Car Insurance Coverage Explanations


Most types of car insurance coverage help pay for one of three types of expenses:

  1. Repairs for your own car
  2. Other people’s hospital and repair bills that you’re responsible for
  3. Your own medical bills

There isn’t one type of coverage that will cover all three of these expenses. Instead, policies are broken up into different coverage types. Each type covers different costs, and together they protect you, your family, and your car.

The following table breaks down the most common types of expenses that car insurance covers and the coverage types that will pay for them.

Expense

Coverage that Helps Pay for this Expense

Repairs for your car

Collision

Comprehensive

Uninsured motorist property damage

Other people’s medical and repair bills that you’re legally responsible for

Bodily injury liability

Property damage liability

Your medical bills

Personal injury protection (PIP) / medical benefits

Medical payments (med-pay)

Uninsured/underinsured motorist coverage

Towing and roadside assistance Roadside assistance
Renting a car while yours is being repaired Rental coverage
Paying off the loan balance on a totaled car Loan/Lease Payoff

The list above shows only the most common coverage types. There may be additional options available in your state.

When you’re choosing your coverage, you need to know which coverage to buy and how much to buy. Also, you need to be aware of any coverage exclusions. Keep reading for details.

Which Coverage to Buy

Required Coverage

Some coverage you have to buy, and the reason is that every state sets certain standards that all policies must meet. Those standards include what types of coverage policies must provide and how much protection they must include. The standards vary across the country.

The following table shows the most common required coverages, what they pay for, and where they’re mandatory.

Coverage type

What does it cover?

Which states require it?

Property damage liability Other people’s repair bills that you’re legally responsible for. All
Bodily injury liability Other people’s medical bills that you’re legally responsible for.

All except:

Florida

New Jersey

Personal injury protection (PIP)

Your medical bills and the medical bills of anyone else covered by your policy.

Some states require insurers to offer additional PIP benefits, like compensation for lost wages.

Florida

Hawaii

Kansas

Kentucky

Massachusetts

Michigan

Minnesota

New Jersey

New York

North Dakota

Oregon

Pennsylvania

Utah

Optional Coverage

In addition to required coverage, there are optional coverages you can add on to your policy. Adding optional coverage usually increases your premium, but it also increases your protection.

When you get quotes through AutoInsurance.com, you can adjust your coverage selections to see how they affect your quotes.

Comprehensive & Collision

Comprehensive and collision are very popular coverage types. They both cover repairs for your car. Many people purchase comprehensive and collision. In 2011, 76% of policies included comprehensive coverage, and 71% included collision.

Why are they so popular? One reason is some lenders require people who take out car loans to add them to their policy. Another reason is that state-required coverage won’t cover damages to your own car. That means if you cause an accident and don’t have collision coverage, you’ll probably have to pay for your own repairs. That makes it valuable protection to have.

Both comprehensive and collision pay for repairing or replacing the car that you’re insuring. The difference between the two is the types of damage they cover.

Collision kicks in when the damages are from:

  • Pretty much any type of collision, except when it involves an animal. It should also cover damages from hitting a pothole.

Comprehensive kicks in when the damages are from:

  • Theft
  • Weather events like hail or windstorms
  • Vandalism
  • A collision with an animal
  • Other incidents not involving a collision

You must choose a deductible when buying collision and comprehensive. Read the “How much coverage to buy” section on this page to learn about choosing a deductible.

Other Optional Coverages

Your coverage options depend on what state you live in. Here’s information on some of the most common.

Uninsured/underinsured motorists bodily injury (UM/UIM)

This is actually required in some states, but it’s optional in most.

It pays your medical bills and the medical bills of your family and passengers after a crash. It does so when:

  1. The crash was caused by a driver who doesn't have insurance or fled the scene of the accident.
  2. The crash was caused by a driver who has insurance, but not enough to cover all your medical bills.

You may also purchase uninsured motorist coverage that pays for repairing your car in these situations.

Medical payments

It helps pay for the medical bills of people covered by your policy. You may want to add it if you don’t want to rely on your health insurance coverage after a crash.

Rental reimbursement

It pays for the cost of renting a car after an accident. This may be unnecessary if you have an extra car.

Towing

It pays for towing and labor due to a mechanical breakdown. This may be unnecessary if you already have a membership with AAA or another association that provides roadside assistance.

Loan/Lease Payoff

If your car is totaled, it pays the difference between your insurer’s payout for the totaled car and the remaining balance on its loan or lease. This is unnecessary if your car is paid off or was not financed. It also may be unnecessary if the remaining amount on your loan is small.

How Much Coverage to Buy

Once you decide which coverage to buy, the next step is to determine how much you want. Two choices you’ll have to make are limits and deductibles.

When you get quotes through AutoInsurance.com, you can adjust your coverage limits and deductibles to see how much protection can fit into your budget.

Limits

Certain coverage types require you to choose a limit. The limits you choose represent the highest amount your insurer will pay after a crash. If the costs go over those limits, you’ll probably have to pay for them on your own.

You’re required to choose a limit for the following common coverage types:

  • Bodily injury liability
  • Property damage liability
  • PIP / Medical benefits
  • Uninsured/underinsured motorist
  • Medical payments
  • Rental reimbursement
  • Towing

State laws set the minimum limits that every policy must provide, but they’re often inadequate. They’re “too low to fully cover you if you cause a serious accident,” according to the National Association of Insurance Commissioners. Keep that in mind when choosing your limits. Getting higher limits will probably be a little more expensive, but you’ll also be better protected.

Understanding & Choosing Your Liability Limits

When you get liability coverage, the limits will be written out similar to this format: 100/300/50.

The first two numbers (100/300) represent the portion of your liability coverage that pays for medical bills. The first number ( 100) means your insurer will pay at most $100,000 for one person’s injuries after a crash. The second number (300) means your insurer will pay at most $300,000 for all injuries after a crash.

The third number (50) represents the property damage liability portion. In this case, it means your insurer will pay at most $50,000 for all property repairs after a crash.

“The industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident,” according to the Insurance Information Institute.

Remember, liability pays for other people’s damages, not your own. Still, it’s important to have adequate liability limits. The reason is if you cause a crash and the hospital and repair bills are higher than your limits, you may have to pay for the remaining expenses yourself.

Deductibles

A deductible is an amount you have to pay before your insurer will pay your claim. Deductibles usually apply to coverage that pays for repairing your own car. (They may also apply to PIP, depending on what state you live in.)

Coverage that pays for repairing your own car works a little differently than the coverage types we mentioned in the previous section. With these, you don’t choose a coverage limit. The limit is the actual cash value of your car.

Instead of choosing a coverage limit, you choose a deductible. You must choose a deductible for the following common coverage types:

  • Collision
  • Comprehensive
  • Uninsured motorist property damage

Deductibles usually range from $0 to $1,000. For collision coverage, most drivers choose a deductible that’s between $251 and $500, according to a report from Verisk Analytics . According to Verisk, about two-thirds of drivers with collision had a deductible in that range in 2010.

When you choose a deductible, keep in mind that your choice will affect two things:

  1. The amount you pay for your coverage.
  2. The amount you’ll have to pay to get repairs covered.

You have to choose what’s best for your financial situation: Paying a little more now to pay less when you have a claim, or paying less now but having to pay more when you have a claim.

Understanding Coverage Exclusions

All personal auto insurance policies come with exclusions. Exclusions usually list specific people or situations what your insurance policy won’t cover.

Excluded Situations

Most personal policies automatically exclude coverage for certain situations. Here’s a couple common ones:

Commercial Use

If you get into a crash while using your car for business purposes, your personal car insurer probably won’t cover the claim. If you want coverage for these situations, you’ll need to make special arrangements with your insurer.

Intentional Damage

If you cause a crash on purpose, your insurer will likely deny any claims related to the crash.

Excluded Drivers

You may want to exclude certain drivers who have access to your car. The reason you might do this is to keep your prices low. You should only exclude a driver if you know he or she will never drive the insured car.

Here’s an example of why you might want to exclude a driver: Let’s say you’re middle-aged and own an expensive sports car. You also have a 16-year-old son living in your house. Having both a sports car and a teenage driver on your policy is a recipe for high insurance costs. But if the teenager won’t be driving the sports car at all, you could lower your costs by excluding him from the sports car’s coverage. That will stop his lack of experience from driving up your rates. Remember, though, that if he does end up behind the wheel, any accident he gets into would not be covered by your policy.

How AutoInsurance.com Helps You Choose Coverage

You have a lot of coverage decisions to make, and they can be overwhelming at times. AutoInsurance.com tries to make this task as easy as possible. We do so in the following ways:

Help Content

We provide help content directly in our quote form. If you are unsure whether you want to add a particular coverage, just click the question mark next to its name. This will bring up information about that type of coverage: what it is, how it will affect your quote, and guidance on how to choose. With our help, you’ll know exactly what’s covered by your policy.

Experiment with Different Coverage Selections

We let you play around with your coverage options. Once you have your initial quote, you can add or remove coverage and lower or raise your limits. When you do so, your quotes will adjust automatically. That way, you can see how much coverage fits into your budget.

Licensed Agent Assistance

While you’re getting your quote, you can ask our licensed agents any questions you have. You can call the phone number in the upper-right corner of your screen to talk over the phone. You can also open the “Live Chat” box in the bottom-left corner of your screen to chat with an agent online without leaving the form.

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Did You Know?

Coverage for theft and damage

Coverage for theft and damage to your own vehicle isn’t required by law in any state. You have to add those coverage types to your policy if you want repairs for your own car to be covered.

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