What Does Car Insurance Cover?

What Does Car Insurance Cover?

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Car insurance helps cover your expenses after you get into a car accident. Different kinds of coverage pay for different kinds of damage.

Some forms of auto insurance cover medical expenses, while others cover repairs to cars or damaged property. Another key difference is that some coverages protect your own damages and bodily injury, while others only cover damages or injuries sustained by others.

To strengthen your understanding of how various car insurance products work, we've explained what car insurance covers, who car insurance covers and what car insurance does not cover.

What car insurance covers

The financial protection offered by auto insurance varies depending on what kind of coverage you purchase. Standard car insurance coverages include:

  • Liability
  • Comprehensive and collision
  • Uninsured/underinsured motorist
  • Personal injury protection (PIP) and medical payments coverage (MedPay)

Read on for more information about the meaning of these different types of insurance coverage.

Liability insurance: Covers damage to others when you are at fault

Liability car insurance covers damages sustained by others when you are at fault in an accident. In other words, if you cause damage to another driver, or even your own passengers, in a collision, your liability insurance will cover the cost of repairs or medical care.

There are two types of liability insurance:

  • Bodily injury (BI) liability insurance covers the medical bills of the other party in an accident. If you hit a pedestrian or collide with another car and injure the passengers, for instance, your BI insurance will pay for their medical bills.
  • Property damage (PD) liability insurance covers the costs of repairs to or replacement of another person's property. For example, if you slam into your neighbor's mailbox or hit a colleague's car, your liability insurance will pay for a new mailbox or your colleague's repairs.

Insurers generally structure your liability insurance policy as three numbers in a row, like 25/50/30 or 15/30/5. These numbers, known as "split limits," represent the maximum amount your insurer will pay to cover:

  • Bodily damages to one person
  • Bodily damages to all people involved in the accident
  • All property damage caused to others in an accident

Each state sets its own minimum requirements for liability coverage. All states except New Hampshire require drivers to have some kind of liability insurance. Most states require drivers to have both bodily injury and property damage liability insurance. Only Florida permits drivers to carry property damage insurance without also carrying bodily injury insurance.

Collision and comprehensive insurance: Cover damage to your car

Collision and comprehensive insurance pay for damages to your vehicle. These two types of auto insurance work in different ways:

  • Collision insurance covers any damage your car sustains in a collision. Whether the collision is with a stationary object, with another driver or the result of a pothole, collision insurance will help pay for repairs.
  • Comprehensive insurance covers any damages not caused by a collision. Covered damages range from theft and vandalism to natural disasters.

If another driver collides with you and they are at fault, their property damage liability insurance could cover your repairs. However, taking the time to determine who is at fault and working with another insurance company will inevitably slow down the repairs and payout process. This is why many drivers opt to use their own collision coverage for repairs, even if the other driver caused the accident.

No states require collision and comprehensive insurance. If you do choose to add collision and comprehensive insurance to your state's minimum coverage requirements, many insurers call this combination "full coverage."

Uninsured/underinsured motorist insurance: Covers damages if an at-fault driver cannot

One in every eight drivers on the road is uninsured. Many more drivers only hold the minimum amount of insurance their state requires. Each time you get on the road, you are at risk of a collision with a driver who cannot pay for repairs to any damage they do to your car or any injury they cause you.

Uninsured and underinsured motorist insurance covers damages if an at-fault driver does not carry insurance, or their insurance cannot afford to cover the full cost of the accident.

Uninsured and underinsured motorist coverage helps you pay for damages if you get in a collision with one of these drivers. This kind of coverage comes in both bodily injury and property damage forms.

Some states require drivers to carry uninsured/underinsured coverage, while others do not.

Personal injury protection: Covers medical expenses, no matter who is at fault

Personal injury protection (PIP) covers medical expenses no matter who is at fault in an accident. Medical payments coverage (MedPay) is another kind of car insurance that covers medical bills. Generally speaking, PIP covers more than MedPay does, such as lost wages, psychiatric care or rehabilitative care.

Twelve states require drivers to have personal injury protection, but it is optional in 38 other states.

Additional types of insurance coverage

Many drivers choose to add on additional forms of optional coverage for extra security. We have provided definitions of some of these auto insurance coverages and explained what they pay for:

  • Gap insurance: Covers the gap in value between what your car cost when you bought it and what it’s worth if it is stolen or totaled. Collision and comprehensive coverage only pay out the car’s current value, not its value after months or years of depreciation. If you have financed or leased your car, gap insurance enables you to pay back your loan in full.
  • Roadside assistance insurance: Pays for professional support when common car problems occur, such as a flat tire, a dead battery or a need for towing.
  • Rental reimbursement coverage: Covers the cost of a rental car during the time when a policyholder’s own car is in the shop after a covered accident.
  • Rideshare insurance: Covers any accidents that occur while you are driving for a company like Uber or Lyft.
  • New car replacement insurance: Covers the cost of a second car of the same make and model if your own new car is totaled in an accident.

Most of these additional coverages are only available if you’ve bought collision and comprehensive insurance.

Who is covered by car insurance?

An insurance policy covers the individual policyholder who purchases it. If multiple drivers use the same car, policyholders should add these drivers to the policy to ensure that they are also covered when driving the car. If one policyholder drives multiple cars, they should add the cars to the policy so they are all covered on the roads.

Ever wondered who should be added to your car insurance policy? The answer varies from insurer to insurer, but as a general rule, you should add someone to your auto insurance policy if they reside in your household, have a driver’s license and can regularly access your car. This includes:

  • A spouse
  • Children
  • Romantic partners
  • A nanny or babysitter
  • A roommate

Even if someone is not in your immediate family, you can add them to your policy if they frequently drive your car. Not adding them means you risk being denied coverage should they get in an accident.

It's always a good idea to ask your insurer who is covered under your car insurance policy. Many insurers have what's known as a "permissive user" clause. This clause guarantees coverage if someone else is driving your car in a one-off situation, such as if you loan your car to an out-of-town guest or ask a friend to drive you home from a party.

Some insurance policies, however, only cover drivers specifically listed on the policy. Clarify who your policy covers and under what circumstances before you let someone not listed on your policy drive your car.

What does car insurance not cover?

Car insurance does not cover non-accident car repairs. In other words, insurers do not offer coverage for repairs that are not the direct result of an accident — with a few key exceptions.

These exceptions may occur if a policyholder has:

  • Mechanical breakdown coverage (MBI), which covers major repairs, like bad brakes, a busted engine or transmission problems. This coverage functions like an extended warranty.
  • Car problems that result from an accident but emerge later.
  • Vehicle damage covered by a warranty.

Additionally, your insurer might not cover you if you use your car to drive for a ride-hailing service. Insurance companies make a distinction between personal and commercial use of cars. If you use your car to give rides via services like Uber and Lyft, you have essentially turned your personal car into a business car.

Laws vary from state to state, and approaches vary from insurer to insurer. Reach out to see if you need to purchase additional insurance to drive for a ride-hailing service.

You know what auto insurance covers and how different insurance works. Now it's time to figure out how much car insurance you need and compare rates to get the best deal.

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