Car Insurance Coverage: Everything You Need to Know

By Lorraine Roberte

Car insurance agencies want you to have a policy that suits your needs, so they give you options—sometimes too many. You’re left with a dizzying array of choices that either sends you down a multi-hour rabbit hole of research or causes you to quickly give up and scroll through Instagram—depending on your natural tendencies.

But there’s a better way to know your options. Keep reading to learn the essential types of coverage, any extras to consider, and how much car insurance you might need.

Woman driving convertible

Types of Coverage

When shopping around for a policy, you’ll come across various types of coverage designed to protect you in an accident. Here are the six main types of coverage and what they entail:

Liability: This coverage has two parts: bodily injury liability to pay for the other party’s injuries if you’re at fault in an accident, and property damage liability to cover damage to someone else’s property caused by your car.

Collision: Pays for your car’s repair or replacement (up to its actual cash value, minus your deductible) after hitting another vehicle or object.

Comprehensive: Pays for your car’s repair or replacement (up to its cash value, minus your deductible) from damages resulting from a covered peril. This coverage can include events such as vandalism, theft, fire, and hail.

Uninsured/Underinsured Motorist: Covers your medical expenses and car repairs (in some states) if you’re hit by a driver without insurance. In addition, it covers hit-and-run accidents in most states.

Medical Payments (MedPay): Helps pay for you and your passengers’ medical expenses after a crash.

Personal Injury Protection (PIP): Covers your medical expenses and of any passengers, plus other expenses caused by the accident, such as lost wages, disability, and rehabilitation expenses. This coverage is only available in a few states.

What about full coverage? That’s not actually a specific type of coverage. Instead, it generally refers to a combination of liability, collision, and comprehensive insurance.

Going Beyond the Basics

Every insurer has a variety of coverages and insurances that go beyond the basics. Here are the important ones to consider:

Gap Insurance: Pays the difference between your car’s loan balance and its actual cash value at the time of the crash if your vehicle is totaled.

Rideshare Insurance: A separate coverage, endorsement, or policy that allows you to use your car for a Transportation Network Company (TNC), like Uber or Lyft, without violating the terms of your auto policy.

Roadside Assistance: Provides services when you’re having car troubles. This can include towing, jump starts, flat tire changes, locksmith help, and more.

Classic Car Insurance: A specialized policy for classic, antique, or collectible vehicles. It is also available for exotic and high-value cars.

Coastline view of ocean from car

Which Auto Insurance Coverage Do You Need?

When selecting insurance coverages, here’s what to consider before getting behind the wheel:

Your State’s Requirements: All states require drivers to show proof of financial responsibility, typically in the form of certain liability coverages and limits under a car insurance policy. You’ll need at least that much protection to drive your car legally. In addition, some states also have minimum uninsured/underinsured motorist, PIP, or MedPay requirements.

The Value of Your Car: At the most basic level, consider adding comprehensive or collision insurance because replacing or repairing a car in today’s market isn’t cheap. If you’ve got a clunker that’s only worth a few hundred or a thousand dollars, you might feel safe skipping out on comprehensive and collision coverage to save on premiums. I chose to forgo collision and comprehensive insurance on my 2007 Nissan Sentra with transmission problems. I knew I wouldn’t get much back if my car were declared a total loss after an accident.

Your Risks

When I moved from New York to Florida, I made sure to get uninsured/underinsured motorist coverage. Why? Florida is one of the top states when it comes to the percentage of uninsured drivers. Think about your own risks based on where you live and your current situation. For example, if you have an auto loan, gap insurance could be beneficial if a totaled car would leave you underwater on what you owe.

Woman in passenger seat of car looking out the window

How Much Auto Insurance Coverage Should I Get?

Your auto insurance should be a balance between your budget and the coverages you need and want. Keep in mind that your state’s minimum liability requirements likely aren’t enough to fully protect you. Depending on the severity of the crash, car accidents can cost an eye-watering $1.7 million and beyond.

To avoid getting stuck with a bill you can’t afford, get as much liability insurance as you can. A good rule of thumb is $100,000 of bodily injury liability coverage per person, $300,000 of bodily injury liability coverage per accident, and $100,000 of property damage liability coverage per accident. These numbers can be expressed as 100/300/100 for short. You’ll also often see this same shorthand when looking at your state’s minimum liability requirements.

When protecting your car with comprehensive, collision, or other insurance, go with a deductible you feel comfortable paying if you ever need to file a claim. The higher your deductible, the cheaper your premium—but the more out-of-pocket expenses you’ll have if something happens to your car.

Mountain road with car in the distance with fall leaves

It’s also important to note that if you have a car loan or lease your car, you may be required to have certain coverages and limits as part of your contract.

Your Auto Insurance Policy Is as Individual as You

Beyond legal and contractual requirements, it’s up to you to see which coverages meet your needs. Of course, you’ll have to take your budget into account, but it pays to shop around. You might find that your dollar stretches further with some insurers than with others, getting you the best protection your money can buy.

The opinions expressed in this article are those of the author of this article and may not reflect the view of AAA—The Auto Club Group. For more information about insurance with AAA, please visit AAA.com/AutoInsurance. Coverage is subject to all policy terms, conditions, exclusions, and limitations.

 

Read more stories from the road: