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byFabio Faschi, PLCS, SBCS, CLCS
Fabio Faschi, PLCS, SBCS, CLCS
Operations Lead, Property & Casualty
Updated February 19, 2021|7 min read
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Car insurance protects you from the costs 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.
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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 theft, vandalism or other damage that can happen to 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.
Car insurance pays for damage you cause in an accident, and can also pay for damage to your own car
A typical car insurance policy includes multiple coverage components, all of which provide different types of protection
A so-called “full coverage” policy is just one that includes comprehensive and collision coverage, which pay for damage to your vehicle
When you buy a car insurance policy, you get to choose the types and amounts of coverage you want
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 if you’re at-fault in an accident.
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 set high liability limits. 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
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Personal injury protection (PIP) helps cover some of the costs when you or any of the passengers in your car are injured in an accident. A form of no-fault coverage, PIP may pay costs associated not only with medical expenses but also lost wages due to being out of work or any 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
You can also purchase coverage that will protect you in case you’re in an accident with an uninsured driver. 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 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 how uninsured and underinsured motorist coverage 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 coverage 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.
Comprehensive coverage, which is often purchased alongside collision insurance, covers the kinds of damage that can happen to your car that aren’t a collision. That means events out of your control, such as extreme weather conditions, fire, falling objects, riots, vandalism and animal damage. Comprehensive coverage, also called simply comp insurance, also pays you for your vehicle if it is stolen.
➞ Learn more about how comprehensive and collision coverage work
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 pay off the remaining 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 in your car insurance policy if you lease your vehicle or bought it with a car loan.
➞ Learn more about how gap insurance works
In addition to the standard coverage that comes with a “full coverage” policy, most major car insurance companies offer a variety of other coverage options. Those may include:
Roadside assistance - Covers car issues that can leave you stranded on the side of the road
New car replacement coverage - Pays to replace a totaled car with one of a similar make and model
Rental reimbursement coverage - Covers the cost of renting a replacement vehicle after an accident
➞ Not every driver needs every type of coverage, learn more about how to figure out how much car insurance you need
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:
Regular repairs - Repairs that result from regular wear and tear are not covered by car insurance
Ridesharing - Some policies may differ, but your car insurance policy may exclude claims for damage caused while driving for fares. For that, you’ll need speak to your insurer about adding rideshare coverage
Damage that exceeds your coverage limits - When you purchase car insurance, you’ll be allowed to choose how much coverage you get in each component. On the policy declarations page, a sheet that’s attached to the policy, your coverage in each component will be its limits of liability, meaning that the car insurance company is under no obligation to pay more than that amount
Exotic and performance cars - Exotic, performance, and vintage cars that are highly expensive to replace or repair are generally not by standard auto insurance companies. Check with your insurer to see whether you can get coverage for your Lamborghini, but you may find you have to shop at specialty insurers and get a separate policy entirely
Generally, car insurance follows the car. That means if someone borrows your car and is at fault for an accident, your policy’s liability coverage will cover them. There are instances when car insurance follows the driver, like when you rent a car.
If your child isn’t yet licensed, then they are usually automatically covered under your car insurance policy, depending on your insurance company. Once your child is a licensed driver, you should add them as a named insured on your car insurance policy.