A typical car insurance policy includes multiple coverage components, all of which provide different types of protection
A so-called full coverage policy will cover everything from theft to falling tree branches to damage you caused in an at-fault accident
When you buy your car insurance policy, you choose the types of coverage you want and the amount of each type
Car insurance protects you from the financial risks you could incur by hurting someone or damaging their property with your car. It can also cover damage to your own vehicle, either from an at-fault accident or from other perils, like fire, falling objects, animals or theft.
Car insurance covers many different types of situations in which you’d be liable to pay repair bills or medical expenses. Depending on the circumstance, it may cover you, the passengers in your car, or a third party who suffered some kind of damages because of your car.
Each car insurance policy is divided up into different components, and you can select the amount of coverage you receive under each component when you purchase the policy, after accounting for the minimum amount of coverage required by your state.
The main components of car insurance are liability coverage, both for bodily injury and property damage; personal injury protection, which helps you and you the people in your car; collision coverage, for damage to your car in an accident; comprehensive coverage, for the theft or vandalism of your car when it’s not being driven; and various other types of car insurance that help you make up the difference when your base coverage is not enough.
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As we mentioned above, every car insurance policy is actually made up of several different coverage components, all of which provide slightly different types of protection. When you apply for car insurance, you choose the coverages you want and the limits and deductibles for each. The more coverage you choose, the higher your monthly premium will be.
But it’s important to have more than just the most basic coverage amounts required by law — being underinsured can leave you on the hook for expensive damage that you’ll have to pay for out of pocket if you didn’t buy enough coverage ahead of time.
Here are the basic components of what’s typically referred to as a “full coverage” car insurance policy:
|Coverage Type||What It Does|
|Bodily injury liability||The part of your liability coverage that pays for medical bills if you've injured someone in an accident|
|Property damage liability||The other part of liability coverage, covers the cost of property damage you've caused in an accident|
|Personal injury protection||Covers medical expenses for you or your passengers after an accident|
|Uninsured/underinsured motorist||Covers the costs if you're in an accident caused by a driver with little or no car insurance|
|Comprehensive||Covers damage to your car that happens when you're not driving|
|Collision||Covers damage to your car after a car accident, no matter who was at fault|
Almost every state in the U.S. requires you to have auto insurance, and even those that don’t require you to have coverage still compel drivers who are liable in an accident to pay for the other party’s expenses.
Every state that requires you to have car insurance mandates that you have bodily injury liability (BIL) and property damage liability coverage. Those are the two parts of liability coverage, which will pay for another driver’s injuries or damage to their vehicle.
Medical bills can be expensive, but the minimum amount of coverage most states require is between $25,000 and $50,000. You can’t predict how bad a person’s injuries will be or what kind of health insurance they have to finance some of the costs, so if you don’t think you could afford a high medical bill, you’ll want to spend more in the liability component. You also may not realize how much damage your car can do to someone’s property until you get the repair bill, so plan ahead for property damage liability as well.
To use liability coverage, the injured party will file a claim with your car insurance carrier, who will work with that person to make sure damages are paid.
➞ Learn more about how liability coverage works
Personal injury protection (PIP) helps cover some of the costs when you injure yourself or any of the passengers in your car. A form of no-fault coverage, PIP may pay costs associated not only with medical expenses but also lost wages due to being put out of work and any resulting funeral expenses, as long as the accident is covered by your policy.
Medical expenses may include surgeries and X-rays, as well as bills from hospitals, dental offices, and nursing services. Medications may also be covered, as well as prosthetic devices and hearing aids.
PIP is required in so-called “no-fault” states, where drivers get compensation for injuries after a car accident through their own car insurance company, as opposed to through the at-fault party’s car insurance company.
➞ Learn more about how personal injury protection works
Comprehensive and collision insurance often go hand-in-hand, and together, they cover damage to your own vehicle. While neither type of coverage is required by law, you may be required to get comprehensive and collision insurance if you lease or loan your car.
Collision insurance covers damage to your car from a collision, no matter who was at fault. It pays for both direct and accidental damage or loss to your insured vehicle. That means damage to your car that happens during an accident with another car, such as a crash; or damage involving only your car, such as hitting a tree.
Collision insurance differs from the property damage liability component in that the latter is intended to pay for damage you cause to other peoples’ cars. Your collision insurance will not cover damage or injury inflicted upon other drivers. Nor will it cover theft or vandalism, which is covered by comprehensive insurance.
The major difference between comprehensive insurance and collision insurance is that most collision insurance claims result from damage incurred while the car is being driven, with the exception of certain hit-and-run claims. Comprehensive insurance, which is often lumped in together with collision insurance, covers damage to or the loss of the car when it’s not in use. That means events out of your control, such as extreme weather conditions, fire, falling objects, riots, vandalism and animal damage..
Comprehensive insurance, also called simply comp insurance, also protects against theft of your vehicle (but not theft of the items within, which is covered by your homeowners or renters insurance).
➞ Learn more about comprehensive vs. collision coverage
Although your car insurance coverage will pay out if your vehicle is declared a total loss after an accident or theft, your car insurance carrier may deduct the amount by which the car has depreciated from its value before determining how much to pay you. This is called paying you the actual cash value of the car.
If you loan or lease the car, you may owe more money on the car than it’s worth. In that case, the actual cash value of the car may not be enough to keep making the payments you owe. Gap insurance pays out the difference between the car’s actual cash value and the amount you still owe on the lease or loan.
Gap insurance is an endorsement that usually costs extra to add to your base car insurance policy. You may be required to have it if you lease or loan, and it may already be factored into the cost.
➞ Learn more about gap insurance
You can also purchase coverage that will protect you from the financial risk that the other party doesn’t have enough coverage. Even if you’re not the at-fault driver in a car crash, the driver who caused the accident may not have enough insurance to cover your losses, or even any at all. Uninsured and underinsured motorist coverage (they may be separate purchases, depending on your carrier) helps pay out some of the difference between what’s owed to you and what the other party can or can’t cover.
Like liability insurance, uninsured and underinsured motorist coverage may pay out for both property damage and bodily injury. You also don’t need to be in the car at the time to be eligible for coverage under this component. It could even cover damages or loss you’re owed caused by the driver of a car that isn’t their own, such as a car borrowed from the policyholder or stolen by a thief. Uninsured and underinsured motorist coverage is required in some states, but it’s a smart investment even in states where it’s not required by law.
➞ Learn more about Uninsured and underinsured motorist coverage
Your car insurance coverage will be thoroughly spelled out and explained in your policy. The policy will tell you both what kinds of accidents and damage are covered as well as what isn’t. The following situations are not covered by auto insurance:
Zack Sigel is a SEO managing editor at Policygenius. He covers personal finance, comprising mortgages, investing, deposit accounts, and more. His previous work included writing about film and music.
Anna Swartz is a Managing Editor at Policygenius in New York City, and an expert in auto insurance. Previously, she was a senior staff writer at Mic, writing about news and culture. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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