Auto insurance basics—understanding your coverage

The basic personal auto insurance mandated by most U.S. states provides some financial protection if you or another driver using your car causes an accident that damages someone else’s car or property, injures someone or both.

But to make the best decisions about purchasing other types of auto insurance coverage you might need, you will want to understand what’s covered, what’s not covered and what’s optional. In addition to understanding types of coverage, you will also want to consider coverage amounts.

Why? Because state-required minimums may not cover the costs of a serious accident, so it’s worth considering purchasing higher levels of coverage.

Here’s a rundown of the types of coverage available. While some are required, others are optional. All are priced individually to let you customize coverage amounts to suit your exact needs and budget.

Mandatory coverage

Nearly all states and Washington, D.C., require vehicle owners to carry the following auto liability coverages:

• Bodily Injury Liability — This covers costs associated with injuries and death that you or another driver causes while driving your car. This includes medical treatment, lost wages and legal defense expenses if you are sued for causing the accident.
• Property Damage Liability — This coverage will reimburse others for damage that you or another driver operating your car causes to another vehicle or stationary objects, such as a building, fence or utility pole. This includes vehicle repair, repairs to the building or object you struck and legal defense expenses if you are sued for causing the damage.

Frequently required coverage

• Medical Payments (MedPay) — MedPay covers medical and funeral expenses when a covered person — the policyholder, passengers or a member of the policyholder’s family — is hurt in an auto accident no matter who is responsible.
• Personal Injury Protection (PIP) — Also known as no-fault insurance, PIP pays for medical bills, lost wages and other related expenses for you and your passengers after a car accident, regardless of who is at fault. This also includes funeral expenses.
• Uninsured/Underinsured Motorist Coverage — Reimburses you when an accident is caused by an uninsured motorist, including hit-and-runs. Underinsured motorist will cover costs when another driver lacks adequate coverage to pay the costs of a serious accident.

Even if these types of coverage are optional in your state, consider adding them to your policy for greater financial protection.

Optional coverages

While legally mandated auto liability insurance covers the cost of damages to other vehicles that you cause while driving, it does not cover damage to your own car. Optional collision and comprehensive coverages are typically part of a full-coverage policy.

• Collision — This coverage reimburses you for damage to your car that occurs as a result of an at-fault collision with vehicle or stationary object, like a building, tree or utility pole. While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your vehicle, it will cover damage from potholes and rollover accidents.
• Comprehensive provides coverage against damage caused by an incident other than a collision, such as theft, vandalism, fire, flood, hail, falling rocks or trees, striking an animal and other hazards — even getting hit by an asteroid! Comprehensive policies also typically cover windshield repair and replacement, with some states having no deductible for this.
• Glass Coverage provides supplemental coverage for windshield damage as well as side windows, rear windows and glass sunroofs.

Gap insurance

If you lease or finance your vehicle, auto dealers or leasing companies will likely require you to purchase collision and comprehensive. But keep in mind that collision and comprehensive only cover the market value of your car, not what you paid for it—and new cars depreciate quickly. If your car is totaled or stolen, there may be a “gap” between what you owe on the vehicle and your insurance coverage. To cover this, you may want to look into purchasing gap insurance to pay the difference. 

Who is covered—and when?

Your auto policy will cover you and other family members on your policy, whether driving your insured car or someone else’s car with permission. Your policy also provides coverage if someone not on your policy is driving your car with your consent.

Your personal auto policy only covers personal driving, whether you are commuting to work, running errands or taking a road trip. Your personal auto policy, however, will not provide coverage if you use your car for commercial purposes—for instance, if you deliver pizzas or operate a delivery service.

Note, too, that personal auto insurance will generally not provide coverage if you use your vehicle to provide transportation to others through a ride-sharing service such as Uber or Lyft. Some auto insurers, however, offer supplemental insurance products (at additional cost) that extend coverage for vehicle owners providing ride-sharing services.

Learn More: Check out this handy infographic on the types of required and optional drivers insurance coverages.