What does car insurance cover?

Almost all U.S. states require auto insurance, so some drivers may not want to learn more about car insurance options beyond the state requirement. However, many drivers want more control over what type of car insurance they purchase and the coverage limits because they want added protection.

Whether you’re purchasing the state minimum or full coverage, it’s important to know what is and isn’t covered by your car insurance policy and how much coverage you need. Here’s more on what vehicle insurance covers and how each type of coverage works.

What does car insurance cover?

There are five types of auto insurance, and each offers its own unique protection. These coverages are liability, collision, comprehensive, personal injury protection, and uninsured motorist.

Liability Coverage

Liability insurance covers property damage and bodily injury for everyone involved in the accident except the at-fault driver. This coverage protects the policyholder from paying out-of-pocket expenses for the property they damage or people they injure.

Forty-eight states require drivers to carry a minimum amount of liability insurance, and each limit differs by state. Liability coverage is expressed as three numbers representing the limits for bodily injury per person, bodily injury per accident, and property damage. For example, 25/50/10 means you’re covered up to $25,000 for bodily injury per person, $50,000 for bodily injury per accident, and $10,000 for property damage.

While some states dictate the minimum amount of liability coverage drivers should have, they can choose to purchase liability at a higher limit. It also might be a good idea to consider a higher coverage amount since the state minimum isn’t always enough to cover bodily injury and property damage fully.

For example, if you opt for the state minimum and it only covers $10,000 in property damage, you’ll pay $3,000 out of pocket if your accident results in $13,000 of property damage.

Collision Coverage

Collision car insurance covers property damage after your vehicle collides with another vehicle or object. If your vehicle is leased or financed, your lender will likely require this coverage. However, drivers who want protection beyond liability can also purchase it because liability doesn’t cover the policyholder’s property damage expenses.

Following an accident, the driver files a claim and pays the deductible, and their insurance company pays the remaining property damage expense. A coverage limit isn’t attached to collision insurance, but the insurance company will only pay up to the vehicle’s value minus the deductible. So, for example, if you get involved in an accident that results in $5,000 worth of property damage, you pay your $500 deductible, and insurance will pick up the remaining $4,500.

You’ll receive a check for your vehicle’s value minus the deductible if it gets totaled, which happens when repairs cost more than its value. So if the vehicle is worth $10,000, you’d receive a payout of $9,500 after paying the $500 deductible.

Comprehensive Coverage

Comprehensive car insurance covers property damage resulting from the following non-collision events, such as:

• Vandalism
• Theft
• Fire
• Falling objects
• Extreme weather, including hail, hurricanes, and floods
• Hitting an animal

Similar to collision, your vehicle’s value determines how much damage gets covered. Once you pay your deductible, the insurance company will cover the cost of repairs. If your vehicle gets totaled, you’ll receive a payout equal to its value minus the deductible.

Personal Injury Protection

Personal injury protection, also known as no-fault insurance, covers your medical expenses following an accident, regardless of fault. Your medical expenses include ambulance fees, surgical treatment, and medication. Personal injury protection also covers lost wages, funeral expenses, and substitute services.

Similar to liability, personal injury protection has limits, and the minimum required amount depends on your location. Personal injury protection won’t cover your medical expenses beyond your state’s limit, so you’ll be responsible for expenses beyond that limit.

For example, if your medical expenses total $20,000 and your personal injury protection limit is $15,000, you’ll pay the difference of $5,000 out of pocket. You also have the option to increase your limit, so your insurance company covers more.

Uninsured Motorist Coverage

Uninsured motorist covers medical expenses for drivers involved in an accident with an uninsured driver. In addition to medical expenses, uninsured motorist covers lost wages, funeral expenses, and pain and suffering. This coverage protects drivers from the financial burden of covering their own medical expenses after someone hits them, but it doesn’t cover property damage.

Depending on where you live, if you’re required to carry uninsured motorist insurance, you’ll likely also be required to carry underinsured motorist. Underinsured motorist insurance covers the difference between the at-fault driver’s liability insurance limit and the remaining amount for medical expenses.

Let’s say the at-fault driver’s liability has a limit of $20,000, but your medical expenses total $30,000. Your underinsured motorist coverage pays the $10,000 difference.

What does full coverage car insurance cover?

Full coverage car insurance is a policy that combines liability, collision, and comprehensive coverage, so it covers your vehicle for virtually any situation in which your car has been damaged.

While full coverage is not part of the minimum coverage requirements in any state, if you have a loan or lease on your car, your lender might require you to carry it. You might also be required to carry gap insurance, which pays the difference between what you owe on your loan and your car’s value after it’s totaled.

What is a car insurance deductible?

A deductible is a fee paid by the insured to the insurance company to cover the remaining cost of a claim. Typically, comprehensive, collision, personal injury protection, and uninsured/underinsured motorist insurance carry a deductible. The policyholder gets to choose the deductible, which often ranges between $100 and $1000, but it could be higher.

When opting for a lower deductible, the policyholder can expect a higher premium because the insurance company would be responsible for covering more of the claim amount.

Here’s another example of how auto insurance deductibles work.

Suppose you’re involved in an accident that causes $10,000 of property damage. In that case, you’ll pay your $1,000 deductible, and your insurance company will pay for the cost of repairs or pay out the value of your vehicle minus the deductible. If the vehicle is getting repaired, the insurance company will pay the remaining $9,000.

However, if the vehicle is worth $9,000, you’ll receive a payout of $8,000 because the cost of repairs exceeds the value of the vehicle, and the insurance company can only pay out up to the vehicle’s value minus the deductible.

When choosing your deductible, consider your budget, how much you can afford to pay after an accident, and whether you can afford the monthly premium.

Case Studies: What Does Car Insurance Cover?

Case Study 1: Collision Damage

John, an insured driver, accidentally collided with another vehicle while driving through an intersection. His car insurance policy covered the damages to his vehicle, including the repair costs, up to the policy’s limit. The insurance company also covered the costs to repair the other driver’s vehicle.

Case Study 2: Theft and Vandalism

Sara’s car was stolen from a parking lot overnight. She promptly filed a police report and contacted her insurance provider. Her comprehensive car insurance policy covered the theft, and after the necessary waiting period, she received compensation for the market value of her stolen vehicle.

Case Study 3: Medical Expenses

During a heavy rainstorm, Lisa’s car hydroplaned and crashed into a guardrail, resulting in injuries to both her and her passenger. Lisa’s car insurance policy included personal injury protection (PIP), which covered their medical expenses, including hospital bills and rehabilitation costs.

Case Study 4: Liability Coverage

Mark, while driving, accidentally rear-ended another vehicle, causing significant damage to the other driver’s car and resulting in bodily injuries. Mark’s liability insurance coverage paid for the repairs to the other vehicle and covered the injured driver’s medical expenses, up to the policy’s limits.

Case Study 5: Uninsured/Underinsured Motorist

David was involved in a hit-and-run accident where the at-fault driver fled the scene. Fortunately, David had uninsured/underinsured motorist coverage as part of his car insurance policy. This coverage allowed him to file a claim with his own insurance company, which covered the damages to his vehicle and his medical expenses.

Case Study 6: Rental Car Coverage

Emily’s car was undergoing repairs for an extended period after an accident. To commute to work and run errands, Emily rented a car. Her car insurance policy included rental car coverage, which reimbursed her for the rental expenses during the repair period, up to the policy’s limits.

The Bottom Line: Knowing What Car Insurance Covers

Liability is the basic type of insurance coverage. Still, collision, comprehensive, personal injury protection, and uninsured motorist are just as important, especially when the goal is to protect yourself financially in the event of an accident.

If you aren’t sure what your insurance covers, review your policy or check with your insurance agent. You never want to have less insurance than you need, but you must understand how each coverage benefits you to find the best policy for your situation.