Understand your Auto insurance and what it covers
Self-insurance
- Understanding Auto Insurance - Basics
- Who is covered by my auto insurance - and under what circumstances?
- Is auto insurance coverage mandatory?
- What other types of auto insurance coverage are common?
- What is Gap Insurance and do I need it?
Basic personal auto insurance is mandatory by most states
and provides you with some financial protection in the event of an accident.
But is it enough? What are the options? Learn how car insurance works and what
types of coverage are available.
Understanding Auto Insurance - Basics
Auto insurance is
an agreement between you and an insurance
company that protects you from financial loss in the event of an accident
or theft. In exchange for paying you a premium, the insurance company agrees to pay for your loss as described in your
policy.
Auto insurance provides coverage:
- Property - such as the loss or theft of your car
- Liability - Your legal liability to others for bodily injury or property damage
- Medical - Injury treatment costs, rehabilitation and sometimes lost wages and funeral costs
Basic personal auto insurance is mandatory by most United States, and laws change. The cost of auto insurance coverage is determined individually (in a la carte) so that you can customize the amount of coverage according to your exact needs and budget.
Policies are usually issued for six months or
one year and are renewable. The
insurance company sends a notice when it is time to renew the policy and
pay your premium.
Who is covered by my auto insurance - and under what circumstances?
Your auto policy will cover you and other family members in your policy, drive your car or drive someone else's car (with their permission). Your policy also provides coverage if someone who is not on your policy drives your car with your consent.
Your personal auto policy only covers personal driving,
whether you are traveling to work, working, or traveling. If you use your car
for commercial purposes, it will not provide coverage - for example, if you
provide pizza.
If you use your car to provide transportation to others through ride-sharing services like Uber or Lyft, the personal auto insurance coverage will also not be provided. Some auto insurers, however, are now offering supplemental insurance products (at an additional cost) that extend coverage for car owners providing ride-sharing services.
Is auto insurance coverage mandatory?
Auto insurance requirements vary from state to state. If you are financing a car, your lender may have its own requirements. Car owners in almost every state have to carry:
- Physical Injury Liability - which covers costs related to injury or death caused by you or another driver while driving.
- Property Damage Liability - which you or the other driver operating your vehicle compensates others for damage to other vehicles or other property, such as fences, buildings, or utility poles.
In addition, many states require you to:
Medical payment or personal injury protection (PIP), which
reimburses you or your passengers for medical expenses for injuries. It will
also cover lost wages and other related expenses.
Uninsured motorist coverage refunds you when an accident
occurs with a driver who does not have auto insurance — or in the case of hit
and run. You can also purchase underinsured motor driver coverage, which will
cover costs when another driver lacks adequate coverage to cover the cost of a
serious accident.
Even if PIP and uninsured motorist coverage are optional in
your state, consider incorporating them into your policy for further financial
protection.
What other types of auto insurance coverage are common?
Although the most basic, legally binding auto insurance covers your car damage, it does not cover your own car damage. To cover your own car, you should consider these optional coverages:
A collision compensates you for the damage to your vehicle
that occurs as a result of a collision with another vehicle or other object,
such as a tree or railroad, when you make a mistake. While collision coverage
will not compensate you for mechanical failure or normal damage to your
vehicle, it will cover holes or rolling damage to your vehicle.
Provides coverage against events other than widespread theft
and collisions such as fire, flood, vandalism, hail, falling rocks or trees,
and other hazards — even being hit by an asteroid!
Glass coverage provides coverage from windshield damage,
which is common. Some automated policies include no-deductible glass coverage,
including side windows, rear windows, and glass sunroofs. Or you can buy
supplemental glass coverage.
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What is Gap Insurance and do I need it?
Collisions and expansions only cover the market value of
your car, not what you pay for it — and new cars quickly devalue. If your car
is total or stolen, there may be a "gap" between your car's debt and
your insurance coverage. To cover this, you can look into buying Gap Insurance
to pay the difference. Note that for leased vehicles, gap coverage is usually
rolled out on your lease payment.
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