What Does Car Insurance Cover?

Learn about the various types of car insurance coverage and how they can protect you financially in the event of an accident.

Car insurance will not keep you from getting into an accident, but it will assist you in paying the high medical bills and repair costs that result from a serious accident. The amount your policy will pay out is determined by the type of car insurance you purchase and the limits you select. Here's a rundown of your coverage options.

How car insurance works

Most auto policies include multiple types of car insurance coverage, each designed to cover a specific set of expenses. For example, one part of your policy may cover repairs to your vehicle while another pays for damage caused by someone else.

Each type of coverage has a limit, which is the most your policy will pay. Many of these limits can be customized based on how much coverage you want and how much you're willing to pay for your policy.

The higher your limits and the more types of coverage you purchase, the less financial responsibility you are likely to face after an accident — but the higher the cost of your insurance.

To determine what coverage you require, look into what is required in your state as well as what will best protect your finances.

What kind of car insurance is required?

At the very least, your car insurance policy will include the minimum required coverage types and limits in your state. While minimum car insurance requirements differ by state, the following are the main types of insurance coverage you may be required to obtain:

Liability insurance, which pays for expenses incurred as a result of an accident caused by you.
Personal injury protection (PIP) or medical payments (MedPay) to cover your own medical expenses following an accident, regardless of who is at fault.
Uninsured and underinsured motorist coverage pays for damage caused by drivers who do not have car insurance or do not have enough to cover the damage they cause.

Types of car insurance coverage at a glance

The way your car insurance works is determined by the coverage you purchase. Take a look at the different types of car insurance coverage and how they work, then continue reading for more information and real-world examples.

Coverage type	What it pays for
Liability coverage	Medical costs due to injuries or deaths from an accident you caused, and repair costs for property you damaged.
Uninsured motorist coverage	Medical and repair costs after an accident with an uninsured driver.
Underinsured motorist coverage	Expenses from an accident with a minimally insured driver. This coverage pays once the underinsured driver’s coverage limits have been met.
Collision coverage	Repair expenses from traffic-related accidents, regardless of who is at fault.
Comprehensive coverage	Repair costs from events outside your control — including weather events, hitting an animal while driving, theft and vandalism.
Medical payments coverage	Medical expenses for you and your passengers after an accident regardless of fault.
Personal injury protection insurance	Medical expenses, as well as lost wages, child care, funeral costs and other losses due to an accident regardless of fault.
Gap insurance	The difference between what you owe on your car and your car’s true market value.

Liability insurance

If you cause a car accident, your liability car insurance will pay for any subsequent damage, injuries, or deaths. Except for New Hampshire and Virginia, all states require this coverage.

For auto policies, there are two types of liability coverage:

Bodily injury liability compensates you for expenses incurred as a result of injuries or deaths caused by an accident you caused.
Property damage liability pays for repairs if you collide with another vehicle or another piece of property, such as a fence or a building.

A policy's liability coverage is typically expressed as three numbers. For instance, 100/300/50 denotes:

Each person involved in an accident is entitled to $100,000 in bodily harm.
Each accident is worth $300,000 in terms of bodily injury.
Property damage per accident is limited to $50,000.

Your car insurance will pay up to the policy limits. After that, you'll be responsible for any additional costs.

How it works: You cause a multicar accident, causing two other vehicles to be damaged and four people to be injured. Your property damage liability coverage would pay for repairs to the two vehicles, whereas your bodily injury coverage would pay for the medical bills of those you injured.

The smallest possible limit will be applied. Because your per-accident maximum is $300,000, if you had the above coverage and caused $100,000 in injuries to four different people, your medical bills would not be completely covered.

In some states, you can choose a combined single limit instead to make this type of scenario less likely.

PIP and MedPay

Personal injury protection and medical payments coverage pay for your own medical bills following a car accident, regardless of who was at fault. They also pay for the medical bills of injured passengers.

Personal injury protection, also known as "no-fault insurance," may cover funeral expenses, child care, and lost wages as a result of an accident.

How it works: You and a passenger are both injured in an accident, and you miss work for a few weeks as a result. Because you live in a no-fault state, your policy includes PIP, which covers both you and your passenger's hospital bills, as well as your lost wages.

Uninsured and underinsured motorist coverage

Uninsured motorist coverage pays for the costs incurred as a result of being hit by an uninsured driver. According to a 2019 Insurance Research Council study, one out of every eight drivers does not have car insurance.

When the at-fault driver has insurance, but the limits are insufficient to cover all of the damage, underinsured motorist coverage kicks in.

Some states mandate a certain level of uninsured or underinsured motorist coverage. Here are four types of coverage that may be required:

Uninsured motorist bodily injury coverage, or UMBI, reimburses medical expenses incurred as a result of an uninsured driver.
Uninsured motorist property damage coverage, or UMPD, compensates for repair costs incurred as a result of an uninsured driver.
Underinsured motorist bodily injury coverage, or UIMBI, pays out if the cost of injuries and repairs exceeds the bodily injury liability limits of the at-fault driver.
Underinsured motorist property damage coverage, or UIMPD, pays for repair costs that exceed the at-fault driver's liability limits for property damage.

How it works: At a red light, a driver rear-ends you. When you go to exchange insurance information, you find out the driver does not have any. Your UMPD coverage will pay for bumper repairs, while your UMBI coverage will pay for medical expenses.

Collision and comprehensive coverage

Collision and comprehensive insurance are optional in all states, but they may be required by your contract if you financed or leased a vehicle. If your car is stolen or damaged beyond repair, this coverage will either pay to repair it or reimburse you for its value.

Collision insurance covers damage to your car in the event of an accident, regardless of who is at fault. It will also cover pothole repairs.

Comprehensive insurance covers you if your car is stolen or damaged in ways other than a car accident. Storms, floods, falling objects, explosions, earthquakes, vandalism, or contact with an animal, such as hitting a deer, are all examples of damage.

Both comprehensive and collision coverage typically include a deductible, which is the amount of the insurance claim you must pay before your insurer will pay. The higher the deductible you select, the lower your premium.

How it works: You hit a deer and damage your car's hood to the tune of $3,000. Your deductible for comprehensive insurance is $1,000, which you pay to the repair shop. The remaining $2,000 is then covered by your insurer.

Gap insurance

The value of a new car begins to decline the moment it leaves the dealership — faster than loan balances initially decrease. If you total a new car that hasn't yet been paid off, gap insurance will cover the difference between the car's value and the amount owed on your loan.

If you lease a car, the leasing company may require you to have gap insurance. The gap insurance is usually provided by the car dealer and is included in the lease payment. However, this results in paying interest on coverage that can usually be obtained at a lower cost through an insurer.

How it works: You have a $20,000 auto loan and your new car is totaled in a bad accident. Your collision coverage would cover the total market value of your car (less the deductible), which is approximately $18,000. If you have gap insurance, it will cover the remaining $2,000 on your auto loan.

Additional coverage options

You can select from a number of optional extras, which usually do not add much to the cost of the policy but can come in handy in an emergency. To be eligible for some of these extras, you must first purchase collision and comprehensive coverage.

Rental reimbursement covers the cost of a rental car while your vehicle is being repaired under a covered claim.
Roadside assistance, also known as towing and labor coverage, comes in handy if you break down and require a battery jump or a tow.
New car replacement insurance works similarly to gap insurance in that it pays for the cost of a new car if your old one is totaled in an accident. Most insurers only provide one type of coverage or the other.
Full glass coverage pays to repair or replace chipped or broken window glass, without a deductible.
Rideshare insurance will protect you if you drive for a ridesharing service like Uber or Lyft.

Once you've decided on the coverage options you want, you should shop around and compare car insurance rates. Get at least three quotes to ensure you're getting the best deal on the coverage you choose.