What Does Car Insurance Cover?

Car Insurance 101: The Basics

Car insurance is not a single product — it's a bundle of different coverages designed to protect you from different risks. Some coverages are legally required in most states, while others are optional. Understanding what each coverage does helps you build a policy that protects you without paying for things you don't need.

At a high level, car insurance coverages fall into three categories:

• Liability coverages: Protect others when you cause an accident
• First-party coverages: Protect you and your vehicle
• Optional add-ons: Provide extra protection for specific situations

Let's break down each coverage type in detail.

Liability insurance is the foundation of any car insurance policy. It covers injuries and property damage you cause to others in an accident. It does not cover your own injuries or vehicle damage.

Liability coverage has two components:

Bodily injury liability (BI): Pays for medical expenses, lost wages, pain and suffering, and legal fees if you injure someone in an accident. Most policies have per-person and per-accident limits (e.g., $100,000 per person / $300,000 per accident).

Property damage liability (PD): Pays for repairs or replacement of another person's vehicle or property (fences, mailboxes, buildings) that you damage in an accident. Common limits range from $25,000 to $100,000.

Liability coverage is required in almost every state. The only exceptions are New Hampshire and Virginia, which allow drivers to self-insure or pay a fee to drive uninsured.

Recommended limits: Most financial advisors recommend at least 100/300/100 ($100K per person, $300K per accident for bodily injury, $100K for property damage). If you have significant assets, consider higher limits or an umbrella policy.

Collision coverage pays for damage to your vehicle when you hit (or are hit by) another car or object. It covers:

• Accidents with other vehicles
• Single-vehicle accidents (hitting a tree, guardrail, or pole)
• Rollovers
• Damage from potholes (in some states)

Collision coverage is optional unless you have a loan or lease, in which case your lender will require it. You pay a deductible (typically $500 or $1,000) before insurance covers the rest.

When to carry collision: If your car is worth more than a few thousand dollars, collision coverage is usually a good investment. For older, low-value vehicles, the cost of collision coverage may exceed the benefit.

Comprehensive coverage (sometimes called "other than collision") pays for damage to your vehicle from non-accident events. It covers:

• Theft or vandalism
• Fire or explosion
• Weather damage (hail, flood, windstorm)
• Falling objects (tree branches, rocks)
• Animal strikes (deer, birds, etc.)
• Riots or civil unrest
• Glass damage (windshield cracks)

Like collision, comprehensive is optional unless you have a loan or lease. You pay a deductible (typically $500 or $1,000) before coverage kicks in.

When to carry comprehensive: If you live in an area with high theft rates, severe weather, or lots of wildlife, comprehensive coverage is valuable. It's also usually cheaper than collision, making it worthwhile for most drivers.

Uninsured motorist (UM) and underinsured motorist (UIM) coverage protect you when you're hit by a driver who has no insurance or not enough insurance to cover your damages. Approximately 13% of U.S. drivers are uninsured, making this coverage increasingly important.

UM/UIM coverage has two components:

Uninsured motorist bodily injury (UMBI): Pays for your medical bills, lost wages, and pain and suffering when an uninsured driver injures you.

Uninsured motorist property damage (UMPD): Pays for damage to your vehicle when an uninsured driver hits you. Some states include hit-and-run accidents under this coverage.

Underinsured motorist (UIM): Pays the difference when the at-fault driver's liability limits are too low to cover your expenses.

UM/UIM coverage is required in about half of U.S. states and highly recommended in all others. In states where it's optional, insurers must offer it and you must explicitly decline it in writing.

Both PIP and MedPay pay for medical expenses after an accident, regardless of who is at fault. They differ in scope and availability:

Personal injury protection (PIP): Required in 12 "no-fault" states (Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah, plus Puerto Rico). PIP covers medical bills, lost wages, funeral costs, and sometimes childcare or household services. Coverage limits and requirements vary by state.

Medical payments coverage (MedPay): Optional in most states. MedPay covers medical and funeral expenses for you and your passengers after an accident, regardless of fault. It's typically limited to $1,000–$10,000.

Key difference: PIP is broader and covers lost wages and other expenses. MedPay only covers medical bills but is available in more states.

When to carry MedPay: If you have high-deductible health insurance or no health insurance, MedPay can help cover immediate out-of-pocket medical costs after an accident.

In addition to the core coverages above, insurers offer several optional add-ons that provide extra protection in specific situations:

Rental reimbursement: Pays for a rental car while your vehicle is being repaired after a covered claim. Typical coverage is $30–$50 per day for up to 30 days. Costs around $20–$40 per year.

Roadside assistance: Covers towing, jump-starts, flat tire changes, lockout service, and fuel delivery. Costs $10–$30 per year. Compare this to AAA or your credit card's roadside benefits before adding.

Gap insurance: Pays the difference between your car's actual cash value and what you owe on your loan or lease if your car is totaled. Essential if you owe more than your car is worth. Cost is typically $20–$40 per year from your auto insurer (much cheaper than dealer gap insurance).

New car replacement: Pays for a brand-new car (not just the depreciated value) if your new vehicle is totaled within the first 1–2 years. Only available for recently purchased vehicles. Costs around $100–$200 per year.

Custom equipment coverage: Covers aftermarket parts and modifications like upgraded sound systems, custom wheels, or performance parts. Standard policies don't cover these.

Rideshare coverage: Fills coverage gaps when you drive for Uber, Lyft, or other rideshare services. Personal policies don't cover commercial use. Costs around $10–$30 per year.

What Car Insurance Does NOT Cover

Understanding what's not covered is just as important as knowing what is:

• Normal wear and tear: Routine maintenance, tire wear, brake pads, and aging parts aren't covered
• Mechanical breakdowns: Engine failure, transmission problems, or other mechanical issues (unless you have mechanical breakdown coverage)
• Intentional damage: If you deliberately damage your own vehicle, it's not covered
• Racing or illegal activity: Accidents during street racing, fleeing police, or committing crimes aren't covered
• Commercial use: Most personal policies exclude coverage for business use (delivery driving, rideshare without proper endorsement)
• Rental car damage in some cases: Your policy may not extend to rental cars abroad or exotic/luxury rentals

How Much Coverage Do You Need?

State minimum coverage is rarely enough. Here's a framework for building adequate protection:

Liability: Most experts recommend at least 100/300/100. If you have significant assets (home equity, retirement savings, etc.), consider 250/500/100 or higher, or add an umbrella policy.

Collision and comprehensive: Carry these if your car is worth more than a few thousand dollars or if you have a loan/lease. Drop them on older vehicles where the annual premium exceeds 10% of the car's value.

Uninsured/underinsured motorist: Match your liability limits. This is especially important in states with high uninsured driver rates.

PIP/MedPay: If PIP is required in your state, carry the minimum. If MedPay is optional, consider it if you have high-deductible health insurance.

Deductibles: Choose a deductible you can afford to pay out of pocket. Higher deductibles ($1,000) lower premiums but increase your out-of-pocket cost if you file a claim.

Frequently Asked Questions