In a Nutshell
Car insurance covers the cost to repair or replace your car if it’s damaged or stolen. Your policy determines what gets covered and how much you’ll pay out of pocket before your insurance company starts chipping in.You don’t want to wait until you’re in an accident to find out what your insurance covers.
Most drivers are required by state law to carry basic auto insurance, which usually includes bodily injury and property damage liability coverage. But many drivers opt to carry more than the bare minimum state-mandated insurance. Read on to find out what kinds of coverage insurance companies offer and how to determine how much insurance you need.
- What is car insurance?
- How does car insurance work?
- What do car insurance coverages protect?
- Additional car insurance options
- What does car insurance not cover?
- How much car insurance do you need?
What is car insurance?
Car insurance helps protect you against financial loss if your car is lost or damaged. It can also help cover your financial liability if you injure someone or damage their car in an accident. When you buy car insurance, you enter into an agreement with your insurance company — you pay a premium, and the insurance company agrees to pay your losses according to the terms of your policy.
Most states require drivers to carry at least some car insurance, but the amount and type of coverage varies by state.
How does car insurance work?
You can decide on the type and amount of car insurance coverage you want and you pay upfront for that coverage in the form of a premium. If your car is stolen or damaged in an accident, you’ll file an insurance claim, and your insurance company will cover the cost to replace or repair it — as outlined in your policy.
Typically, the more comprehensive your coverage is, the higher your premium. When choosing your coverage options, consider what’s required by law in your state and your other specific needs.
What do car insurance coverages protect?
Here are some of the standard coverages you may see on your car insurance policy.
| Personal injury liability | Covers the bill for injuries or death caused by you or another driver. |
| Property damage liability | Covers the bill for damage that you cause to another vehicle or property. This also covers damage caused by someone else driving your car. |
| Collision | Covers the cost of repairing damage to your car from a collision with another vehicle or an object — like a tree or guardrail. |
| Comprehensive | Covers theft and damage caused by an incident other than a collision. This could be a fire, flood, hail, vandalism or other hazards. |
| Uninsured motorist | Reimburses you for damages if you are in an accident that was caused by a driver who does not have auto insurance. This also covers hit-and-runs. |
| Underinsured motorist | Reimburses you for damages if you are in an accident caused by a driver who does not have adequate coverage to pay the costs involved. |
| Medical payments | Reimburses you or your passengers for medical expenses incurred because of an accident. |
| Personal injury protection | Reimburses you or your passengers for medical expenses incurred because of an accident. This also covers lost wages, rehabilitation and other related costs. |
Should I get full-coverage car insurance?
Full coverage insurance may vary by insurance company but typically includes liability, collision and comprehensive coverage. This is usually more expensive than more basic insurance policies, but it offers more coverage in case you’re in an accident or something else happens to your car.
Additional car insurance options
Insurance companies also offer optional, or add-on, coverage options. These coverages may raise your premium, but they could be useful depending on your situation.
| Gap insurance | Pays the difference between what you owe on your car and what your insurance will cover if it’s totaled or stolen. |
| Roadside assistance | Can include services such as towing, winching, battery jump-start, fuel delivery, flat tire changes, etc. |
| Mechanical breakdown | Covers the cost of repairs if your vehicle breaks down or needs replacement parts. |
| Rideshare insurance | If you use your car to work for a ridesharing service, this option covers you while you’re logged in and accepting rides but haven’t started a trip yet. |
| New car replacement | Pays for the cost of replacing a new car with the same make and model if yours is totaled in a covered loss. |
| Glass coverage | Covers the cost of repairing or replacing damaged windshields. Some policies also cover side windows, rear windows and glass sunroofs. |
| Rental car reimbursement | Pays for a rental car while your car is being repaired. |
What does car insurance not cover?
What your insurance policy covers depends on several factors, including your coverage selections, the insurer you use and laws in your state. But there are some things that most standard insurance policies don’t cover, including the following:
- Theft of belongings inside your car
- Intentional damage or damage done through illegal activity
- Routine maintenance and wear and tear
- Custom parts
How much car insurance do you need?
There’s no one-size-fits-all approach to car insurance. When deciding on how much coverage to buy, first learn what your state requires, then think about what coverage options best fit your specific needs.
Your finances will probably also play a role in the coverage you choose. While a lower premium may be appealing upfront, make sure you can cover the out-of-pocket costs that come with a higher deductible or a lack of coverage.
What’s next?
Shopping for car insurance can be intimidating. Be sure to compare quotes from several different insurance providers and check out what kinds of discounts you may qualify for. If you don’t drive often, you may benefit from looking at some nontraditional insurance options that charge you based on how much you drive or your driving behavior.