How does your auto insurance work? What do the different types of car insurance coverage actually cover? And do you have enough coverage and the right coverage for you and your family? With so many options, some required and some not, it can be confusing to shop for auto insurance. Luckily, you’ve come to the right place. In this guide, we go through the different coverage options that fall under a standard auto insurance policy.
Depending on where you live, you may be required to carry some coverages on your auto insurance policy, but not others. Most states require all drivers to carry at least some liability coverage before getting out on the road. These mandated minimums are often just that, a minimum recommendation of what you should carry. Oftentimes, your situation may dictate that you should consider higher limits than your state’s minimums require, and depending on the vehicle you drive and other factors, your situation may also mean auto insurance coverage beyond just liability is a wise choice.
The goal is to help you understand the ways in which the different car insurance coverages can work to help protect you on the road and which coverages might be appropriate for your situation. As always, speaking with an auto insurance agent can help you determine what coverage to carry with confidence (especially if you speak with one of our expert insurance advisors!).
Types of auto insurance coverage
A typical car insurance policy can include six types of coverage:
- Bodily injury liability
- Property damage liability
- Personal injury protection (PIP)
- Uninsured/underinsured motorist
We’ll explain each in depth below. Keep in mind that your typical auto insurance policy covers anyone who is listed as a driver on the car. For example, you and your spouse are both listed as drivers of your SUV. If either of you is driving that car during an accident, your auto insurance will cover you under the above policies. If your sister is driving and gets into an accident, though, your auto insurance may not cover any liability or damages since she isn’t a listed driver.
If you have a teen driver, they also have to be listed on your auto insurance for the car(s) they drive. This will likely increase your premium rates, since teen drivers are considered a higher risk. Learn more about the “under 25” auto insurance expense and how to offset it here.
Auto liability insurance
Liability insurance refers to any damages you cause to another person or party, which you are then financially responsible for. Your liability insurance can help protect you against lawsuits or claims if you are found at-fault for their damages.
In the case of automobile accidents, these lawsuits can be extremely hefty, which why this type of coverage is mandated by your state. Even a small accident can rack up huge medical bills and car repair expenses for the other party or parties. If you are found at-fault, you’re responsible for all of the other party’s injuries and damages—which can range from thousands to hundreds of thousands of dollars.
There are two types of liability insurance under a standard auto policy: bodily injury and property damage.
Your auto insurance will usually express liability as a set of three numbers, like 100/500/50. This represents bodily injury per person / bodily injury per accident / property damage per accident. So, you would have $100,000 of bodily injury for each passenger, $500,000 allotted for the total accident, and $50,000 specifically for damage to their car.
Note: Liability only covers the costs of another party’s expenses when you are found at-fault. It will never step in to pay for your own injuries or damages.
Bodily injury liability
Bodily injury liability helps cover any physical injuries you (the driver) cause to another party. If you are found at-fault for an accident, bodily injury helps pay for the other person’s medical expenses. This includes their:
- Medical bills (hospital and follow-up care)
- Ambulance rides
- Pain and suffering
- Lost wages
Bodily injury liability may also cover funeral costs and other associated expenses in the unfortunate case of a fatality.
If you are sued for any of the above expenses, bodily injury may also help cover your own legal defense.
This is one of the most expensive lawsuits you can run into. If you get into a serious accident, you could be sued for large amounts of money—sometimes in the six or seven figure range. That’s why it’s usually recommended to buy more than the state-required minimum liability. You want enough bodily injury liability to cover all of your assets in the case that someone were to come after you for “everything you own.”
Property damage liability
Property damage liability helps cover any damages to someone else’s property that you cause. Most of the time, this will help cover the other party’s car due to a collision. It will cover repair costs for their vehicle including auto body shop labor, replacement parts, and mechanic bills. Property damage liability can also cover other forms of property you hit, like a fence, building, mailbox, landscaping, or other structures.
If you are sued for any of the above expenses, your property damage liability may also pay for your own legal defense fees.
Personal injury protection (PIP) or medical payments will help pay for your own physical injuries in the case of an accident. This covers anyone in the policyholder’s car during the accident, including the driver and passengers (as long as the driver is listed on the auto insurance). Covered expenses are similar to those in bodily injury liability, like medical bills, ambulance rides, lost wages, and funeral services.
PIP usually has low limits because it works as a supplement to your health insurance to help pay your own medical bills, regardless of who is found at-fault for the accident. If the other party is found at-fault, you and/or your insurance company may sue them for reimbursement of your medical costs.
Collision + comprehensive
Collision and comprehensive insurance can help cover the cost of damages to your own car, regardless of who is found at-fault for the accident. Some states require these policies, but they’re usually a standard aspect to basic auto insurance policies regardless.
Although sometimes lumped together under “physical damage coverage,” collision and comprehensive insurance function separately. It’s possible to have one without the other (although it’s not recommended).
Both also have their own deductibles. This means you’ll have to pay a certain amount out of pocket before your insurance company steps in to pay the remainder (up to your coverage amount). Since collision and comprehensive insurance are separate, you may have different deductibles for each. You may even choose to have a higher deductible for one to offset a higher premium for the other.
Collision coverage can help pay for damages to your vehicle as a result of a collision. This could be a collision with another car or an object or the result of your car flipping over.
Collision coverage can help pay for your expenses regardless of who is found at-fault for the collision. If the accident was the other party’s fault, you or your insurance may sue that party to repay expenses.
Comprehensive can help cover damage to your car from “anything other-than-a-collision.” This usually includes theft, vandalism, fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, or riot. It can also include hitting animals, like deer or birds. Some companies also include windshield coverage under comprehensive. See other common comprehensive claims here.
Collision is typically caused by human error, while comprehensive is typically caused by an external force (sometimes referred to as “acts of God”).
Uninsured/underinsured motorist coverage can help pay for your own costs if the other driver is found at-fault for the accident but they have insufficient insurance to pay for your total loss. It can also provide coverage in the case of a hit-and-run. This is true either if you are in your car or as a pedestrian.
For example, another car hits your car. You rack up $150,000 in medical bills. If they have only have $100,000 in bodily injury liability, your underinsured motorist coverage could step in to pay the $50,000 remaining. (Afterwards, your insurance company may sue the other party for damages, though.)
This is required in most states, and it’s highly recommended for everyone. Although it’s required in almost every state to carry auto liability insurance, there are still some drivers out there not listening to the law. You don’t want to be on the hook for hundreds of thousands of dollars in expenses because of someone else’s mistake.
The above coverage plans are a standard part of most auto insurance policies. You’ll want to be aware of the coverage limits of each, though, to ensure you’re fully protected.
There are also other supplemental plans you might want to consider, based on your situation. For example, gap insurance is usually required if you’re leasing your car. This will help pay the difference if your car is totaled and you owe more on your loan than the insurance company pays out.
Other common types of optional auto insurance include roadside assistance, rental reimbursement, mechanical breakdown insurance, and glass insurance. Learn more about optional auto coverage here.
Your standard auto insurance policy can be extensive in what it covers. Depending on the coverage you choose to carry, your auto coverage can help protect you, your car, and other parties in the case of accidents and mishaps. You never know what could happen on the road, which is why auto insurance is so vital to helping you expect the unexpected.
Are you completely covered? Do you have the right coverage and limits—at the right premium and deductible for you?
If you’re looking to change, upgrade, or improve what your policy looks like and its cost, it’s time to start comparing.
Get expert advice on the auto insurance coverages you should carry by speaking with one of our licensed insurance advisors today at (844) 819-2221!
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