Basic personal auto insurance protects you financially in case of an accident, and is mandatory in most states.
But is it enough? What are your options?
This is a guide to how auto insurance works, and what types of coverage are available to you.
Understanding Auto Insurance
Auto insurance is a type of contract between you and the insurance company that protects you against financial loss in the event of an accident or theft.
In exchange for paying what’s called a “premium”, the insurance company will pay your losses, which will be outlined in your policy.
Auto insurance provides coverage for:
- Property – like damage to your car, of if your car is stolen
- Liability – your legal responsibility to others for bodily injury or property damage
- Medical – the cost of treating injuries, rehab and sometimes lost wages and funeral expenses
Basic personal auto insurance is overseen by most U.S. states, and laws vary.
Different features of auto insurance coverage is priced individually (a la carte). It lets you customize coverage amounts to suit your exact needs and budget.
Insurance policies are generally issued for six-months or one-year timeframes, and are renewable.
The insurance company will send you a notice when it’s time to renew the policy and pay your premium (fees).
Who’s covered by my auto insurance, and under what circumstances?
Your insurance policy will cover you and other family members on your policy, whether driving your car or someone else’s car (with their permission).
It also provides coverage if someone who is not on your policy is driving your car with your permission.
Your personal insurance policy only covers personal driving, whether you’re commuting to work, running errands or taking a trip.
It does not cover you if you use your car for commercial purposes, like to deliver pizzas.
Personal auto insurance will also not cover you if you use your car to for a ride-sharing service like Uber or Lyft.
Is Auto Insurance Coverage Mandatory?
Auto insurance requirements vary from state to state. If you’re financing a car, your lender will have their own requirements.
Nearly every state requires car owners to carry:
- Bodily injury liability
Bodily injury liability covers costs associated with injuries or death that you or another driver causes while driving your car.
- Property damage liability
Property damage liability reimburses others for damage that you or another driver operating your car causes to another vehicle or other property, such as a fence, building or utility pole.
In addition, many states require that you carry:
- Medical payments or personal injury protection (PIP)
Provides reimbursement for medical expenses for injuries to you or your passengers. It will also cover lost wages and other related expenses.
- Uninsured motorist coverage:
Caused by a driver who doesn’t have auto insurance. Or in the case of a hit-and-run.
You can also purchase under insured motorist coverage, which will cover costs when another driver doesn’t have enough coverage to pay the costs of a serious accident.
Even if PIP and uninsured motorist coverage are optional in your state, you should seriously consider adding them to your policy for better financial protection.
What other types of auto insurance coverage are typical?
While most basic, legally required auto insurance will cover the damage that your car causes, it does not cover damage to your own car.
To cover your own car, you should consider these optional coverages:
Reimburses you for damage to your car that occurs as a result of a collision with another vehicle or other object. e.g., a tree or guardrail when you’re at fault.
While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from potholes or from rolling your car.
Comprehensive coverage provides coverage against theft and damage caused by an incident other than a collision.
- Glass Coverage
Provides coverage from windshield damage, which is common. Some auto policies include no-deductible glass coverage, which also includes side windows, rear windows and glass sunroofs. Or you can buy supplemental glass coverage.