What does auto insurance cover?

Auto insurance is designed to keep you from having to pay full repair costs or medical bills after an accident. Most states require a minimum amount of liability insurance, but insurers can offer several other types of auto insurance. To decide on the auto insurance policy you need, research what is required in your state and what will best protect your finances.

At the very least, your auto insurance policy will include the minimum coverage and limits required by your state. While minimum automobile insurance requirements vary by state, the main types of insurance coverage you may be required to obtain are:

  • Liability insurance, which covers the expenses related to an accident for which you are responsible. It usually includes liability coverages for bodily injury and property damage.

  • Personal Injury Protection (PIP) or Medical Payments (MedPay) to cover your own medical expenses after an accident, regardless of who is at fault.

  • Coverage for uninsured and underinsured motorists reimburse damages caused by drivers without auto insurance or without enough to pay for the damages they cause.

Common Types of Auto Insurance Coverage

How your auto insurance works depends on the coverage you purchase. But each auto insurance coverage pays a little differently, so take a look below at the main types of auto insurance coverage and how they work.

Medical expenses due to injury or death due to an accident you caused.

Liability for material damage

The cost of repairing property damaged by you in an accident.

Liability of uninsured motorists

Medical expenses after an accident with an uninsured driver.

Property damage coverage for uninsured motorists

Repair costs after an accident with an uninsured driver.

Coverage for underinsured motorists

The costs of an accident with an uninsured driver. This coverage pays once the underinsured driver’s coverage limits have been reached.

The costs of repairing traffic accidents, whoever is responsible.

Repair costs related to events beyond your control – including weather events, hitting an animal while driving, theft and vandalism.

Medical payment coverage

Medical expenses for you and your passengers after an accident regardless of the fault.

Personal injury protection insurance

Medical expenses, as well as lost wages, child care, funeral expenses and other losses due to an accident, regardless of the fault.

The difference between what you owe on your car and the true market value of your car.

Liability insurance covers damage you cause

If you cause a car accident, liability insurance will cover the cost of subsequent damage, injury or death. All states except New Hampshire and Virginia require liability coverage.

The two types of liability coverage for automobile policies are:

  • Liability for bodily injury. This coverage covers expenses related to injuries or deaths that you cause in an at-fault accident.

  • Liability for material damage covers the cost of repairing a vehicle you – or someone driving – has struck, and any other property you damage, such as fences, buildings or telephone poles.

The amount of liability coverage in a policy is usually expressed as three digits – for example, 100/300/50 which includes:

  • $ 100,000 in bodily injury for each person in an accident.

  • $ 300,000 for accidental bodily injury.

  • $ 50,000 for accidental property damage.

Your auto insurance will pay up to the limits of your policy. After that, you will be forced to pay additional expenses.

Scenario: You stop a car with two people inside. Although there were no serious injuries, both people suffered a whiplash and saw their doctor. The car also has a dented bumper. Your liability coverage covers both visits to the doctor (bodily injury) and the cost of repairing the bumper (property damage).

PIP and MedPay cover your injuries regardless of fault

Personal injury protection coverage or medical payments covers your own medical expenses after a car accident, no matter who is at fault. They also cover the medical costs of injured passengers.

Protection against personal injury, sometimes referred to as “no-fault insurance”, can also cover lost wages due to injury caused by an accident, child care or funeral expenses.

Scenario: You are driving with a passenger and you are the victim of an accident. You are both injured and you find yourself absent from work for a few weeks due to your injuries. But because you live in a fault-free state, your policy includes PIP, which pays hospital bills for you and your passenger, as well as your lost wages.

Coverage for uninsured and underinsured motorists pays when the driver at fault cannot

Uninsured motorist coverage pays for the costs that result from an uninsured driver hitting you. In some states, coverage for uninsured motorists will also be paid after an accident with an underinsured driver. About 1 in 8 drivers do not have auto insurance, according to a 2017 study by the Insurance Research Council.

Several states require a minimum amount of coverage for uninsured or underinsured motorists, so it’s important to know how both types work:

  • Property damage coverage for uninsured motorists, known as UMPD, will pay for repair costs caused by an uninsured driver.

  • Bodily injury coverage for underinsured motorists (UIMBI), pays once the cost of injuries and expenses exceed the liability limits for bodily injury of an at-fault driver.

  • Property damage coverage for underinsured motorists (UIMPD), covers repair costs that exceed the driver’s liability limits in the event of material damage.

Scenario: A driver stops you at a red light. When you go to exchange insurance information, you find out that the driver has none. Your coverage for property damage to uninsured motorists will cover the cost of repairing your bumper and UMBI coverage will cover medical expenses.

Collision and full coverage to repair your car

Collision and comprehensive insurance are optional in all states, but may be required by your contract if you have financed or leased a vehicle. They pay to repair your car or reimburse you for its value if it’s stolen or damaged beyond repair, less the deductible, which is your share of the repair costs.

  • Collision insurance pays for damage to your car after an accident, regardless of who is at fault. It will also pay for damage caused by potholes.

  • Comprehensive insurance pays if your car is stolen or damaged by anything other than car accidents. This includes damage from storms, floods, falling objects, explosions, earthquakes, vandalism, or contact with an animal, such as hitting a deer.

Comprehensive coverage and collision coverage come with a deductible, which is the amount of the insurance claim you will have to pay before your insurer pays. The higher the deductible chosen, the lower your premium will be.

Scenario: You hit a deer and damage the hood of your car to the tune of $ 3,000. Your comprehensive insurance deductible is $ 1,000, which you pay to the mechanic. After that, the remaining $ 2,000 is covered by your insurer.

Gap insurance pays if you add up a new or leased car

The value of a new car begins to drop the moment it leaves the parking lot – faster than loan balances decline early on. If you add up a new car that has not yet been paid for, gap insurance will cover the difference between the value of the car and the amount you owe on your auto loan.

If you are renting a car, the leasing company may require you to purchase gap insurance. Usually, the car dealership will provide gap insurance, and the cost will be included in the rental payment. However, this requires you to pay interest on the coverage which you can usually get cheaper from an insurer.

Scenario: You owe $ 20,000 on your auto loan when you have a serious accident and your new car is totaled. Your collision insurance would first cover the full amount of your car’s market value (less the deductible), which is approximately $ 18,000. If you have gap insurance, the remaining $ 2,000 on your auto loan would be covered by your auto insurance company.

Additional coverage options

You can choose from a variety of additional options, which are usually not too expensive to add to a policy, but can come in handy in an emergency. You will need to purchase Collision and Complete Solution to be able to purchase most of the extras, such as:

  • Rental reimbursement pays for a rental car while your car is in the store for a covered repair.

  • Roadside assistance, or Towing and Labor Coverage, provides help if you break down and need a battery jump, flat tire, or car being towed to a repair shop.

  • New car replacement insurance works the same as gap insurance and will pay for the value of a new car if yours is totaled in an accident. Most insurers only offer one coverage or another.

  • Full glass coverage pays to repair or replace chipped or broken glass, with no deductible.

  • Carpooling insurance will cover you when you drive for a ridesharing service such as Uber or Lyft.

Once you’ve determined the coverage options you want, it’s important to shop around and compare auto insurance rates. Compare auto insurance from several companies, at least three, to help you get the best value for your money, whatever coverage you choose.

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About Linda Jennings

Linda Jennings

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