your contract if you financed or leased a vehicle. They will either repair your vehicle or reimburse you for the value of it if it is stolen or damaged beyond repair. This includes your deductible.Here’s how they work.
    • Collision insurance pays for damage to your car after an accident, regardless of who was at fault. It also covers pothole damage.
    • Comprehensive insurance pays out if your car is stolen, or damaged by anything other than car accidents. This covers damage caused by storms, floods and falling objects, earthquakes as well as vandalism and contact with animals, such a hitting a deer.
    Comprehensive and collision coverage comes with a deductible. This is the amount you have to pay before your insurance company pays. Your premium will drop if you select a higher deductible.Scenario: Your car is hit by a deer, causing damage to its hood that amounts to $3,000. The mechanic will pay your comprehensive insurance deductible of $1,000. Your insurer will cover the $2,000 remainder.If you total a new car or lease, your gap insurance will pay outThe car’s current value drops as soon as it leaves the lot. This is faster than the loan balances. If you total a new car that has not yet been paid off, gap insurance will cover the difference between what the car is worth and how much you owe on your auto loan.The leasing company may require that you have gap insurance if you lease a car. The car dealer will usually provide the gap insurance and it will be included in the lease payment. This means that you will have to pay interest for coverage you can usually get cheaper through an insurance company.Scenario: If you are in an accident, your car is totaled and you owe $20,000 on the auto loan. Your collision coverage would cover the car’s total market value, less your deductible. This is approximately $18,000. Your car insurance company would cover the $2,000 remaining on your auto loan if you have gap coverage.Additional coverage optionsThere are many options available, and they don’t usually cost much, but may be useful in an emergency. To be eligible for most additionals, you will need to have collision and comprehensive.
    • After a covered claim, rental reimbursement covers the cost of a car that is being rented while it is in the shop.
    • Roadside assistance, or towing and labor coverage, provides help if you break down and need a battery jump, flat tire changed or your car towed to a repair shop.
    • New car replacement insurance works similarly to gap insurance and will pay for the value of a new car if yours is totaled in an accident. Many insurers offer only one type of coverage.
    • Without a deductible, full glass coverage covers the cost of replacing or repairing chipped or broken windows without additional costs.
    • Rideshare insurance will cover you when you are driving for a rideshare service such as Uber or Lyft.
    After you have decided on the coverage you need, it is important to compare rates and shop around for car insurance. Compare car insurance from several companies, at least three, to help get the best bang for your buck for whichever coverage you choose.