Auto Insurance Basics

An auto insurance policy is a package of different kinds of coverage. Most states require a car owner to purchase a minimum amount of certain kinds of coverage, including liability, collision, comprehensive, medical, personal injury, no-fault, uninsured, and underinsured coverage.

Liability Coverage
Required in most states, liability coverage is the basis of any auto insurance policy. If you are at fault in an accident, liability insurance pays for the bodily injury and property damage expenses caused to third parties in the accident, including legal bills. Bodily injury expenses cover medical bills and lost wages, while property damage expenses pay for the repair or replacement of things you destroyed or damaged in the accident.

Liability coverage is often referred to in three numbers.
The first number refers to the bodily injury liability maximum for one person injured in an accident.
The second number refers to the bodily injury liability maximum for all injuries in one accident.
The third number refers to the property damage liability maximum for one accident.

For example, if a policy reads “30/80/10,” then coverage is $30,000 for one bodily injury, $80,000 for all injuries in one accident, and $10,000 for property damage.

Collision
Collision coverage pays for repairs on your vehicle if you cause an accident. You usually cannot collect any more than the actual cash value of your car. Replacement cost is the amount needed to replace your vehicle or repair damages of similar kind and quality without a depreciation deduction. Actual cash value is the value of the vehicle at the time of the accident and is calculated by subtracting the depreciation from the replacement cost. Collision coverage is usually the most expensive component of auto insurance. Insurance companies often will "total" your car if the repair costs exceed a certain percentage of the car's worth. The damage critical point is usually 70 percent of the car's value.

Comprehensive
Comprehensive coverage pays for damages to your car that were not caused by an auto accident, including damages from theft, fire, vandalism, natural disasters, or hitting a deer. Comprehensive coverage comes with a deductible and your insurer will only pay as much as the car was worth when it was damaged.

Medical Payments
MedPay covers medical expenses for you and your passengers after an accident in which you were driving your own vehicle, in which you were driving someone else’s vehicle with their permission, and when you or your family were pedestrians. You are covered regardless of who was at fault.

Personal Injury Protection (PIP) and No-fault Coverage
Personal injury protection (PIP) and "no-fault" coverage are expanded forms of medical payment protection that may be required in your state. No-fault means your auto policy must pay for bodily injury regardless of who caused the accident.

Uninsured/Underinsured Motorists Coverage
Uninsured motorists (UM) coverage pays for your injuries if you're struck by a hit-and-run driver or by someone who does not have auto insurance.

Underinsured motorists (UIM) coverage pays if the driver who hit you causes more damage than his/her liability coverage can cover.

Add-on Features
Supplemental auto coverage is available, either as separate premium items or included in augmented policies.

• Rental reimbursement covers vehicle rentals required because your car is damaged or stolen.
• Towing and labor coverage pays for charges in case of a road breakdown
• Auto replacement coverage guarantees your car will be completely repaired or replaced, even if these costs exceed its depreciated value

Auto Insurance Requirements by State