What Does Car Insurance Cover? – Forbes Advisor

November 3, 2022

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You have the keys. you’ve got the car now all you need is auto insurance and you’re ready to hit the road. Here’s a look at common types of auto insurance coverage.

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what does an auto insurance policy cover?

what does liability insurance cover?

Liability insurance covers you when you cause property damage or injury to another person. For example, if you cause an accident and the other driver breaks their arm, your liability insurance will pay for your medical bills and damage to your vehicle. Liability insurance also covers your legal costs if you are sued because of a car accident.

Reading: What things can you use car insurance to cover

When you purchase auto liability insurance, you’ll have the option to choose your policy limits. You will often see limits written as a series of three numbers. for example, you might see it written as 20/40/10. that means:

$20,000 bodily injury/death coverage for one person per accident
$40,000 bodily injury/death coverage for more than one person per accident
$10,000 property damage coverage per accident

You are required to purchase auto liability insurance in most states. it’s a good idea to buy more than your state’s minimum requirement. That’s because you’re still responsible for paying any amount over your policy limits, and you could be sued for the balance. The best auto insurance will include enough liability insurance to cover what you could lose in a big lawsuit.

what does uninsured motorist insurance cover?

If you are hit by an uninsured driver, uninsured motorist coverage (UM) pays for your injuries and, in some states, damage to your car. It also covers your passengers and family members who live with you if they are hit by an uninsured driver.

In addition to your medical costs and auto repair bills, it pays for funeral expenses and lost wages. uninsured motorist insurance also covers you if you are hit as a pedestrian.

underinsured motorist coverage (uim) is similar to um. pays your medical bills and other expenses if you are hit by an underinsured driver.

um is required in some states and optional in others. overall, um it’s a good cover to have. one in eight drivers is on the road without car insurance, according to the insurance research council.

If you buy um, the amount of coverage will generally match the amounts of your auto liability insurance. For example, if you have liability limits of $100,000 for injuries to one person and $300,000 for injuries in an accident, you’ll buy um for that amount.

what does comprehensive and collision insurance cover?

Collision and comprehensive insurance are often sold together, but they are two separate types of coverage.

Collision insurance pays to repair or replace your car if you hit another car or object (like a fence, railing, or tree).
comprehensive insurance pays to repair and replace your car in the event of theft or damage from fire, flood, hail, vandalism, falling objects (such as a tree branch) or collision with an animal.

Comprehensive and collision insurance are optional types of coverage under state law. But if you have a car loan or lease, your lender or leasing company may require you to have both types of coverage.

Both collision and comprehensive insurance have an insurance deductible. deductibles are commonly in amounts like $250, $500, $1,000 and more. A deductible is the amount deducted from a check for insurance claims. For example, if your car repair bills are $2,000 and you have a $500 deductible, your insurance payment will be $1,500.

A higher deductible will lower your car insurance premium, but make sure you can afford that amount out of pocket.

Comprehensive and collision insurance only pays up to the actual cash value of your car. (for example, if your car is totaled).

medical payments and personal injury protection

Medical payments are often referred to as “medpay.” covers medical expenses for you and your passengers, regardless of who is at fault for the accident. medpay is often sold in small quantities and is not available in all states.

Personal Injury Protection (PIP) is similar coverage that pays medical bills and other expenses for you and your passengers, no matter who was at fault for the accident. pip also covers other expenses, such as lost wages, rehabilitation costs, funeral expenses and survivor benefits, and services you are unable to perform due to injury, such as housecleaning or childcare.

pip is required in some states. in other states, pip is optional or not offered. in states where it is required, there is a minimum amount required by state law, but you can buy more. in states that offer it but don’t require it, you can choose the amount of coverage that best suits your needs.

what auto insurance coverage is required?

All states (except New Hampshire and Virginia) require you to have auto liability insurance to comply with financial responsibility laws. the minimum amount required depends on your state.

Some states expand auto insurance requirements to include other types of coverage, such as uninsured motorist coverage, underinsured motorist coverage, and personal injury protection.

If you have an auto loan or lease your vehicle, your lender or lessor may require you to have comprehensive and collision insurance (in addition to your state requirements).

related: how much car insurance do I need?

additional car insurance coverage options

Auto insurance companies offer several types of optional coverage that you can purchase to tailor a policy to your needs. These are some common types of coverage.

accident forgiveness. If you cause an accident, this coverage will “forgive” you, meaning your rates won’t go up. Accident forgiveness rules vary by insurer, but generally, you’ll get forgiveness for one accident per policy over a specific period of time, such as every three years.
gap insurance. This coverage pays the difference between what you owe on your loan or lease and the insurance settlement if your car is totaled or stolen. For example, if you owe $25,000 but the total value of your car is $22,000, gap insurance would pay for the $3,000 “gap.”
rental reimbursement insurance. If your car is in the shop due to a problem covered by your policy (such as an accident), rental reimbursement insurance covers both car rental costs and public transportation costs.
shared travel insurance. If you’re a driver for a rideshare company like Lyft or Uber, there may be a gap in coverage when you receive a ride request and are on your way to pick up a passenger. if you have an accident during a rest period, you may not be covered by your insurer or rideshare company. rideshare insurance helps bridge that gap.
roadside assistance insurance. If you’re stranded by a problem like a flat tire or a dead battery, roadside assistance insurance covers services like a tow truck, refueling, locksmith, and dead battery jump starting.

what does car insurance not cover?

Most auto insurance policies will not cover:

personal items (such as cell phones, bags, and computers) stolen from your vehicle (that would be covered by your homeowners or renters insurance)
items used but not permanently installed in your vehicle (such as gps and stereo equipment)
general wear
mechanical breakdowns and repairs
drive your car for business (you’ll need business auto insurance for work vehicles)
intentional damage
driving in mexico or abroad, although some united states. the policies will provide coverage in canada and a certain distance within mexico
the remaining balance on a car loan if your car is totaled and the depreciated value is less than the existing loan balance (you would need gap insurance to cover the loan balances)