Car insurance covers medical bills and property damage after an accident or other damage-causing event. Liability car insurance covers damage to others caused by the policyholder, while multiple types of insurance cover the policyholder’s own expenses, including medical bills and vehicle damage. Typically, car insurance policies do not cover expenses related to mechanical problems, wear-and-tear, or maintenance.
Key Takeaways About What Car Insurance Covers
- Liability car insurance is required for drivers in nearly every state, to cover damage they cause to others.
- The minimum required car insurance never covers damage to the policyholder’s car, and in some states, it does not cover the policyholder’s injuries.
- Dealerships and financial institutions usually require drivers to purchase insurance that covers damage to a leased or financed car.
- Car insurance protects drivers financially, since it keeps them from being held personally responsible for their own and others’ expenses.
Types of Car Insurance and What They Cover
|Coverage Type||What It Covers|
|Bodily injury liability||Injuries to other people caused by the policyholder|
|Property damage liability||Damage to other people’s property caused by the policyholder|
|Uninsured motorist coverage||The policyholder’s injuries or damage to their property if a driver without insurance was at-fault|
|Underinsured motorist coverage||The policyholder’s injuries or damage to their property caused by a driver without enough insurance to pay for all the expenses|
|Personal injury protection (PIP)||Injuries to the policyholder after an accident regardless of who was at-fault, plus indirect expenses like lost wages|
|Medical payment (MedPay)||Injuries to the policyholder after an accident regardless of who was at-fault|
|Collision insurance||Damage to the policyholder’s car after an accident|
|Comprehensive insurance||Damage to the policyholder’s car after something besides an accident, like vandalism or theft|
|Gap insurance||The difference between a driver’s insurance settlement and the balance on their loan or lease after their car is totaled|
|Mechanical breakdown insurance||Failure of the major systems of the policyholder’s car|
What Liability Insurance Covers
Liability insurance is the most common type of car insurance, since it is required in almost every state. Bodily injury liability insurance pays for other people’s injuries after the policyholder causes an accident. Property damage liability insurance pays for other people’s property after a crash, like cars, fences, and buildings. It’s important to note that liability insurance never covers the policyholder’s expenses.
What Uninsured/Underinsured Motorist Coverage Covers
Uninsured motorist coverage (UM) protects the policyholder from damage caused by a driver who does not have any auto insurance of their own. On the other hand, underinsured motorist coverage (UIM) applies if the other driver’s liability limits are not high enough to cover the cost of all the damage they caused.
Uninsured/underinsured motorist insurance is designed to replace the liability insurance another driver should have purchased. As a result, it also comes in two types: bodily injury and property damage. Uninsured motorist coverage is required in 20 states and the District of Columbia, and it’s available in many others.
What Personal Injury Protection and MedPay Cover
Personal injury protection (PIP) and medical payments (MedPay) insurance cover the policyholder’s injuries after a car accident, regardless of who was responsible. For instance, both PIP and MedPay cover medical bills and funeral expenses, whether the policyholder was injured by a car while driving, walking or biking. PIP and MedPay will also pay for the medical bills of passengers riding in a covered vehicle.
One key difference between PIP and MedPay is that PIP covers the indirect costs of car-accident injuries. For instance, PIP will pay for expenses like lost wages and childcare. On the other hand, MedPay can be used to pay for PIP or health insurance deductibles and copays.
What Collision and Comprehensive Insurance Cover
Collision and comprehensive insurance protect the policyholder’s car. Collision insurance pays to repair or replace a covered vehicle after an accident, including crashes with another car or object. On the other hand, comprehensive insurance pays for damage caused by something besides an accident, such as theft, vandalism, or a natural disaster.
Collision and comprehensive are not mandatory in any state, but dealerships and financial institutions usually require them on leased or financed cars. Both types of coverage are subject to a deductible, which is an amount you have to pay out of pocket before your insurance company will cover the rest.
Other Coverage Options
Besides the main coverage types explained above, there are several optional types of insurance that only apply to specific circumstances. But not every insurance company offers these coverage options. So if there is something specific that you need, make sure you prioritize that coverage when shopping for car insurance.
- Rental reimbursement coverage: pays for a rental car if the policyholder’s vehicle is being repaired after a covered scenario.
- Roadside assistance: pays for towing, flat tire changes, battery jump starts, and gas delivery if a driver is stranded.
- New car replacement: if a covered vehicle is totaled, the insurance company will pay for you to purchase the same vehicle with a recent model year. This coverage is usually only available if the covered vehicle is relatively new.
- Rideshare insurance: personal car insurance policies usually exclude business use, but a rideshare insurance endorsement provides coverage for the policyholder while they are driving for a company like Lyft or Uber.
- Mechanical breakdown insurance: pays for repairs if the car has mechanical issues unrelated to an accident or other catastrophic event.
When shopping around for car insurance, the different coverage labels can be confusing. Just remember that you need to buy all the coverage required by your state, plus fulfill any requirements set by your lender or lessor. Then, you can weigh the benefit versus the cost of optional coverage types. Overall, it’s a good rule of thumb to buy as much coverage as you can afford.