Depending on the policy you choose, car insurance can provide financial protection in the event your car is damaged or stolen, you’re injured in an accident, or you’re at fault for an accident that causes bodily injury or property damage to third parties. It can also help you meet any minimum coverage requirements mandated by your state or required by a lender.
How car insurance works specifically can depend on the laws of your state, which coverages you carry, and your insurer.
On this page we’ll cover some of the most common types of car insurance coverage and offer some tips for deciding how much coverage you need and finding the most affordable car insurance available to you.
Car insurance can act as a type of property and casualty (P&C) insurance that provides financial protection if you’re in a car accident, your vehicle is damaged in a non-collision event (e.g, a falling tree, hail, etc.), or your car is stolen. In exchange for a premium – the amount of money you pay for your policy – the insurer will pay for covered expenses up to any applicable limits.
Auto insurance acts on the concept of indemnity, which states the policyholder will be made whole again or returned to their original financial position. If your car suffers damage or you are sued over an accident you caused, your insurance policy can step in and help pay for repairs, replacements, medical bills, and any other expenses you are deemed liable for – assuming you have the proper coverage and limits to do so.
Some form of car insurance is mandatory in most states, and the legal requirements and minimum limits vary by state.
Most require coverage for third-party bodily injury and property damage liability claims in the event you are at-fault in an accident and injure another driver or their passengers or cause damage to someone’s property, such as a fence or mailbox. Medical coverage for you and your passengers may also be required in the form of personal injury protection (PIP) or medical payments (MedPay) coverage.
Physical damage coverages, like comprehensive and collision, are typically optional but may be required if you finance or lease your car. These coverages provide first-party property protection for your own vehicle if it’s damaged and you’re responsible for paying the repair or replacement costs.
Every policy is based on limits, or the maximum amount the insurance company will pay on a claim. Some types of coverage also carry deductibles, or the amount you have to pay before the insurer will cover remaining costs.
There are several types of car insurance available, and you can customize a policy to get the insurance coverage you need.
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Since car insurance coverages can function differently between tort states and no-fault states, it’s important to discuss specifics with a licensed insurance agent or an insurance company.
Liability coverage pays for costs associated with an accident for which you’re found legally at fault. Liability insurance generally includes two types of coverage:
Bodily injury: This covers the expenses related to injuries or death for others (e.g., another driver, their passengers, or a pedestrian) when you are at fault.
Property damage: This covers the expenses for repair or replacement of others’ property (e.g., fencing, a home, etc.) you damage when operating your vehicle.
Most states require drivers to carry a minimum amount of liability coverage before they can register and operate a vehicle in that state. You can find out how much liability coverage you need by visiting your state’s Department of Motor Vehicles (DMV) or by visiting our Auto Insurance by State guide.
Uninsured motorist coverage
Uninsured motorist (UM) coverage provides financial protection if you are hurt in an accident and the other driver doesn’t have car insurance. Depending on where you live, this coverage may extend to cover property damage. Uninsured motorist coverage also pays if you are the victim of a hit-and-run. Your state may require you to carry a minimum amount of uninsured motorist coverage.
You may also want to consider underinsured motorist (UIM) coverage, which typically pays the difference between your expenses and the policy limit of the at-fault driver when their limits are insufficient. However, in some states, underinsured motorist coverage is not applicable unless your underinsured motorist limits are greater than the liability limits of the other driver.
Personal injury protection (PIP)
This no-fault insurance coverage pays the medical expenses for you or your passengers if you are injured in an accident, regardless of who is at fault. Personal injury protection (PIP) may also apply if you’re riding a bike or walking and are hit by a vehicle.
In some cases, PIP coverage may reimburse you for lost wages and expenses for tasks you can’t perform while recovering, such as house cleaning.
PIP is required in some states and is optional in some others. As always, check with your state’s DMV to determine if PIP is available in your state and if you are required to carry it.
Medical payments coverage (MedPay)
Like personal injury protection, medical payments (MedPay) coverage pays the medical bills for you and your passengers for injuries sustained in a car accident, regardless of who is at fault. However, unlike PIP coverage, MedPay does not cover any additional or related expenses, like lost wages.
MedPay is required in some states and optional in others. It is not available in all states.
Collision coverage pays for repairs if your car is damaged during a car accident or if it collides with another object like a building or tree, even if you’re at fault. It may also cover damage from potholes.
Comprehensive coverage, or other than collision coverage, pays for damage to your car that occurs during an event that’s not a car accident or collision with another object. Examples of covered losses include fire damage, hail damage, damage from falling objects, a cracked or shattered windshield, vandalism, or damage from an animal. It also reimburses you if your car is stolen.
To ensure you have the coverage you need, many auto insurance companies offer optional insurance add-ons for purchase, including:
Roadside assistance: If you have a flat tire, need a tow, or are locked out of your car, this coverage reimburses you for services to get you moving again.
New car replacement: This type of coverage will pay to replace a totaled vehicle with a new one of the same make and model. Coverage is typically limited to vehicles that are relatively new – two years old, for example – but the cutoff varies by insurer.
Mechanical breakdown insurance: If your car breaks down and your manufacturer’s warranty doesn’t cover the repairs, this coverage will.
Rental reimbursement: This add-on will cover the cost of a rental vehicle while your car is undergoing repairs during a covered claim. It does not apply when your car is in the shop for routine maintenance.
Rideshare insurance: If you drive for a ridesharing company, this insurance provides coverage if you’re in an accident while working. Personal auto insurance policies typically exclude coverage for any business exposures.
Gap insurance: If your car is deemed “totaled” following an accident and you owe more on your car loan or lease than the insurance company will pay, gap insurance will pay the difference.
To determine how much car insurance you need, start by looking at your state’s compulsory insurance requirements. Most states require drivers to carry liability insurance, but some require additional types of coverage, like uninsured motorist coverage or personal injury protection (PIP).
If you finance or lease your vehicle, it’s also best to check with the lender or lessor to determine what type and amount of coverage is required as part of your loan or lease agreement.
Keep in mind that these are starting points and insurance coverage needs vary. If you don’t feel you’d be able to afford legal, medical, or repair expenses after an accident, or if you have assets you want to protect, it’s a good idea to consider purchasing a policy with higher coverage limits.
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What if you own something older … and valuable?
Say you have a 1972 Chevrolet Corvette or 1964 Porsche 356C. This requires special insurance coverage, but luckily there is a whole industry that caters to such vehicles.
Classic car insurance is a growing industry, with Hagerty as one of its most notable names. American Collectors Insurance, Grundy, and many of the major insurers offer classic car insurance.
Standard car insurance usually covers policyholders for the actual cash value of their cars, meaning that a car will be evaluated for its age, condition, and depreciation compared to similar vehicles.
The owner of a classic car may find they do not have sufficient coverage with a standard policy to protect their car, especially if it has been restored or customized. Car insurance companies that specialize in writing classic car policies are the best option for insuring your classic car to its full value.
The national average cost of a car insurance policy is $1,547 per year, according to our analysis of insurers. Your rate may be higher or lower. To determine your rate, car insurers factor in things like your age, location, driving record, vehicle type, and your insurance score.
The cost of car insurance also depends on how much coverage you purchase and the deductible and limits you choose. The key to finding the most affordable car insurance with the best coverage for your needs is to shop around and compare quotes from at least three different insurers.
Average Annual Rates:
State Farm: $1,279
American Family: $1,383
Car insurance can be expensive, but there are many ways to save money on your auto insurance, including:
Change your deductible and/or policy limits: Raising your deductible will lower your premiums. Also, if you lower the limits your policy will cover, it will lower your premiums.
Ask about discounts: Many people know they could receive a discount for bundling their car insurance with their homeowners insurance, but there often are many more discounts available. Ask about discounts for automatic payments, taking a defensive driving course, or being claim-free in recent years.
Shop around: Auto insurance companies price car insurance differently, so get quotes from at least three different companies.
Improve your credit history: Car insurers often provide better rates to drivers with good credit.
Filing a car insurance claim can be overwhelming, and each insurance company has their own process and tools in place. However, there are some things you can do to make the process easier.
Immediately call your car insurance agent. Explain what happened, and find out what your policy covers as well as any deadlines for filing a claim.
Gather required information. Depending on the nature of your claim, you may need to include a police report, photos of the damage, the names and information of anyone involved in the accident, and a repair estimate. Your insurer should be able to provide you with a list of information or documents you need to include.
File a claim. You can usually submit an official claim over the phone or via your insurance company’s website or mobile app.
Ask about a rental car. If your policy covers a rental car, find out the process for getting the car or reimbursement.
Here are three reasons that insurance companies may deny claims:
The driver is someone who lives with you or has access to your car and is of driving age but not on your policy.
You were using your personal car for business purposes at the time of the accident.
The car isn’t “garaged” at your house. This isn’t about the car being in your garage literally. It means that a car is insured on your policy, but it’s owned and kept at someone else’s address.
Insurers will also deny claims for what could be called self-inflicted damage. That includes damage done while off-roading or at the track. And almost no auto insurance policy (or warranty, for that matter) covers wear and tear.
Furthermore, filing a fraudulent claim is illegal in all 50 states and Washington, D.C., so don’t change the date or details of an accident or occurrence hoping you’ll receive coverage for damages. You could face severe fines, criminal charges, and even imprisonment.
It is possible for car insurance to cover theft, but it has to be the right kind of insurance. To learn more, we spoke to Edward L. Blais, J.D., C.I.C., C.P.I.A., President of Blais Insurance in Lincoln, R.I. He helped us get a sense of what types of policies cover car theft. We also threw a series of scenarios at the car insurance expert.
“When it comes to an auto policy,” says Blais, “Theft is theft.” So the answer is yes, but it’s not quite a blanket “yes.”
In Rhode Island, theft is covered under something called “Other Than Collision.” “It used to be called comprehensive,” says Blais. Even before that, it was called Fire and Theft. In most other states, it is still called “Comprehensive.”
The only way theft would not be covered under this plan is if it could be proven that the policyholder was somehow involved in the theft of the vehicle. That’s straight-up fraud.
Typical things that comprehensive insurance covers include “Missiles, falling objects, theft, larceny, wind storm (sandblast), contact with bird or animal, mischief, fire, explosion, earthquake …” Blais says. These generally constitute your typical “Act of God” scenarios.
It’s important to note that this comprehensive level of coverage is above and beyond your basic liability insurance.
What happens when your car is broken into?
So you walk out to your car in the morning, and your car is still there, but the window is broken. Maybe you own a vehicle with a manual transmission and the thieves couldn’t drive stick, so they went after your belongings instead.
Once again, things get tricky. It depends what those things were, where they were located in the car, and how they were used by the owner.
If you had valuables in the car, such as cell phones, CDs, a purse, etc., these items are covered under the personal property section of your homeowners insurance, condo insurance, or renters insurance.
But say you have an advanced digital camera with multiple lenses (which can get quite expensive), and they are stolen from your trunk. If it turns out you use that equipment for work-related purposes, they would be covered under a commercial property policy or a special scheduled policy. Once again – special cases require a special insurance policy.
What if you have installed aftermarket parts and they are stolen?
One of the great things about car ownership is the ability to customize and personalize your ride. From specialty sound equipment to aftermarket wheels and engine upgrades, there are seemingly endless ways to modify your vehicle. But just because these parts are now on your car, it doesn’t mean they are covered together under the same policy.
“Your standard stereo is covered under the auto policy if it is stolen in the middle of the night,” says Blais. “And even many aftermarket units are covered.”
The rationale is that, in theory, most late-model cars have sophisticated stereo systems, and even the aftermarket units are on-par with the stock ones.
But if you are using an adapter connected to a portable music device, like an old iPod, that’s covered under homeowners insurance.
“If you were to take the stock wheels off the car and replace them with $5,000 wheels and tires,” explained Blais, “You won’t get comped, even under the most robust policy.”
The only way to recover the value of the wheels is if you contact the auto insurance company to write special coverage. Otherwise, you will only be compensated for the value of the stock wheels and tires.
When you file a claim, your car insurance rates will likely go up. How much they go up will depend on various factors, such as:
The type of claim
How much was paid out on the claim
Who was at fault
Your past claims history
Your driving record
The insurance company
For example, you may not see a rate increase after a small windshield repair, but if you are filing a second collision claim or received a major traffic violation for causing an accident, then you could see a significant increase.
It’s important to note that not-at-fault accidents may still increase your rates, but the increase likely won’t be as severe as the increase following an at-fault accident.
If you’re worried about rate increases, ask your insurance company or agent if accident forgiveness is available.
If you own a car but don’t drive it, it may still be a good idea to purchase or keep your existing car insurance policy.
Most states have laws that require drivers to insure any vehicle that’s registered with the state. Failure to do so can result in fines and other penalties.
Another thing to consider is whether or not you finance your vehicle. It’s likely your lender will require you to carry full coverage – usually liability insurance, comprehensive coverage, and collision coverage – until the balance of your loan is paid in full. Otherwise, you may have to pay for force-placed insurance.
Even if there is no legal reason for you to keep your policy, there are benefits for doing so. Many insurers see a lapse in insurance coverage as a risk. When it’s time to hit the road again, you may have to purchase nonstandard auto insurance and pay higher premiums.
Additionally, if your car is stolen, vandalized, or otherwise damaged while it’s parked, an insurance policy may protect you from the financial fallout.
If you’re not going to be driving, it’s a good idea to contact your insurance agent to see what options you have. They may be able to help you change your policy and lower your premiums until you’re behind the wheel again.
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For more information about auto insurance, see the following guides:
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