Understanding car insurance coverage is crucial for every car owner. Most U.S. states mandate basic personal auto insurance to provide financial protection if you or another driver using your car causes an accident. This typically covers damages to someone else’s car or property, and injuries to others. However, to make informed decisions about the additional types of auto insurance coverage you might need, it’s essential to understand what each type covers, what it doesn’t, and which options are available to you. Beyond just the types of coverage, it’s also important to consider the coverage amounts you choose. State-required minimum coverage levels might not be sufficient to cover the full costs of a serious accident, making it worthwhile to think about purchasing higher coverage limits. This guide will provide a clear explanation of car insurance coverage, breaking down the different types available – some mandatory, some optional – all priced individually to allow you to customize your policy to fit your specific needs and budget.
Mandatory Coverage
Almost every state mandates car owners to carry the following auto liability coverages as part of their Car Insurance Coverage Explained policy:
- Bodily Injury Liability: This coverage protects you financially from costs associated with injuries or death that you or another driver causes while operating your car. It can cover medical bills, lost wages, and legal fees if you are sued as a result of an accident where you are at fault.
- Property Damage Liability: This coverage reimburses others for damages that you or another driver operating your car causes to their vehicle or other property. This could include damage to another car, fences, buildings, utility poles, or other structures damaged in an accident you cause.
Frequently Required Coverage
Many states also frequently require drivers to carry the following coverages, which are important components of car insurance coverage explained:
- Medical Payments or Personal Injury Protection (PIP): This coverage provides reimbursement for medical expenses for injuries to you and your passengers, regardless of who is at fault in an accident. PIP can also cover lost wages and other related expenses resulting from injuries sustained in a car accident.
- Uninsured Motorist Coverage: This coverage protects you financially if you are involved in an accident caused by an uninsured motorist or in a hit-and-run situation. In addition, you can often purchase underinsured motorist coverage. This extends your protection to situations where the at-fault driver has insurance, but their coverage limits are insufficient to pay for all the damages and injuries resulting from a serious accident.
Even if these types of coverage are optional in your state, adding them to your policy offers significant financial security and is a wise consideration when thinking about car insurance coverage explained.
Optional Coverage
While basic, legally mandated auto insurance addresses damages to other vehicles that you cause, it typically does not cover damage to your own car. To protect your vehicle, you’ll need to consider these optional auto insurance coverages as part of your car insurance coverage explained planning:
- Collision: This optional coverage reimburses you for damage to your car resulting from a collision with another vehicle or object. This could include accidents with other cars, trees, or guardrails, particularly when you are at fault. While collision coverage generally doesn’t cover mechanical failures or normal wear and tear, it does cover damage from events like hitting potholes or rolling your vehicle.
- Comprehensive: Comprehensive coverage provides protection against theft and damage to your car caused by events other than collisions. This includes incidents such as fire, flooding, vandalism, hail, falling objects like rocks or trees, and other unexpected hazards. It’s even been said to cover damage from something as unusual as being hit by an asteroid!
- Glass Coverage: Damage to your windshield is common. Many auto insurance policies offer glass coverage, often with no deductible. This can include not only the windshield but also side windows, rear windows, and glass sunroofs. You may also have the option to purchase supplemental glass coverage for more extensive protection.
Mind the Gap… Insurance
If you are leasing or financing your vehicle, auto dealers or lenders will likely require you to purchase both collision and comprehensive coverage. However, it’s important to understand that these coverages only pay out the market value of your car at the time of an accident, which might be less than what you originally paid, especially since new cars depreciate in value quickly. If your car is totaled or stolen, a financial “gap” might exist between what you still owe on the vehicle and the amount your insurance coverage will pay. To address this, you might consider purchasing gap insurance. Gap insurance is designed to cover this difference, ensuring you’re not left paying off a loan for a car you can no longer use. (Note: For leased vehicles, gap coverage is often included as part of your lease agreement.)
Who is Covered—and When?
Your personal auto insurance policy typically covers you and family members listed on your policy. This coverage applies whether you are driving your insured car or someone else’s car, as long as you have permission to drive it. Your policy also extends coverage if someone who is not listed on your policy drives your car with your consent.
It’s important to note that personal auto insurance policies are designed for personal driving, whether it’s commuting to work, running errands, or taking personal trips. However, your personal auto policy generally will not cover you if you use your car for commercial purposes. Examples of commercial use include delivering pizzas or operating a delivery service. Furthermore, personal auto insurance typically does not provide coverage if you use your car to provide transportation services through ride-sharing platforms like Uber or Lyft. Recognizing this gap, some auto insurers now offer supplemental insurance products, available at an additional cost, that extend coverage to vehicle owners who participate in ride-sharing services.
Learn More: For a visual overview, check out this handy infographic detailing the types of required and optional drivers insurance coverages.
