What does car insurance cover?

Understanding your auto insurance policy, which means knowing what your policy covers and does not cover, is important. You do not want to wait until there is an accident to find out what potential coverage gaps your car insurance policy may have. Without the right coverage, it’s possible you could put yourself in financial jeopardy.

What are the coverage components of car insurance?

Basic liability requirements

Almost every state has a basic car insurance requirement. States mandate a minimum amount of liability insurance drivers must have, and insurance companies, in turn, must offer what is required. Each state has its minimum limit requirements, but a licensed insurance agent can help you understand what coverage your state requires.

For example, in Montana, you must have minimum liability coverage is $25,000/$50,000/$20,000, which translates to:
$25,000 per person for bodily injury

$50,000 per accident for bodily injury

$20,000 per accident for property damage

However, having the bare minimum does not mean you are financially protected in the event of an accident.

For example, say you live in Montana and rear-end a vehicle sitting at a stoplight. If you carry the minimum coverage required in Montana, your car insurance policy will pay up to $20,000 per accident for property damage. If you cause enough damage to the other vehicle to exceed your coverage amount, you will pay out of pocket to cover the rest of the damage. Also, minimum coverage means you do not have coverage for the damage caused to your vehicle. So, in this same scenario, you would also have to pay for your vehicle’s repairs out of pocket.

The main auto insurance coverage types

Certain coverage types are commonly available on car insurance policies. These are:

Bodily injury liability: This covers the expenses of other people should you be at fault. Insurance providers offer two bodily injury liability amounts, covering the expenses per person or per accident.
Property damage liability: This covers any damage to property you may do while driving. This usually involves another car, but it can include homes, fences or any other type of structure you might crash into. However, your property damage liability does not cover your car.
Personal injury liability: Personal injury liability (PIP) covers medical payments or lost wages of anyone in the policyholder’s car at the time of the accident, including the driver. PIP is not available in all states, and in the states it is available, it may be required.
Medical payments: Medical payments is available in states that do not offer PIP and helps cover medical expenses for you and your passengers if you are involved in an accident. However, unlike PIP, medical payments only covers medical bills. This coverage is only required in a few states and optional in others.
Uninsured and underinsured motorist: This option covers any damages that are the result of being injured by an uninsured or underinsured motorist, including hit and runs.
Comprehensive: This covers your vehicle if it’s damaged by something other than a collision, such as an accident with an animal like a deer, a fallen branch, fire, theft or vandalism.
Collision: This covers your vehicle if it’s damaged from hitting another car in an accident where you’re at fault. It can also cover vehicle damage from hitting a tree or man-made structure.

What is comprehensive insurance?

Some people consider car insurance only as financial help in an accident, but there are many other incidents that could cost money that you may want more coverage for. Comprehensive insurance repairs your car when it is damaged by theft, vandalism, fire, weather or accidents with animals such as deer.

For example, should your window be broken so a thief can steal your laptop, your insurance provider would cover the replacement of the window. However, your laptop will probably not be covered by your car insurance policy in this scenario.

What if you get in an accident with an uninsured driver?

What does car insurance cover when the other driver doesn’t have insurance in an accident? If you have uninsured motorist insurance, it will cover you. Uninsured motorist coverage looks similar to your bodily injury liability limits in that you have per person and accident coverage amounts. However, in this case, this coverage is for you and the passengers in your vehicle. Keep in mind, though, that uninsured motorist coverage may not cover your vehicle’s damage. If your policy has uninsured motorist property damage, it will help cover your vehicle’s repairs (subject to a deductible). If this cover is not on your policy, collision coverage would have to step in if you have it.

What if I owe more on my car than what its value is?

It’s possible to get into an accident that totals a car you’re still making payments for but not get enough from your insurance provider to settle your debt. This is because insurance companies pay you for the actual cash value (ACV), or depreciated value, of your vehicle. If your vehicle is totaled or stolen, your insurer will likely pay its ACV (determined at the time of loss) minus your deductible.

To safeguard against this, consider purchasing either gap insurance or new car replacement coverage if you can. These coverage options have restrictions, such as only for new vehicles purchased within a few years.

Gap insurance pays off the gap between your ACV and the amount you still have left on your loan or lease.
New car replacement can be used if you’re the first owner of a car or if your car is less than one to two years old. It guarantees that you will be paid more than the ACV of your totaled car and be given enough to replace it with a car of the same value.

These additional coverages may give you extra peace of mind.

What is a deductible?

A deductible is the amount of money you as the insured have to pay before your insurance provider pays for the rest. For example, say you’re in an accident that does $2,000 worth of damage to your car, but you have a $500 deductible. You pay the $500 and your provider will pay the remaining $1,500.

Depending on what coverage option you choose, you could save a lot of money each month by opting to pay a higher deductible. This, in turn, would lower your premium. It may be a wise strategy if you can afford to cover the additional costs a higher deductible creates. Still, it’s best practice to put your deductible amount away into a savings account just in case you need it.

What doesn’t car insurance cover?

The amount of insurance you purchase should depend both on your needs as a driver and your worries because nothing is as valuable as peace of mind.

Part of that peace comes from understanding your auto insurance. If you’ve ever asked Google “what does car insurance cover, the person or the car?” or “what does car insurance cover in an accident?” what you’re really trying to do is understand what car insurance doesn’t cover.

Car insurance doesn’t cover:

Basic maintenance and repairs: You’re responsible for general maintenance like changing your car’s oil, rotating tires and changing brake pads.
Ridesharing: You need additional coverage through a specialized policy or added endorsement if you’re going to drive for companies like Uber or Lyft.
Other people driving your car: Some insurance companies will only insure people who are on your policy, while others allow friends and family to drive your vehicle occasionally. Others allow friends and family as long as they don’t live at the same address as you. If they do, then they won’t be covered until they’re on your policy.
Exotic and performance cars: Some cars are simply too expensive to insure because their parts are rare or they’re too often targeted by thieves. For these, you’ll need to find an insurer specializing in exotic and performance cars.
Personal items within your car: Your car window may be covered with comprehensive coverage, but not what was stolen. Car insurance companies usually only insure the car itself and not the personal belongings. If your personal items are stolen, property coverage, like homeowners or renters insurance, would be what covers these items (minus your deductible).

The takeaway

What does auto insurance cover? In truth, it’s a variety of things. You just need to make sure you choose the right policy. Get what you need, but if you can afford it, give yourself a little bit of cushioning. You never know what might happen.