Auto Insurance Basics: What You Need To Know

Basic auto insurance, also known as liability protection, is a type of insurance that covers damages and injuries caused by the policyholder in the event of a car accident. This type of insurance is required by most states and typically includes bodily injury liability, property damage liability, medical payments or personal injury protection, and uninsured/underinsured motorist coverage. Basic auto insurance policies can vary depending on the state and insurance provider, but they generally consist of six types of coverage: bodily injury liability, personal injury protection, property damage liability, collision, comprehensive, and uninsured/underinsured motorist. It's important to note that each type of coverage is priced separately, and policyholders may want to consider purchasing more than the state-required minimum liability insurance to protect their assets adequately.

Bodily injury liability

Basic auto insurance usually refers to a policy that only includes liability coverage. This covers the damage you may cause to other people and their property. This includes medical bills, repair or replacement of property, and legal fallout.

The amount of Bodily Injury Liability Coverage you need depends on your state's requirements. Most states require a minimum amount of coverage to register your vehicle. This is usually shown as a "number/number" format, indicating the per-person limit and the per-accident limit. For example, if your policy has BI limits of $100k/$300k, your insurance would pay up to $100,000 for the medical expenses of one person injured in an accident and up to $300,000 total for the combined medical expenses of four people injured.

It is important to note that your state's minimum requirements may not be enough. You can choose higher limits for more protection, and it is recommended to purchase more than the state-required minimum to protect your assets adequately.

Medical payments/Personal injury protection (PIP)

In some states, PIP is mandatory, while in others it is optional or not offered. PIP is required in 15 states and Puerto Rico, including Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania, and Utah. In addition, four states and the District of Columbia offer PIP as an optional coverage.

The specific benefits covered by PIP can vary by state. For example, in Florida, PIP covers 80% of necessary medical costs, 60% of lost wages, and replacement services for household tasks. In Kansas, PIP covers medical expenses up to $4,500 per person, loss of income up to $900 per month for one year, in-home services up to $25 per day for up to a year, funeral expenses up to $2,000, and rehabilitation expenses up to $4,500.

When purchasing auto insurance, it is important to understand the specific requirements and offerings of your state, as well as the different types of coverage available. While PIP covers medical expenses and related costs, it does not cover damage to your vehicle or property damage. To protect against these types of losses, additional coverage such as collision insurance and property damage liability insurance may be needed.

Property damage liability

The coverage limit for property damage liability insurance is usually represented as a dollar amount per accident. For example, if your policy has a property damage liability limit of $10,000 and you cause $4,500 in damage to another vehicle in an accident, your insurer would cover all the repair costs. However, if the damage exceeds your policy limit, you will be responsible for the remaining cost. Therefore, it is important to consider choosing a higher limit for this coverage to ensure you have sufficient protection.

Comprehensive coverage

In addition to auto insurance, comprehensive coverage can also be added to insurance policies for other types of vehicles, such as motorcycles, boats, and RVs.

Uninsured/underinsured motorist coverage

Under this coverage, if you, a family member, or a designated driver are hit by an uninsured or underinsured driver, your insurance company will reimburse you for the total loss. This includes both damage to your vehicle and medical expenses for you and your passengers. This coverage also protects you in the event of a hit-and-run incident or if, as a pedestrian, you are struck by an uninsured or underinsured motorist.

Uninsured motorist bodily injury (UMBI) and underinsured motorist bodily injury (UIMBI) cover the medical bills for you and your passengers. These policies generally do not include a deductible, so you won't have to pay anything out of pocket.

Uninsured motorist property damage (UMPD) and underinsured motorist property damage (UIMPD) cover damage to your vehicle. Some states may require a deductible for UMPD/UIMPD.

While not all states mandate uninsured and underinsured motorist coverage, it is highly recommended for all drivers. In the event of an accident with an uninsured or underinsured driver, this coverage can prevent you from having to pay for medical bills or vehicle repairs out of your own pocket.

Frequently asked questions