What Does Car Insurance Cover?

Accidents happen, whether it is your fault or somebody else's. Understand what your car insurance does cover to protect you and your assets.

Car insurance covers damages or medical expenses in the case of an accident.

While premiums can differ based on your driving record, age, gender, marital status, place of residence, and type of vehicle you are driving, the most common types of car insurance coverage include collision, comprehensive and liability.

Key Takeaways

Car insurance is a legal requirement in most states
Your car insurance coverage is determined by a combination of options defined in your insurance policy.
Collision insurance helps cover damages to your vehicle in the event of an accident with another vehicle or object
Comprehensive insurance helps pay to repair or replace your car if it's stolen or damaged in an incident that is not a collision
Liability helps cover the costs of the other person's expenses if you caused the accident

Car insurance coverage requirements are determined by the state you reside in. Some common types of auto insurance include:

Collision Insurance

Collision insurance covers the costs of repairing or replacing your vehicle if it gets damaged in an accident involving a collision with another car or object. This includes damages resulting from flipping over, or caused by hitting a tree, a telephone pole, or even due to potholes.

The average cost of collision insurance in the US is about $290/year, according to NAIC. Collision coverage will pay the costs of repairing your car, minus the deductible.

Collision is often mandatory if you are leasing your vehicle, though it may be optional if you own your car. If you are financing your car or believe it would cost too much to repair in case a collision occurs, then it may be beneficial to purchase collision insurance.

Comprehensive Insurance

Comprehensive insurance covers damages to your vehicle, that are not related to collisions.

For example, comprehensive insurance pays for the replacement or repair of your car if it gets stolen, vandalized, or damaged due to a natural disaster such as hail or fire. It also covers damages due to falling objects, such a trees, branches or projectiles, or an animal denting your car.

Comprehensive insurance costs an average of $134/year. If you financed the purchase of your car, you may be required to purchase both collision and comprehensive coverage.

If you’re looking to decrease the cost of your auto insurance, choosing a higher deductible might help to reduce your premium. Also, buying both collision and comprehensive doesn’t not necessarily make sense for older vehicles, do the math!

Liability Insurance

Liability insurance is often required by law. It provides financial protection for drivers who harm someone else or cause damages to their property in a car accident. Basically, liability insurance pays for the other person’s expenses, such as damage repair and medical bills.

Liability Insurance Coverage

Liability car insurance covers bodily injuries and property damage to another person, if an accident occurs because you were at fault. It includes:

Bodily Injury Liability

Bodily injury liability helps cover the costs associated with injuries or death caused to the other person(s) involved in the accident.

Property Damage Liability

Property damage liability helps cover the damages caused to the vehicle or property of the other person(s) involved in the accident.

However, car insurance liability does not cover damages made to your vehicle in the case of an accident.

Liability Car Insurance Coverage Limits

Liability car insurance has limits and protects you up to the stated coverage amount for each component, as stated in your policy.

Bodily Injury per Person

This limit amount is the maximum that the insurance will pay for medical expenses for each individual injured in the accident that you caused.
Bodily Injury per Accident

The liability limit per accident is the maximum total amount that will be paid by the insurance, for all individuals injured in the accident. Any expenses above this limit are the responsibility of the faulty driver.
Property Damage

This limit is the maximum amount paid by the insurance for damage done to property. Here as well, the faulty driver is liable for any costs above the limit.

The liability coverage is usually presented as such: 25/50/10, meaning a limit of $25,000 per person, $50,000 per accident, and $10,000 for property damage.

Liability is a crucial part of car insurance coverage and it’s important to determine how much car insurance you need to protect your assets in the event of an accident that you caused.

Uninsured or Underinsured Insurance

Uninsured or underinsured insurance covers you if you are hit by someone who does not have or does not have enough insurance to cover damages that occurred.

Sometimes, the two plans can be bought as a bundle.

Understand Deductibles

A deductible refers to the amount of money you are required to pay out of pocket before your insurance takes over after filing a claim. A high deductible will lower your monthly payments, but a low deductible will result in a higher monthly premium.

You can determine your deductible amount based on your budget and assessing your risk factors. For instance, purchasing a brand new and expensive car can lead to pricier coverage since the cost of repairs is higher. Living in a busy city can also increase your risk of getting into a collision or experiencing theft or break-in.

When it comes to buying car insurance, pick a coverage that will give you peace of mind, is financially sound, and with a car insurance company that cares about your best interests. Look into a company’s brand and reputation, ask plenty of questions, and observe how they treat their customers.