Auto Insurance: What You Need To Know About Coverage

Auto insurance is a contract between you and an insurance company that provides financial protection in the event of an accident, theft, or damage. It covers damage to your vehicle, as well as any liability for injuries to others or damage to their property. Most states require drivers to have a minimum amount of auto insurance, and lenders may also mandate specific coverages if you lease or finance a car. The cost of auto insurance varies depending on factors such as age, location, driving history, and vehicle type. When choosing an auto insurance policy, it's important to understand the different types of coverages available and select the options that best suit your needs.

What does auto insurance cover?

Auto insurance is a contract between you and an insurance company that protects you against financial loss in the event of an accident or theft. In exchange for your premium, the insurance company agrees to pay your losses as outlined in your policy.

Auto insurance provides coverage for property, liability, and medical expenses. Property coverage includes damage to or theft of your car. Liability coverage is for your legal responsibility to others for bodily injury or property damage. Medical coverage includes the cost of treating injuries, rehabilitation, lost wages, and sometimes funeral expenses.

Basic personal auto insurance is mandated by most US states, and laws vary. Policies are generally issued for six-month or one-year timeframes and are renewable. Nearly every state requires car owners to carry bodily injury liability and property damage liability coverage. Many states also require medical payments or personal injury protection (PIP).

While most basic auto insurance covers damage to other cars and property, it does not cover damage to your own car. To cover your own car, you can purchase collision and comprehensive coverage. Collision coverage reimburses you for damage to your car that occurs as a result of a collision with another vehicle or object, or if your car overturns. Comprehensive coverage provides protection against theft and damage caused by incidents other than a collision, such as fire, flood, vandalism, hail, falling trees, and other hazards.

In addition to the standard coverages mentioned above, auto insurance companies offer a range of optional add-ons for purchase, such as roadside assistance, new car replacement, rental reimbursement, and rideshare insurance.

What are the different types of auto insurance?

Auto insurance is a requirement in most US states, and there are several types of coverage to choose from. The amount of protection you receive depends on the types of insurance you purchase.

Liability Coverage

Liability coverage is required in most US states as a legal requirement to drive a car. It helps protect other people on the road. If you cause an accident, your liability coverage will pay for injuries and property damage to others, up to your policy's limits. Liability coverage is broken down into two types: bodily injury and property damage liability.

Collision Coverage

Collision coverage is optional in all 50 states. However, if you have an auto loan or lease, your lender or leasing company will probably require it. Collision coverage pays for the cost of repairing your vehicle, regardless of who is at fault in an accident. It also covers rollover accidents and pothole damage.

Comprehensive Coverage

Comprehensive coverage, sometimes known as "other than collision" coverage, pays for the damage to your car resulting from acts of nature (such as hail, wind and floods), fire, theft, vandalism, falling objects, and hitting an animal. Comprehensive coverage is optional in all states but may be required by lenders for financed or leased vehicles.

Uninsured/Underinsured Motorist Coverage

Uninsured motorist coverage pays for your medical bills if another driver hits you and they don't have any bodily injury liability to cover your medical expenses. Underinsured motorist coverage, on the other hand, pays for medical bills that exceed the at-fault driver's bodily injury liability limits. These coverage options may or may not be mandatory, depending on your state.

Medical Payments Coverage

Medical payments coverage helps pay for medical costs related to a covered accident, regardless of who is at fault. It covers medical expenses, ambulance fees, and passenger coverage. Medical payments coverage is optional in most places but may be required by law in some states.

Personal Injury Protection

Personal injury protection (PIP) is first-party insurance that pays for medical bills, lost wages, and funeral expenses for you, your family, or your passengers, regardless of who was at fault in an accident. PIP is mandatory in some states and optional in others.

Other Types of Auto Insurance

In addition to the types of auto insurance mentioned above, there are other optional coverages that you can add to your policy, including roadside assistance, rental car reimbursement, new car replacement coverage, and gap insurance.

How much auto insurance do I need?

The amount of auto insurance you need depends on your state's requirements and your specific situation. Every state has a minimum amount of car insurance you must buy to satisfy financial responsibility laws. Liability insurance is the main mandated coverage and covers damage and injuries you cause to others in an accident. The most common minimum limits for liability are $25,000 per person and $50,000 per accident for bodily injury and $25,000 for physical damage. However, your state's requirements may be higher or lower.

In addition to liability insurance, you may also want to consider other types of coverage such as uninsured motorist coverage, personal injury protection, and comprehensive and collision insurance. Uninsured motorist coverage protects you if you're in an accident with a driver who doesn't have insurance or doesn't have enough insurance to cover the costs of the accident. Personal injury protection covers your medical bills after an accident, regardless of who is at fault. Comprehensive insurance covers damage to your vehicle from theft, natural disasters, or other causes not covered by collision insurance, while collision insurance covers damage to your vehicle in the event of an accident.

When deciding how much auto insurance to get, it's important to consider your financial situation and the value of your assets. If you have a high net worth, you may want to purchase more insurance to protect yourself in the event of a lawsuit. On the other hand, if you have few assets, you may be able to get by with the minimum required coverage. Ultimately, the right policy is one that gives you peace of mind and protects you financially without breaking the bank.

How much does auto insurance cost?

The cost of auto insurance depends on several factors, including age, location, driving record, vehicle type, and more. The average cost of car insurance in the US is $2,348 per year for full coverage and $639 per year for minimum coverage. However, these costs can vary significantly based on individual circumstances. For example, the average cost of car insurance in Ohio is $1,497 for full coverage and $400 for minimum coverage, while in Louisiana, the average cost of full coverage is $3,683 per year.

Age is a significant factor in determining auto insurance rates, with younger drivers typically paying higher premiums than older drivers. Rates tend to decrease as drivers gain more experience, with the lowest rates often offered to drivers in their mid-30s to mid-60s. Rates may increase again for drivers in their late 60s and early 70s due to factors such as decreased reaction time and poorer eyesight.

Location is another critical factor, as auto insurance rates vary by state and city. For instance, urban areas with higher populations and more congested traffic tend to have higher insurance rates than rural areas. Additionally, states with higher frequencies of accidents, claims, and vehicle theft may have higher average insurance premiums.

The type of vehicle being insured also impacts the cost of auto insurance. SUVs, for example, tend to have cheaper insurance rates than electric vehicles (EVs) due to the higher cost of repairing and replacing EVs. The availability and cost of parts, safety features, and repair costs all contribute to the insurance rates for specific vehicle models.

Other factors that can influence auto insurance rates include driving record, credit score, gender, marital status, and mileage. Drivers with accidents, speeding tickets, or DUIs on their record will typically pay higher premiums. Poor credit scores can also result in higher insurance costs, as insurers consider individuals with poor credit to be higher-risk. In most states, men pay higher insurance rates than women, as data shows that men are more likely to engage in riskier driving behaviours. Married individuals often benefit from lower insurance rates compared to single drivers. Finally, those who drive fewer miles per year may qualify for lower premiums since they are less likely to be involved in accidents.

How does auto insurance work?

Auto insurance is a contract between you and an insurance company that protects you against financial losses in the event of an accident or theft. In exchange for your premium (the amount you pay for your policy), the insurance company agrees to pay your losses as outlined in your policy. Auto insurance provides coverage for property damage, liability, and medical costs.

Basic personal auto insurance is mandated by most US states, and laws vary. Policies are generally issued for six-month or one-year timeframes and are renewable. The insurance company sends a notice when it's time to renew the policy and pay the premium.

Your auto policy will cover you and other family members on your policy, whether driving your car or someone else's car (with their permission). Your policy also provides coverage if someone who is not on your policy is driving your car with your consent. Personal auto insurance will not provide coverage if you use your car for commercial purposes, such as delivering pizzas or providing transportation through a ride-sharing service like Uber or Lyft.

Auto insurance requirements vary from state to state, and if you're financing a car, your lender may have its own requirements. Nearly every state requires car owners to carry bodily injury liability and property damage liability coverage. Many states also require medical payments or personal injury protection (PIP) coverage, which reimburses medical expenses for injuries to you or your passengers. Uninsured motorist coverage reimburses you when an accident is caused by a driver who does not have auto insurance or in the case of a hit-and-run. Underinsured motorist coverage will cover costs when another driver lacks adequate insurance to pay for the costs of a serious accident.

While most basic, legally mandated auto insurance covers the damage your car causes, it does not cover damage to your own car. To cover your own car, you can consider optional coverages like collision and comprehensive insurance. Collision insurance reimburses you for damage to your car that occurs as a result of a collision with another vehicle or object, even if you are at fault. Comprehensive insurance provides coverage against theft and damage caused by incidents other than a collision, such as fire, flood, vandalism, or falling objects.

In addition to the basic coverages mentioned above, auto insurance companies offer various optional add-ons for purchase, such as roadside assistance, new car replacement, rental reimbursement, and rideshare insurance.

The price of auto insurance depends on several factors, including the types and amounts of coverage, the deductibles chosen, the driver's age, driving history, location, and the vehicle's make and model.

Frequently asked questions