Should you get into a car accident and harm someone else or yourself with your car, your car insurance may cover the costs of medical bills. Depending on the coverage included in your policy, car insurance could also cover damage to your car while it’s parked, like if a large tree branch were to fall on it.
Ultimately, what your auto insurance will cover — and how much — depends on what type of car insurance you have and the amount of coverage you select. Read on to learn more about how exactly auto insurance works.
How Car Insurance Works
When you purchase car insurance, you can opt for different types of insurance and policy amounts. Think of it as one of those “create your own” burrito places where you can add different fillings to your burrito. Depending on the state in which you live, there are certain car insurance requirements you’ll need to meet — more about this later on.
Adding more types of insurance and higher coverage limits provides greater coverage, but it also raises your premiums. Having a lower deductible can also bump up your rates. On the other hand, a higher deductible can lower your rates. (A deductible is a common insurance term that means how much you would need to pay upfront before insurance coverage kicks in.)
Dive Deeper: How Does Car Insurance Work?
Car Insurance Requirements
Most states require car insurance, with the type of insurance and minimum coverage amounts depending on the state.
The only two states that do not require car insurance are Virginia and New Hampshire. While auto insurance is not mandatory in New Hampshire, if you’re at fault in an accident, you would need to show that you have enough funds to meet the state’s motor vehicle financial responsibility requirements. In Virginia, if you don’t have the minimum coverage amounts for car insurance, you’ll need to pay a yearly uninsured motor vehicle fee of $500 on top of your regular registration fees.
If you’re not sure what the minimum requirements for car insurance are in your state, you can check your state’s DMV site. Keep in mind that while you can squeak by with the minimum coverage, how much car insurance you need varies. Depending on your situation, it may be a good idea to get more coverage.
Types of Car Insurance
When shopping for car insurance, there are six main types of car insurance to keep in mind.
Bodily Injury Liability
Should you get into a car accident and are found to be the one who caused the crash, bodily injury liability coverage can help cover medical bills and wages lost for taking time off of work because of bodily harm. It can also cover named drivers, such as family members on your policy or drivers who are using your car with your permission.
Bodily injury liability is typically must-have coverage. According to the Insurance Information Institute (III), the average claim for bodily injury was $20,235 in 2020. Having enough coverage could help protect your property, assets and home.
If you crash into another car or an object, or your car gets damaged from driving over a pothole, collision coverage can pay for the costs to repair any damages to your car. It can also cover damages should your car flip over. Once your deductible is paid, the coverage will kick in.
If the other driver is the one at fault, then typically a claim can be filed with their insurance company and they’ll cover the costs. In the case the other driver’s coverage amounts aren’t enough, and you don’t have uninsured motorist coverage (sometimes called underinsured coverage), then your own collision policy can step in.
If you’re taking out a loan and still paying off your car, lenders likely require you to have full coverage, which includes liability, collision, and comprehensive insurance, which we’ll go over next.
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While collision coverage can cover the costs of damage during a car crash, comprehensive liability includes everything else — like a deer running into the front of your car, riots and vandalism, a tree branch falling on your car, a hail storm and natural disasters. Comprehensive coverage can also pay for a broken windshield (though whether it makes sense to file a claim depends on your policy and deductible). It can also cover theft, of either your entire car or a piece of your car, such as a hood ornament.
As mentioned before, if you’re still making payments on your car, you most likely are required to have both comprehensive and collision insurance in addition to liability coverage.
Personal Injury Protection (PIP)
Should you, the driver, or your passengers get harmed in a car accident, personal injury protection (PIP), also known as medical payments coverage, can help pay for medical bills, lost wages and sometimes funeral costs. It can cover these costs no matter who is at fault, hence why it’s sometimes called no-fault insurance.
Depending on your policy, PIP can also help pay for bodily harm should you get injured while walking or riding a scooter or a bike.
Like bodily injury liability, property damage coverage is also usually required in most states. Let’s say you or a named driver on your policy damages another vehicle or property, such as the side of a building. In these situations, property damage can reimburse the cost of repairs.
Uninsured or Underinsured Motorist
In the case of a hit-and-run, uninsured or underinsured motorist coverage can foot the bill for covered damages. Or, should someone who hits you not have adequate insurance, this type of policy can pay for any shortfalls.
Special Considerations When Choosing a Policy
Besides the standard types of policies, there are some additional considerations to keep in mind when it comes to choosing an auto insurance policy.
While not a type of insurance, roadside assistance can come in handy should you get a flat tire or your battery dies while on the road. While you can usually attach this to your existing auto policy as an add-on, what exactly is covered might vary by carrier.
Outside of purchasing roadside assistance as an add-on to your car policy, you can also shop around for companies that offer roadside assistance as a standalone service.
New Car Replacement Coverage
If you have a new ride and your car gets totaled, new car replacement coverage can replace the vehicle in its entirety. This is usually available as an add-on if you purchased a policy with collision and comprehensive insurance.
Depending on the insurance company and carrier, this might cover cars that are no more than two years old. Plus, restrictions and limitations might differ.
Rental Reimbursement Coverage
If your car is getting repaired and those repairs are covered under a car insurance claim, a policy might include an add-on to cover the fees for getting a rental car or other transportation while your vehicle is in the shop. Whether you take public transit, rent a car or take a rideshare, what exactly is covered depends on your specific policy and limits.
If you’re a rideshare driver for a company like Uber or Lyft, you’ll need to meet the minimum coverage amounts for that particular company. Some insurance companies provide rideshare coverage in their policies. If not, you might need to get a rideshare endorsement or a separate rideshare insurance policy.
Car Rental Coverage
If you have liability and comprehensive coverage on your car, then that coverage can typically carry over to when you rent a car within the country. As mentioned before, depending on the particulars of the policy and car insurance company, this might not be applicable in every state, and the amount of coverage can also vary.
What Does Car Insurance NOT Cover?
While auto insurance can cover a lot of things, it doesn’t cover normal wear and tear or routine maintenance. And unless it’s a rental car, it doesn’t provide coverage when you’re driving someone else’s car.
A policy also doesn’t pay for lost personal belongings in your car, such as air pods or gym gear. This could be covered by a renters or homeowners insurance policy.
At the end of the day, not all policies are alike nor are they created equally. It’s important to check to see what your policy will cover.
There are six main types of insurance — bodily injury liability, collision, comprehensive, personal injury protection, property damage and uninsured or underinsured motorist coverage. But the type of coverage and limits required vary by state.
Not sure what type of car insurance you need and how much it could cost? To find a policy that meets your needs, it can be helpful to do some comparison shopping. Check out SoFi Protect, which helps you easily compare car insurance rates from top insurers.
Photo credit: iStock/tommaso79
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