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There’s nothing sexy about automobile insurance. It’s there to protect and insulate you from financial demands, medical payments, and your own liability on the worst days of your life. It’s a monetary shield, one that you are required by law in most states to have if you drive a car.
Understanding insurance services and protections can be complicated and confusing. To get you up to speed on all things related to car insurance as well as an explanation of the types of coverage, I’ve prepared this guide to help illuminate the murkiness of the insurance world.
What Is Automobile Insurance?
Simply put, automotive insurance is a contract between a driver and insurance company that, for a monthly fee, protects the driver from financial loss in the event of an accident. This contract can cover medical, property, and other expenses incurred during an accident that the driver or another party may be on the hook for, sometimes depending on whose fault the accident was.
Do I Need Car Insurance?
Almost every state in the United States requires it by law. (New Hampshire and Virginia do not, but they require proof of sufficient funds to meet financial requirements in case of an accident.) What type of coverage you are required to have, however, varies from state to state, and how much you’ll pay will vary depending on your driving history, type of car, and use of car, among other factors.
Who and What Does Auto Insurance Cover?
According to the Insurance Information Institute, who your policy covers will vary. “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),” the website states. “Your policy also provides coverage if someone who is not on your policy is driving your car with your consent. Your personal auto policy only covers personal driving, whether you’re commuting to work, running errands, or taking a trip.”
The website also tells you what insurance will not cover, including using your car for commercial purposes: “For instance, if you deliver pizzas. Personal auto insurance will also not provide coverage if you use your car to provide transportation to others through a [ride-hailing] service such as Uber or Lyft.” There are some insurance companies, however, that will provide supplemental coverage for those who offer those services.
Most automotive insurance coverage can be broken down into a handful of categories, including collision, comprehensive, liability, medical, uninsured or underinsured motorists, roadside assistance, personal umbrella, rental reimbursement, and personal injury protection. You select how much coverage you require at the time of your insurance purchase as well as your overall deductible. The deductible is how much you’re required to pay out of pocket to trigger the insurance company covering the remaining amount. You can, however, make changes throughout the time you use that insurance provider.
Each option features distinct insurance coverage meant to ensure you don’t have to pay as much out of pocket in the event of an accident. Not all states, however, require each of these, and you can change the amount of your coverage when you sign up for car insurance.
Here’s how those coverages break down:
Collision
The collision portion of your auto insurance will detail how much your insurance carrier will pay to fix your car in the event of an accident involving other vehicles and property.
Comprehensive
Comprehensive covers theft, vandalism, fire, weather, or other forms of damage that your car might incur outside of normal use. Most car leases require comprehensive coverage.
Liability
According to State Farm, one of the nation’s largest insurance providers, “Liability car insurance helps pay for the costs of the other driver’s property and medical injuries if you are at fault in an accident. Your insurer will pay for the property damage and injuries up to the covered limit.” This means liability insurance pays the other party when you are deemed at fault for property damage and bodily injury sustained in the accident.
Medical
Medical refers to the portion of your insurance’s coverage that pays for doctor’s visits, prescriptions, or therapy related to a motor-vehicle accident for you and others in your car at the time of the accident.
Uninsured or Underinsured Motorist
If you’re hit or get into an accident with a driver who’s uninsured or underinsured, meaning their coverage won’t cover the full amount required to pay for repairs or medical bills, this portion of your policy will help you pay the outstanding amount.
Roadside Assistance
In case your ride breaks down, your insurance company will pay for a tow or roadside assistance.
Personal Injury Protection
Personal injury protection, according to Nationwide, is mandatory in so-called no-fault insurance states. “No-fault insurance can help cover you and your passengers’ medical expenses and loss of income,” the company’s website states, “in the event of a covered accident, regardless of who is found at fault.”
Eighteen states are considered no-fault insurance states, including Arkansas, Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania, Texas, Utah, and Washington.
Rental Reimbursement
Essentially, if your car is broken and in the shop for repairs, rental reimbursement coverage pays for your use of a rental car during that period of time. For example, if somebody sent your minivan to the shop, your insurance company will provide you with a similar vehicle to drive for the week.
Personal Umbrella
Umbrella coverage starts where the rest of your coverage ends. According to Geico, this portion of your insurance covers injuries, liability, property damage, and lawsuits among other coverages once you’ve exhausted those resources.
How Much Does It Cost?
The answer to the question of how much coverage you need is the right amount. There is no simple or straightforward answer. Automotive insurance coverage is going to range from person to person, based on driving habits, driving history, type of car, location, commuting or weekend toy, and how many miles you drive, among other factors.
Most insurance companies know that no two drivers are alike, and they offer a variety of coverage levels within their respective policies. When you’re selecting insurance, you’ll be able to change each of those categories above and see how they impact your coverage, deductibles, and the overall cost of your payments.
Cost is similarly elusive. Those same variables that affect coverage will also affect insurance pricing. For instance, younger men are more likely to incur higher insurance costs due to a perceived recklessness and penchant for taking chances. The average cost of car insurance in the U.S. is $1,674 a year, according to Bankrate.com. You can also get significantly less expensive as well as significantly more coverage.
What Is Gap Insurance?
According to the insurance giant Allstate, gap insurance “helps pay off your auto loan if your car is totaled or stolen and you owe more than the car’s depreciated value.” Gap insurance or loan/lease gap coverage is only available for new cars. It takes care of what you might still owe on a loaned or leased car.
Video
Allow Allstate to explain what auto insurance is as well as what it entails.
FAQs About Automobile Insurance
You’ve got questions. The Drive has answers.
Q. Who needs auto insurance?
A. Everyone. Although two states—New Hampshire and Virginia—do not require automotive insurance, you still must prove you have the ability to pay for whatever damage you are deemed responsible for in the case of an accident.
Q. Do I need insurance to buy a car?
A. That depends on whether you’re purchasing a new car or a used one. Typically, a dealership will not allow you to drive your new ride home without proof of insurance. It’s a liability for them if you don’t have it and crash on your way home. A private seller, however, won’t require proof of insurance, although you should have it.
Q. Does my insurance cover rental cars?
A. Generally, it does. According to USAA’s website: “If you cause an accident while driving the rental, your liability insurance would pay up to your policy limits for the damages to other cars or property. Likewise, collision coverage on your regular policy would pay for accident-related damages to the rental car you’re driving. Finally, your comprehensive coverage would take care of damages to the rental vehicle not related to a traffic accident, such as theft or vandalism.” It’s always a good idea to check with your insurance provider to see if you and your rental car are covered.
Q. What happens if I don’t get car insurance?
A. If you don’t have automotive insurance or you let your insurance lapse, you will be liable for all expenses in an accident out of your own pocket. According to Progressive, if you’ve allowed it to lapse, you’ll want to do three things:
- Call your previous insurance company and find out how long you’ve been without coverage. If you recently missed a payment, there’s a chance your insurance hasn’t been canceled yet.
- See if your policy can be reinstated. If your policy was canceled, find out if it can be reinstated. That means you’ll maintain continuous insurance with the policy you had previously. When reinstating, you’ll pay the past due balance, and you’ll be covered without any lapse.
- If your policy can’t be reinstated, get a new one. You’ll then want to get a new policy right away.
