Q

What is car insurance?

A

Car insurance is necessary financial protection for you and your vehicle in the event of an accident.

Car insurance can cover all kinds of unexpected damage, from injuries you cause in an accident to damage that can happen to your own car. It’s also mandatory — drivers are legally required to carry a minimum amount of liability coverage in most states, which covers damage and injuries you’re liable for if you cause an accident. 

When you purchase car insurance, there are two things you should consider: what types of coverage you want and how much of each kind of coverage you need. Most types of car insurance cover you up to set limits that you choose when you buy your policy. Certain kinds of coverage, like comprehensive and collision, don’t have set limits, but do require you to pay a deductible before your insurance will kick in. 

Car insurance covers damage that is sudden or accidental, like car accidents or hail, but it won’t cover regular maintenance issues (that means your insurance policy won’t cover wear and tear, or oil changes or any other problems that occur over time).

Key Takeaways

  • Car insurance covers your financial liability when you’re responsible for causing an accident

  • Car insurance can also cover your car if it is damaged in a collision or by a non-driving peril, like hail or vandalism

  • The average cost of auto insurance in the U.S. is $1,134 per year, or about $95 per month, according to the National Association of Insurance Commissioners

  • You can buy car insurance directly from an insurance company or through an independent marketplace like Policygenius

Car insurance explained

Let’s break down the basics: Car insurance protects you from the costs that you can incur when you cause injury or damage to someone else or their property with your car. It can also pay for repairs to your own car after an accident and cover damage from non-driving perilslike theft and vandalism, depending on the coverage you add to your policy.

When you apply for car insurance, you agree to pay a monthly or annual premium in exchange for that financial protection. Your car insurance premium is calculated based on a number of factors including your age, driving history, where you live, and the make and model of your car. 

A minimum amount of liability coverage is required in almost every state, and some states also require drivers to have personal injury protection or uninsured/underinsured motorist coverage as part of their policies. But comprehensive and collision coverage, which cover your car itself, are always optional (although they’re good coverages to have because they’ll pay to repair your car after sudden damage or replace it if it’s stolen). A typical car insurance policy might look like:

BASIC COVERAGESPOLICY LIMITS
Bodily injury liability$50,000 each person, $100,000 each accident
Property damage liability$50,000 each accident
Medical expenses$5,000 each person
Uninsured/underinsured motorist$50,000 each person, $100,000 each accident
Comprehensive$500 deductible
Collision$500 deductible

Most coverage types come with set limits, meaning how much your insurance company will pay for a covered event. When you’re buying car insurance, you’ll choose coverage limits for each type, along with deductible amounts for comp and collision coverage.

If you have an accident or another covered loss and need to put your car insurance to use, you can file a claim online, over the phone, or via a mobile app depending on your insurer. If your claim is accepted, your insurance company will pay for the damage up to your coverage limits. You may receive this payment directly or your insurer may make a payment to the other party, your lessor or lienholder, or directly to a repair shop.

→ Learn more about how car insurance works

Do I need car insurance?

Car insurance is legally required in all but two states: New Hampshire and Virginia. In Virginia, drivers can pay the state $500 a year in lieu of car insurance, but drivers in both states will still be on the hook for any damage they cause in an accident. In all the other states, a minimum amount of liability coverage is required, and many states also require drivers to have personal injury protection or uninsured/underinsured motorist coverage as well. 

Learn more about car insurance requirements in every state

What does car insurance cover?

A car insurance policy is made up of different coverages that cover different types of loss. Most states require drivers to have liability coveragewhich covers damage or injury you cause in an accident. A so-called “full coverage” car insurance policy also includes comp and collision coverage.

Types of car insurance coverages

COVERAGE TYPEWHAT IT DOES
Bodily injury liabilityThe part of your liability coverage that pays for medical bills and expenses if you've injured someone in an accident
Property damage liabilityThe other part of liability coverage, covers the cost of property damage you've caused in an accident
Personal injury protectionCovers medical expenses for you or your passengers after an accident, required in some states
Uninsured/underinsured motoristCovers the costs if you're in an accident caused by a driver with little or no car insurance
ComprehensiveCovers damage to your car that happens when you're not driving
CollisionCovers damage to your car after a car accident, no matter who was at fault

Liability coverage

Liability coverage is the most important part of an auto insurance policy, and pays out to the other party when you injure someone else or damage their property in an accident, as well as legal fees if you’re sued by another driver.

Liability coverage can be broken down into two main categories: bodily injury liability coverage and property damage liability coverage. If you get into an accident and the other driver files a claim for injury, your bodily injury liability coverage will cover associated medical expenses, lost wages, and related costs. Property damage liability coverage pays for vehicle repairs or other repairs if you cause damage to someone else’s property.

➞ Learn more about liability coverage

Personal injury protection (PIP)

Personal injury protection, or PIP, pays for you and your passengers’ medical expenses after an accident, regardless of who was at fault. PIP can also pay for lost wages, childcare, and funeral expenses. It’s required in so-called “no-fault” states, where drivers must cover their own injuries after an accident. In states that don’t require PIP, drivers can purchase optional medical payments coverage, which covers medical expenses, but it may not be necessary for every driver.

➞ Learn more about personal injury protection

Uninsured/underinsured motorist coverage

Uninsured/underinsured motorist coverage (UM/UIM) covers injuries and damage to you or your vehicle if someone else causes an accident and doesn’t have the insurance they need to cover it. If someone crashes into you or hits you and doesn’t have any insurance at all, uninsured motorist coverage will pay for your medical expenses and vehicle repairs related to the damage. And if they have some insurance, but not enough to pay for the damage they caused, underinsured motorist coverage will step in to cover the remaining costs if you’re injured or your car is damaged. 

➞ Learn more about uninsured/underinsured motorists coverage

Comprehensive coverage

Comprehensive coverage is optional protection that pays to repair your car if it is damaged by an event other than a collision. This can include theft, fire, vandalism, falling objects, and animal damage, like a squirrel infestation. However, in order for your coverage to kick in, you need to pay a deductiblefirst. Your deductible is usually set to $500 or $1,000 and must be paid upfront in order to file a claim on your comprehensive coverage. 

➞ Learn more about comprehensive coverage

Collision coverage

Often paired with comprehensive coverage, collision coverage pays to repair or replace your car if it is damaged in a collision. That includes crashing into another car, hitting a person, or backing into a fence. If you finance or lease your car, you may be required to have comprehensive and collision coverage as part of your policy. Collision coverage also has a deductible that must be paid upfront in order for coverage to kick in. 

➞ Learn more about collision coverage

Gap insurance

The second you drive a car off the lot, it begins to depreciate, or diminish, in value. If you have a loan or lease on your car and it gets totaled in an accident, gap insurance will pay the difference between what you still owe on the car and it’s depreciated value. You may be required by your lienholder or lessor to have gap insurance as part of your car insurance policy if you are leasing or financing your car. 

➞ Learn more about gap insurance

Roadside assistance

Roadside assistance, also called towing and labor coverage, covers emergency services when you’re stranded on the side of the road. The services a in a roadside assistance rider will vary across carriers, but they generally include towing, tire changes, and gas, oil, or battery delivery.

➞ Learn more about roadside assistance

What does car insurance not cover? 

Car insurance covers most types of damage that are sudden and accidental, but damage that occurs over time is not covered, nor is standard required maintenance. This includes:

  • Maintenance problems, like faulty wipers or a malfunction steering system

  • Regular wear and tear like worn-out tires

  • Mechanical failure or engine failure

  • Electrical breakdown

However, you may be able to get coverage for regular repairs through mechanical breakdown insurance (MBI) if it’s offered by your insurance company. MBI pays for damage to the mechanical parts of your car, covering anything from new brakes or engine parts to sending someone over to fix a blown transmission. But coverage can be pricey, and could raise your premiums by hundreds of dollars a year.

How much does car insurance cost?

Generally speaking, the average cost of auto insurance in the U.S. is $1,134 per year, or about $95 per month across the country, according to data from the National Association of Insurance Commissioners. [74] Louisiana is currently the most expensive state for car insurance averaging at $1,638 a year, while Maine is the cheapest at $765. 

TYPE OF COVERAGEAVERAGE ANNUAL COST NATIONWIDE
Liability$611.12
Collision$363.08
Comprehensive$159.72

While national averages can offer a rough idea of what coverage can cost, the amount you pay for car insurance will be based on a number of factors that are unique to you. Your coverage limits are one of the biggest factors that determine your rates, but everything from your address to the age at which you got your license can help set your prices. Most insurance companies will consider:

  • Age

  • ZIP code

  • Make and model of your car

  • Gender 

  • Marital status

  • Driving history

  • How frequently and how far you drive

  • Credit score

  • Where your car is garaged

  • Insurance history

Rates are set from driver to driver, and what you pay at one company could be significantly different than what you’d pay at another, even for identical coverage. That’s why we recommend comparing quotes from multiple companies so you can find the coverage you need for the lowest price.

Learn more about how much car insurance costs

How to buy car insurance 

You can buy car insurance directly from an insurance company or through an independent marketplace like Policygenius. When you’re ready to purchase your car insurance, you should:

  1. Decide how you want to buy car insurance

  2. Determine how much car insurance coverage you need

  3. Fill out an application for car insurance quotes

  4. Get your quotes

  5. Compare your car insurance quotes

  6. Pick a car insurance company and get insured

  7. Cancel your old car insurance policy

If you’re switching car insurance companies, you should make sure you have your new policy in place before canceling your existing one. That way, you can avoid a lapse in coverage, which could raise your rates significantly when you go to apply for insurance. 

Learn more about how to buy car insurance

Frequently Asked Questions

Why do you need car insurance?

Car insurance offers necessary financial protection to car owners. If you injure someone else or damage their property in your car, your car insurance will pay for the expenses, as long as they’re covered by your policy. Without insurance, you’ll have to pay for damage out-of-pocket, not to mention that driving without car insurance is illegal in almost every state.

How much money do you need to not have car insurance?

Car accidents can result in thousands of dollars for damage. If you have car insurance, it will cover you up to your coverage limits (which should be set high enough to cover the full costs of an accident). Not only is it illegal to drive without car insurance in most states, but you could also be on the hook for thousands of dollars of damage if you cause an accident and don’t have insurance to cover you — which makes buying car insurance more cost-effective than going without.

What are the three types of car insurance?

Most car insurance policies have more than three types of coverage, but the main component of a policy is liability coverage, covering medical expenses and vehicle repairs if you injure someone or damage their property in an accident. Many drivers also add comprehensive and collision coverage to their policies to cover damage to their car from an accident or another peril.

How can I find cheap car insurance?

The best way to find cheap car insurance is to compare quotes from multiple companies. Where one company might charge you $120 a month for car insurance, another might charge you $80 for the same coverage. If you want the cheapest car insurance regardless of your insurer, you should look for any available discounts, or set higher deductibles for comp and collision coverage.