Depending on the policy you choose, car insurance can provide financial protection in the event your car is damaged or stolen, you’re injured in an accident, or you’re at fault for an accident that causes bodily injury or property damage. Car insurance can also help you meet any minimum coverage requirements mandated by your state or required by a lender.
On this page we’ll cover some of the most common types of car insurance and offer some tips for deciding how much coverage you need and finding the most affordable car insurance available to you.
What Is Car Insurance?
Car insurance provides financial protection if you’re in a car accident, your vehicle is damaged in a non-collision event (e.g, a falling tree, hail, etc.), or your car is stolen. In exchange for a premium – the amount of money you pay for your policy – the insurer will pay for covered expenses. Depending on the type of policy you choose, this can include property damage or bodily injuries you or another driver or passenger sustained.
Every policy is based on limits, or the maximum amount the insurance company will pay on a claim. Some types of coverage also carry deductibles, or the amount you have to pay before the insurer will cover remaining costs.
There are several types of car insurance available, and you can customize a policy to get the insurance coverage you need.
Kinds of Car Insurance Coverage
Liability coverage pays for costs associated with an accident for which you’re found legally at fault. Liability insurance generally includes two types of coverage:
• Bodily injury: This covers the expenses related to injuries or death for others (e.g., another driver, their passengers, or a pedestrian) when you are at fault.
• Property damage: This covers the expenses for repair or replacement of others’ property (e.g., fencing, a home, etc.) you damage when operating your vehicle.
Most states require drivers to carry a minimum amount of liability coverage before they can register and operate a vehicle in that state. You can find out how much liability coverage you need by visiting your state’s Department of Motor Vehicles (DMV) or by visiting our Site for guide.
Uninsured Motorist Coverage
Uninsured motorist coverage provides financial protection if you are hurt in an accident and the other driver doesn’t have car insurance. Depending on where you live, this coverage may extend to cover property damage. Uninsured motorist coverage also pays if you are the victim of a hit-and-run.
Your state may require you to carry a minimum amount of uninsured motorist coverage. You may also want to consider underinsured motorist coverage, which typically pays the difference between your expenses and the policy limit of the driver at fault. However, in some states, underinsured motorist coverage is not applicable unless your underinsured motorist limits are greater than the liability limits of the other driver.
Personal Injury Protection (PIP)
Also called “no-fault” coverage, this insurance pays the medical expenses for you or your passengers if you are injured in an accident, regardless of who is at fault. PIP may also apply if you’re riding a bike and hit by a vehicle. In some cases, PIP coverage may reimburse you for lost wages and expenses for tasks you can’t perform while recovering such as house cleaning.
PIP is generally optional, and isn’t available in every state. However, some states, like New York and Texas, require drivers to carry PIP. As always, check with your state’s DMV to determine if PIP is available in your state and if you are required to carry it.
Medical Payments Coverage (MedPay)
Like personal injury protection, MedPay pays the medical bills for you and your passengers for injuries sustained in a car accident, regardless of who is at fault. However, unlike PIP coverage, MedPay does not cover any additional or related expenses, like lost wages. MedPay is only required in Maine and Wisconsin. Elsewhere, MedPay is optional coverage you can purchase with your standard auto insurance policy. However, it is not available in all states.
Collision coverage pays for repairs if your car is damaged during a car accident or if it collides with another object like a building or tree, even if you’re at fault. It may also cover damage from potholes.
Comprehensive coverage pays for damage to your car that occurs during an event that’s not a car accident or collision with another object. Examples of covered losses include hail damage, damage from falling objects, a cracked or shattered windshield, vandalism, or damage from an animal.. It also reimburses you if your car is stolen.
To ensure you have the coverage you need, many auto insurance companies offer additional insurance add-ons and policies for purchase, including:
• Roadside assistance: If you have a flat tire, need a tow, or are locked out of your car, this coverage reimburses you for services to get you moving again.
• New-car replacement: This type of coverage will pay to replace a totaled vehicle with a new one of the same make and model. Coverage is typically limited to vehicles that are relatively new – two years old, for example – but the cutoff varies by insurer.
• Mechanical breakdown insurance: If your car breaks down and your manufacturer’s warranty doesn’t cover the repairs, this coverage will.
• Rental reimbursement: This add-on will cover the cost of a rental vehicle while your car is undergoing repairs.
• Rideshare insurance: If you drive for a ridesharing company, this insurance provides additional coverage if you’re in an accident while working.
• Gap insurance : If your car is deemed “totaled” following an accident and you owe more on your car loan than the insurance company will pay, gap insurance will pay the difference.
How Much Car Insurance Do I Need?
To determine how much car insurance you need, start by looking at your state’s requirements. Most states require drivers to carry liability insurance, but some require additional types of coverage, like uninsured motorist coverage or PIP. Similarly, If you finance or lease your vehicle, it’s also best to check with the lender or lesser to determine what type and amount of coverage is required as part of your loan or lease agreement.
Keep in mind these are starting points and insurance coverage needs vary. If you don’t feel you’d be able to afford liability, medical, or legal expenses after an accident, it’s a good idea to consider purchasing a policy that will protect your assets.