What is auto insurance?

It is important to understand how different auto insurance coverages protect you so you can make an informed choice about how much car insurance coverage you need.

But what is auto insurance? Auto insurance provides financial protection in the event of an accident or collision. There are a few major vehicle insurance coverages that states require drivers to carry, while other auto insurance coverages are optional.

Continue reading to learn more about what auto insurance covers, the essential types of insurance coverages, deductibles, and other important information about your policy.

Top Five Essential Auto Insurance Coverages

What is auto insurance? Auto insurance kicks in to help cover medical bills and repair costs after an accident, collision, or other covered event. Your auto insurance policy acts as legal proof that you carry coverage to protect others you might injure or property you might damage in an accident or collision.

What does auto insurance cover? It depends on what kind of insurance you have. The coverages we go over below are usually required in most states or required by lenders.

Collision Auto Insurance Coverage

Collision insurance isn’t required by any of the states in the U.S., but lenders do require this coverage if you have a loan or lease on your vehicle. This is because collision insurance protects the lender’s asset (your vehicle) if you hit another vehicle or an object, like a tree or fence.

If you don’t have collision insurance, then your repair costs won’t be covered if you cause an accident. This is why collision insurance is such an important coverage for drivers and why lenders require it, as most drivers will be unable to pay out of pocket for expensive repairs after an accident.

The exception to our recommendation to carry collision insurance will be if you have an older vehicle that is significantly depreciated in value. If you would end up paying your car’s value in your collision payments in a few years, it may not be worth paying for collision insurance.

Comprehensive Auto Insurance Coverage

Comprehensive insurance is another coverage that isn’t required by any state but is required by lenders. What does comprehensive auto insurance cover? Comprehensive covers damages from a wide range of accidents and mishaps that aren’t covered by collision insurance, as you can see from the list below.

• Animal collisions
• Car theft
• Falling objects
• Weather
• Vandalism

Like collision insurance, most drivers should carry comprehensive insurance unless the car is older and has depreciated greatly in value. However, you may still want to buy full coverage auto insurance that protects you from a variety of mishaps and accidents if you have an auto loan, lease, or drive a newer vehicle.

Liability Auto Insurance Coverage

Liability car insurance is required in the majority of states. If liability insurance is optional, drivers still have to provide proof that they have the funds to pay off expensive accident bills. Generally, it is just easier and cheaper to get liability insurance, even if it’s optional. Below, you can see the average rates for minimum liability insurance for the average driver.

Average Monthly Minimum Coverage Auto Insurance Rates for the Top Auto Insurance Companies

So what does liability auto insurance cover? Liability insurance consists of two parts, bodily injury liability insurance and property damage liability insurance. Bodily injury liability insurance will pay for other parties’ medical bills if you cause an accident that injures other people. It will not pay for you or your passenger’s medical bills.

Property damage liability insurance will pay for other parties’ property damage bills if you cause an accident that damages others’ property. It will not pay for your own car repairs, which will be covered under your collision insurance.

If your state’s liability limits are low, you may want to carry more than the state requires because this insurance is so important. While you may be able to wait to raise the money to repair your own car, you will be legally responsible for other parties’ bills in an accident you cause. So higher liability limits will help you avoid being on the hook for large bills or being sued.

Personal Injury Protection Auto Insurance Coverage

Personal injury protection (PIP) car insurance is a common coverage required in some states. It is medical coverage for you and your passengers. If you are injured in an accident, regardless of who caused the accident, PIP will help pay for some of your medical bills. This is helpful if you are seriously injured or have poor health insurance, as PIP will pick up some of the bills.

PIP also helps pay for injury-related expenses, such as lost wages or childcare, if you can’t work or care for your children because of your injuries. It will also help cover funeral costs if someone passes away in a car accident.

If your state doesn’t offer PIP, then it may offer a similar coverage known as medical payments (MedPay), which also helps pay for your and your passenger’s medical bills if you are injured in an accident. Like PIP, it doesn’t matter who causes the accident, but MedPay will only cover medical bills, not lost wages or childcare.

Uninsured and Underinsured Motorist Insurance Coverage

Uninsured motorist insurance is also required in some states and is especially important in places where there is a high number of uninsured drivers. If you are hit by an uninsured driver, uninsured motorist insurance will pay your accident bills up to the policy limit.

Uninsured motorist insurance may also be sold in conjunction with underinsured motorist insurance. helps pay your accident bills if the driver who hits you doesn’t have enough liability insurance to pay for your bills.

For example, let’s say that you have $20,000 worth of damages to your car. The driver who hit you only has a liability property damage limit of $15,000 and can’t afford to pay the remaining $5,000. In this case, underinsured motorist insurance will step in and pay the $5,000 left for repairs. Learn how underinsured motorist insurance works.

Optional Auto Insurance Coverage

So far, all of the car insurance coverages we have gone over are required by lenders or the state. But some insurance companies will offer more coverages that are completely optional and allow you to personalize your policy. Some add-on coverages you may see offered at your insurance company include the following:

• Gap insurance: How gap insurance works by paying the difference between what your insurance company pays you for the depreciated value of your totaled car and what is left on your lease or loan.
• Modified car insurance: This coverage provides insurance for modified parts of your car, such as a custom paint job.
• Rental car insurance: How rental car insurance works by paying for a rental car if your vehicle is at the repair shop after a covered claim.
• Roadside assistance insurance: This coverage helps with quick repairs like changing a tire, jumpstarting your car, or towing your car to the nearest repair felicity if it can’t be fixed.
• Rideshare insurance: Buying rideshare auto insurance protects rideshare drivers when they are waiting for customers and driving around passengers.
• Umbrella insurance: This coverage is extra liability insurance, which can be helpful if you are sued.

You aren’t required to carry any of the above coverages, but one or two may be useful for rounding out your car insurance policy so that you have all the protection you need.

Understanding Auto Insurance Deductibles

When shopping for car insurance coverage, you will get to choose what deductible you want for each insurance coverage on your policy. An auto insurance deductible is an amount that you agree to pay towards repairs after a car accident, so the higher your deductible is, the less money insurance companies will charge you for insurance coverage. (For more information, read our “Does auto insurance cover repairs?“).

You could choose a zero-dollar deductible, but your insurance rates will be higher as insurance picks up all of the bills. Common amounts people often choose are $500 or $1,000, but deducible may be even higher than this.

While it can be tempting to raise your deductible higher and higher to lower your insurance costs, after an accident, you will have to pay more out of pocket. So if you are unable to afford to pay $1,500 towards car repairs, you shouldn’t raise your deductible that high.

Instead, explore other ways to save on car insurance. You can shop around and get auto insurance quotes to see if a different company offers cheaper rates, or you can see if you can qualify for more discounts at your auto insurance company. Keeping a clean driving record will also help you save on your car insurance policies.

How to Buy Auto Insurance

What is auto insurance? Auto insurance provides financial protection in the event of an accident or collision. You can buy different types of auto insurance depending on where you live and what kind of coverage you need.

Understanding the different auto insurance coverages is essential to picking the right ones for your car. Once you have the required insurance coverages you need to drive legally, you can choose among optional auto insurance coverages to round out your policy.

If you want to find a good rate on your auto insurance coverage, use our free quote comparison tool. It will help you find the cheapest rates from car insurance companies in your area, so you can start saving today.