Auto insurance—you hate to pay for it, but you might love it when you get into an accident. It's required in all 50 states, but each state applies it differently.
Car insurance is more than coverage for your sweet ride. It includes protection for several different things, each focusing on different areas. Below, you'll find out more about what your auto coverage does and whether it is right for you.
You should care about auto insurance coverage for two reasons.
First, you are legally obligated to have it. Liability coverage is required in all 50 states, and some states require extra coverage on top of that.
The second reason: it protects you from potential exposures. Here are some examples:
Car insurance can be pretty helpful whether you're avoiding lawsuits, vehicle damage, injuries, or inconvenience. When you make a claim (use your insurance), your claims adjustor can feel like your best friend. But, that's only if you have the right expectations of your coverage.
Your declarations page details the different kinds of coverage your vehicle has. Typically, these coverage declarations are between pages one and five. If you're curious about the types of coverage you have, ask your insurance provider for this page.
Insurance companies are legally required to provide this page upon your request. You can also find this page on your insurance company's website.
Insurance companies also provide a full coverage breakdown of your current auto insurance policy upon request. If you ask for this document, expect something that is 50 pages long (or exceeds it). That's a lot of reading (and jargon) to get through.
Thankfully, this article doesn't have the same issue.
Across the 50 states, car insurance companies don't require you to have all of these coverages. In fact, many states only require one type of coverage: liability. Everything else is just icing on the proverbial insurance cake.
But, when you really need it, that icing can make a major difference. So, let's review your options.
Liability coverage is legally required in all 50 states. Without it, you can't drive your vehicle on a public road, which makes it difficult to get around. After all, most roads are public roads.
Liability comes in one of two forms: Bodily Injury (BI) and Property Damage (PD). Both coverages apply when you're at fault for an accident. So, this coverage will pay out to affected parties outside of your vehicle.
Bodily Injury Liability pays for injuries to affected parties due to an accident you're at fault for. So, if you break someone's leg during a vehicle collision, your BI coverage covers the repair of that leg. It might also pay for physical therapy to help bring the person back to where they were before the accident.
BI coverage is typically paid out on a per-person, per-accident basis. For example, the minimum coverage in many states is $25 thousand per person and $50 thousand per accident. That means if one person has more injuries than $25 thousand will cover, you'll have to pay the excess. The same applies when you exceed the coverage for a group of injured people (per accident).
Property damage liability pays for damage to property due to an accident you caused. So, if you break someone's fence or destroy their car's front bumper during an automobile collision, this coverage pays out to the affected party.
Property damage liability is a bit simpler. It pays out for all damage on a per-accident basis. The minimum across many states is $15 thousand. Like BI liability, if you exceed this limit, you'll have to pay the difference.
If the other party is at fault, their liability coverage should pay for your damages. But you need evidence to make this claim. That's why it's good advice to call the police and have them make a report.
Its an insurance company's job to represent you during these situations. So, if you provide your company with a police report, they should handle this process for you.
These next two coverages come in handy if you choose (or have) to make a physical damage claim against your insurance.
Collision coverage applies only to your vehicle. It's an optional coverage for your auto insurance policy that helps you repair or replace your vehicle if it's hit. You can often find it labeled as "COLL" on your insurance policy.
The benefit of collision coverage is that it doesn't care who is at fault for an accident. You can use it regardless of whether it's you or the other party. But, if the other party is at fault, you might choose to use their property damage liability instead.
Claims can increase the cost of insurance, so claiming against another insurance can keep yours at a lower rate. There's no guarantee of this (insurance rates change all the time), but it's a good rule to follow.
Collision coverage requires a deductible, which is a payment you must make to "activate" your coverage. When you pay your deductible, your insurance company will cover any cost in excess of your payment. Property damage liability doesn't require a deductible.
Deductibles range from $100 to $2,000, with some states only allowing up to $1,000. The lower your deductible, the more you pay for this coverage.
Collision coverage also applies if your vehicle is hit by a telephone pole, a neighbor's wall, or the ground. Although, most of these cases involve the driver doing the hitting. However, if your vehicle is parked, uninsured motorist coverage applies.
For everything else, there's comprehensive.
Comprehensive coverage, also known as "COMP" coverage, is your "everything else" coverage when it comes to vehicle damage. It applies to a variety of different situations, covering your vehicle if it's damaged by non-collision damage.
When you hear about "full coverage," this usually refers to comprehensive insurance. Why? Comprehensive insurance requires you to have collision insurance as well. The "full" part comes from covering when your vehicle is damaged in almost any situation.
COMP also follows the same deductible rules above.
Here are some situations that apply to comprehensive insurance:
In some states, windshield coverage has its specific coverage. Insurance companies who offer this might waive the deductible (or reduce it) in the event you need to replace your windshield. This coverage is not available from all companies.
Comprehensive coverage won't cover you if the situation applies to collision. Beyond that, coverage stops when it comes to situations insurance companies define as "negligent."
For example, many insurance companies specifically exclude damage due to vermin. What's classified as vermin is a bit different in each state, but it includes rodents, insects, and some smaller mammals (like raccoons). So, if a rat chews through your vehicle's cables, it might not be covered.
Other potential exclusions include damage from regular wear and tear, cases of extreme negligence, and intentional damage. That last one is a form of insurance fraud, and it can lead to major fines and prison time.
When the other party doesn't have enough (or any) coverage, you can rely on UM/UIM. UM stands for Uninsured Motorist, while UIM stands for Underinsured Motorist. Like liability coverage, these protections come in two forms: bodily injury and property damage.
In 2022, about 14% of Americans didn't have auto coverage. So, if you get into an accident, there's almost a one-in-seven chance the other party won't cover you. This is why UM/UIM is so important. In fact, some states require that you have this coverage, just like liability.
UM, or uninsured motorist insurance, applies when the other party has no coverage for your injuries or property damage. It is particularly helpful when your parked car is hit, or you are involved in a hit-and-run situation. When you can't identify the other party who caused it, it's often assumed to be an uninsured motorist.
UIM, or underinsured motorist coverage, applies when the other party doesn't have enough coverage for your injuries or property damage. If you live in a state where you can't find this coverage on your dec page (short for declaration's page), it's often built into UM coverage.
Typically, these coverages are matched to your liability insurance limits by default. The bodily injury portion of this coverage also works like liability insurance, covering you on a per-person, per-accident basis. Once you exceed these policy limits, you'll have to pay out of pocket or rely on health insurance.
If you want to reduce or remove the coverage, insurance companies are often required to send you a form confirming your decision and informing you of the risks.
Mostly, UM/UIM coverage is matched to your liability. Some states offer specialized UM/UIM coverage called "stacked coverage." This coverage multiplies your UM/UIM limits by the number of vehicles on your policy.
While another party's bodily injury liability and your uninsured bodily injury coverage can help, medical expenses are... expensive. If you would like some extra coverage for these situations, both personal injury protection (PIP) and medical payments coverage (MP) can help.
Like collision, MP and PIP are considered "no-fault coverage," which means it doesn't matter who is blamed for the accident. It also usually applies to all passengers in the vehicle, even if they aren't on your insurance.
In cases where you're at fault for an accident, this might be the only coverage you have for passengers. Liability coverage does not apply to passengers, and there are rare exceptions to this rule.
PIP is the better of the two coverages because it also expands outside of medical expenses. Here are some examples, bearing in mind that they only apply if connected to an accident:
These additional coverages are often included as part of PIP but are also sometimes optional.
PIP is optional in most states, but New York requires it on all auto policies. New York also offers MP, but this is optional. Other states usually only have one or the other coverage.
Beyond the coverages you see above, there are a few different coverages for unique situations. These situations include roadside assistance, rental reimbursement, gap coverage, and new car replacement.
Roadside assistance, also known as towing insurance, gets your vehicle to a repair shop when it's incapacitated. This coverage is specific to situations outside of an accident, such as wear and tear.
Roadside assistance also applies if your vehicle needs a jump or a new battery, although auto insurance companies won't pay for the battery in most cases.
Auto insurance policies differ in how they offer towing coverage. Some will have mileage limits, while others will get you to the nearest approved repair facility. Check your auto policy for details.
Rental reimbursement pays for a temporary vehicle while you wait for yours to be repaired after an accident. The key here is that it has to be connected to a covered loss. So, it only applies when you use your comprehensive or collision coverage.
If you make an insurance claim against another person's liability insurance, their coverage should pay for your rental vehicle. In these cases, you won't often have to rely on your insurance coverage.
Gap insurance covers the difference between the value of your car loan and its actual cash value during a total loss. So, if you owe $5,000 on your loan, and your insurance company only pays $4,000 when your vehicle is unrecoverable, this insurance covers the "gap."
Here are some definitions to help with the jargon:
A vehicle is determined a total loss when repairs exceed the ACV in most cases.
New car replacement replaces your car with a brand new version of that car during a total loss. So, if you lose your 2023 Toyota Camry, you can get a 2024 Toyota Camry as a replacement (assuming you are reading this in 2024). This coverage is only offered by some insurance companies, and its rules vary a bit between those companies.
The coverage typically only applies if you have a newer vehicle. Typically, this coverage is limited to cars that are one to five years old or newer. Older vehicles cannot qualify for this coverage.
While the guide above provides you with a good overview of auto insurance coverage, there are some nuances worth noting. Below, you'll learn about some important considerations if you're seeking specialist coverage.
If you add standard comprehensive and collision coverage to your 1974 Ford Thunderbird, it won't pay as you expect. The actual cash value of a vehicle is based on its newness. Instead, you need to pursue classic car insurance.
Classic auto insurance is geared towards refurbished vehicles. It will pay out a higher value based on the status of your car. However, some classic car policies have strict limitations on how you can use your vehicle. Check with your insurance agent for details.
Typically, auto insurance policies have a custom parts limitation of just a few thousand dollars. Some insurance companies will exclude some modifications completely.
If you add sub-woofers or a spoiler, you might have enough coverage for these. However, extensive customization requires specialized or supplemental coverage.
Standard auto liability insurance doesn't apply to business use. If you use your vehicle for business most of the time, you'll find more benefits from a commercial auto policy.
If you have specialized work equipment, a commercial policy can also help you cover what you bring with you. A dump truck, for example, isn't ideal for normal coverage.
Ridesharing, for example, is excluded from some auto insurance policies. However, some states (like New York) have implemented specialized rideshare coverage. Check with your insurance agent to see if you are driving for Uber or Lyft.
Many auto insurance policies offer limited coverage for the things inside of your vehicle. So, if you end up losing a good pair of headphones, you can get your vehicle's broken glass repaired and (sometimes) get paid for the item.
But, these limits are typically in the hundreds of dollars. It's much more helpful to get personal property coverage from a renter's, homeowner's, or VPP (valuable personal property) policy.
When getting multiple insurance quotes, it helps to ask the company about discounts. Instead of asking, "Do you have an X discount?" ask them to list all of their discounts and how much they will save.
Here are some of the more common discounts you get on auto insurance:
If you want the best savings on your auto insurance, avoid a lapse in coverage. If you're switching providers, make sure the new policy is active before you turn off the old one.
So, now that you've got a better idea of what your auto policy offers, do you really need all these coverages? Probably not.
Each person needs unique coverage. So, consider your situation when selecting coverages. However, you can almost always find more use out of more protection for you and your family. So, if you're going to bump up any coverages, look at your liability and medical coverages first.
