What does car insurance cover?
Fact-checked with HomeInsurance.com
When you drive, you hope that everyone else is going to follow the rules of the road. Unfortunately, sometimes things don’t happen that way. In 2018, there were 36,560 traffic deaths and 1,894,000 traffic-related injuries.
If you’re going to drive, you need to understand your auto insurance policy and know both what is and what is not covered. Car insurance is perhaps more important than your medical or homeowners insurance because it doesn’t just account for you: it covers other people and other people’s property as well. Without enough insurance, it’s possible you could put yourself in financial jeopardy.
Learn what car insurance covers and how to see the limits of your policy to make sure you’re protected financially on the road.
What are the coverage components of car insurance?
Basic liability requirements
Each state has a basic car insurance requirement. States mandate the minimum amount of liability insurance drivers must have, and insurance companies in turn must offer what is required.
For example, in Virginia, the minimum liability coverage you must have is $25,000/$50,000/$20,000. This translates to:
- $25,000 per person for bodily injury
- $50,000 per accident for bodily injury
- $20,000 per accident for property damage
However, having the bare minimum does not mean you are completely financially protected in the event of an accident.
For example, say you are in Virginia, you lose control and accidentally drive off a road’s shoulder. You over correct and collide with a 2020 Ford Explorer carrying a family of four. The Explorer was recently bought for $33,000, and the medical bills for the family of four amount to $60,000.
With only basic liability, your insurance provider will cover $50,000 of the family’s medical expenses (which leaves you responsible for $10,000), and it will cover $20,000 for the Ford Explorer (leaving you with an additional $13,000). In total, you’re now responsible for $23,000 after one small driving mistake.
Having basic coverage meets the requirements of the law and might be what you choose if you’re on a limited budget, but having more coverage is a good idea if you can afford it.
The three main categories of auto insurance
Car insurance is divided into three main categories:
- Personal injury
Within these three are further subdivisions, which include the following:
- Bodily injury liability: This covers the expenses of other people should you be at fault. Insurance providers offer two bodily injury liability amounts, covering the expenses either per person or per vehicle.
- Property damage liability: This covers any damage you may do while driving. This usually involves another car, but it can include homes, fences or any other type of structure you might crash into.
- Personal injury liability: Also listed as medical payments, personal injury liability covers the medical payments or lost wages of anyone in the policyholders car at the time of accident, including the driver.
- Uninsured/ underinsured motorist: This option covers any damages that are the result of being injured by an uninsured or underinsured motorist, including hit and runs.
- Comprehensive: This covers you in the event that your car is damaged by something other than a car, such as an accident with an animal like a deer, a fallen branch, fire, theft or vandalism.
- Collision: This covers you in the event that you’re in an accident with another car, get a flat from a pothole or drive into a tree or man-made structure.
Remember the basics
Basic liability is required by most states, but if you want to be truly protected, consider adding additional coverage.
What is comprehensive insurance?
Some people consider car insurance only as financial help in an accident, but there are many other incidents that could cost money that you would want more coverage for. Comprehensive insurance repairs your car when it is damaged by theft, vandalism, fire, weather or accidents with animals such as deer.
For example, should your window be broken so a thief can steal your laptop, your insurance provider would cover the replacement of the window.
Who should consider this?
If you live in an area with high crime or numerous wildlife, it would probably be a smart move. You may also want to consider it if you live in an area with frequent severe weather.
What if you get in an accident with an uninsured driver?
What does car insurance cover in an accident when the other driver doesn’t have insurance? If you have uninsured driver insurance, it will cover you. This type of insurance also covers you if you are in an accident with someone that has too little insurance.
The good thing about uninsured driver insurance is that it is relatively inexpensive. The bad thing is that it’s often unnecessary in many parts of the country. Still, the point of insurance is to protect you against the unexpected. You never know what could happen.
What if I owe more on my car than what its value is?
It’s possible to get into an accident that totals a car you’re still making payments for but not get enough from your insurance provider to settle your debt. In fact, it happens all the time from both accidents and theft. People often have to make payments on a car that was stolen from them.
This is because your provider is paying you for the actual cash value. Also known as ACV, it’s the current value of your car (meaning not what you paid for it) minus whatever deductible you have.
To safeguard yourself against this, consider purchasing either gap insurance or new car replacement coverage.
- Gap insurance pays off the gap between your ACV and the amount you still have left on your loan or lease.
- New car replacement can be used if you’re the first owner of a car or if your car is less than one to two years old. It guarantees that you will be paid more than the ACV of your totaled car and be given enough to replace it with a car of the same value.
These additional coverages can give you extra peace of mind.
What is a deductible?
A deductible is the amount of money you as the insured have to pay before your insurance provider pays for the rest. For example, say you’re in an accident that does $2,000 worth of damage to your car, but you have a $300 deductible. You pay the $300 and your provider will pay the remaining $1,700.
Depending on what coverage option you choose, you could save a lot of money each month by opting to pay a higher deductible. This in turn would lower your premium. It may be a wise strategy, but wiser still would be to put your deductible away into a savings account just in case you need it.
What doesn’t car insurance cover?
The amount of insurance you purchase should depend both on your needs as a driver and your worries because nothing is as valuable as peace of mind.
Part of that peace comes from understanding your auto insurance. If you’ve ever asked Google “what does car insurance cover, the person or the car?” or “what does car insurance cover in an accident?” what you’re really trying to do is understand what car insurance doesn’t cover.
Car insurance doesn’t cover:
- Basic maintenance and repairs: You’re responsible for general maintenance like changing your car’s oil, rotating tires and changing brake pads.
- Ridesharing: You need a separate policy if you’re going to drive for companies like Uber or Lyft.
- Other people driving your car: Some insurance companies will only insure people who are on your policy, while others allow friends and family. Others allow friends and family as long as they don’t live at the same address as you. If they do, then they won’t be covered until they’re on your policy.
- Exotic and performance cars: Some cars are simply too expensive to insure because their parts are rare or they’re too often targeted by thieves. For these, you’ll need to find an insurer specializing in exotic and performance cars.
- Personal items within your car: Your car window may be covered with comprehensive coverage, but not what was stolen. Car insurance companies only insure the car itself.
What does auto insurance cover? In truth, it’s a variety of things. You just need to make sure you choose the right policy. Get what you need, but if you can afford it, give yourself a little bit of cushioning. You never know what might happen.