What Each Auto Insurance Coverage Actually Does
Six coverages on one policy. Two are about other people, two are about your car, and two fill gaps.
An auto policy bundles several separate coverages under one premium. Shoppers compare the total and skip the components, which is how people end up carrying state minimum liability on a car they could not afford to replace.
Coverage for other people
Bodily injury liability pays for injuries you cause to others. It also covers your legal defence if you are sued.
Property damage liability pays for damage you cause to someone else's property, usually their vehicle.
These appear as three numbers, such as 50/100/50: $50,000 per injured person, $100,000 per accident, $50,000 for property damage. Anything above your limit becomes your personal responsibility, and a court can pursue your assets and your wages for it.
State minimums are frequently far below the cost of a serious accident. Property damage minimums in several states sit at $25,000, which a single late-model vehicle can exceed. Raising liability limits is usually one of the cheaper improvements available on a policy, because severe claims are rare and the insurer prices accordingly.
Coverage for your own vehicle
Collision pays to repair or replace your car after a crash, whoever was at fault. It carries a deductible.
Comprehensive covers almost everything that is not a collision: theft, fire, hail, flood, vandalism, a tree limb, an animal strike. Separate deductible, usually lower than collision.
Both pay actual cash value, meaning your car's market value at the time of loss rather than what you paid or what a replacement costs today. If the repair estimate exceeds a percentage of that value, the insurer declares a total loss and pays the value minus your deductible.
When to drop collision
Compare the annual premium for collision and comprehensive against your car's actual cash value. Once the yearly cost approaches roughly a tenth of what the insurer would pay out, the coverage is buying you little. Lenders and lessors require both while a loan runs, so this decision only arrives once the car is yours.
The two gap coverages
Uninsured and underinsured motorist covers you when the at-fault driver has no insurance or not enough. Roughly one in eight US drivers is uninsured, with wide variation by state. This coverage is inexpensive and it is the one that pays when the other driver has nothing to take.
Medical payments or personal injury protection covers medical costs for you and your passengers regardless of fault. PIP is mandatory in no-fault states and typically broader, sometimes covering lost income. MedPay is the narrower version available elsewhere.
Add-ons worth understanding
- Gap insurance. If you owe more on the loan than the car is worth, gap covers the difference after a total loss. Relevant for small down payments and long loan terms.
- New car replacement. Pays for a new vehicle rather than the depreciated value of yours, usually within the first year or two.
- Rental reimbursement. Pays for a rental while your car is repaired, subject to a daily cap and a maximum number of days.
- Roadside assistance. Often duplicated by a card benefit or a motoring club membership, so check before buying it twice.
What moves your premium
Insurers price on driving record, claim history, annual mileage, garaging location, vehicle make and model, age, and in most states your credit-based insurance score. A handful of states restrict or prohibit the use of credit in insurance pricing.
The location factor is stronger than people expect. Moving a few miles can change a premium substantially, because rates are set at a granular geographic level reflecting local claim frequency, theft rates and repair costs.
Shopping without changing the product
Set identical liability limits and identical deductibles across every quote before comparing. A cheaper quote at lower limits is not a better price, it is less insurance.
Ask about discounts by name rather than waiting to be offered them: multi-policy, multi-vehicle, safe driver, defensive driving course, low mileage, anti-theft equipment, paid-in-full, paperless. They are applied on request more often than automatically.
Rates drift upward at renewal even without claims, so compare every couple of years. Loyalty is not consistently rewarded in this market.
This article is general information about how consumer finance products work in the United States. It is not financial, tax or legal advice and is not a recommendation of any specific product or provider. Rules and pricing vary by state and by institution.