What exactly does car insurance cover?

Make sure you are aware of what is covered by your auto insurance.

In the event of an accident, having at least the most basic level of personal vehicle insurance is required by the majority of states and offers you some financial protection. But is it even sufficient? What are the different possibilities? Find out how auto insurance policies are structured and what options are available for coverage.

Acquiring a foundational understanding of vehicle insurance

Auto insurance is a contract between you and the insurance provider that protects you against financial loss in the case of an accident or theft. The contract protects you against financial loss in the event that you are at fault in the accident. In return for the payment of a premium by you, the insurance company commits to compensate any damages you sustain in accordance with the terms of your policy.

Coverage under an auto insurance policy includes the following:

  • Personal property, such as when your automobile is broken into or stolen
  • Your legal duty to others for any injuries or damages to their property or person is referred to as liability.
  • The cost of medical care, which includes the treatment of injuries, rehabilitation, and, in certain cases, replacement of lost earnings and burial costs.

Basic personal auto insurance is mandated by most U.S. states, and laws vary. Because auto insurance coverages are priced separately (a la carte), you are able to tailor the coverage levels to precisely meet your requirements while staying within your financial means.

Policies are often provided for periods of either six months or one year and may be renewed after their expiration. When it is time to renew the policy and pay the payment, the insurance provider will send you a reminder in the form of a letter.

Who is covered by my vehicle insurance, and in what situations are they not covered, and why?

Your auto insurance coverage will cover you and any other family members included in the policy, regardless of whether you are driving your own vehicle or another person’s vehicle (with that person’s consent). If you provide permission to someone who is not listed on your insurance to drive your vehicle, your policy will still offer coverage for them.

Your personal vehicle coverage will only cover driving that you do for personal reasons, like commuting to and from work, conducting errands, and going on vacation. If you use your vehicle for business activities, such as delivering pizzas, the policy will not protect you in the event of an accident.

If you use your own vehicle to offer transportation for other people via a ride-sharing service such as Uber or Lyft, your personal auto insurance policy will not protect you in this situation either. However, some car insurers are now offering supplementary insurance policies that extend coverage for vehicle owners who provide ride-sharing services. These products come with an extra premium associated with them.

Is having vehicle insurance coverage a legal requirement?

Different states have different minimum requirements for car insurance. When you finance a vehicle, the financial institution that is providing the loan can have additional criteria of its own. Carrying the following items is mandatory for automobile owners in almost every state:

  • The bodily injury liability policy pays for medical expenses and funeral costs related to injuries or deaths that are caused by you or another driver while they are using your vehicle.
  • In the event that you or another driver using your vehicle causes damage to another vehicle or to other property, such as a fence, building, or utility pole, your property damage coverage will pay for repairs or compensation to the affected parties.

In addition, the following items are mandated by law in several states:

  • Medical payments or personal injury protection (PIP), which offers compensation for medical expenditures incurred as a result of injuries sustained by you or your passengers, are both examples of this kind of insurance. It will also pay missed earnings and any other expenditures that are associated with the loss.
  • Your uninsured motorist coverage will pay for damages in the event that an accident is your fault but the other driver does not have car insurance or if you are the victim of a hit-and-run. You also have the option of purchasing under insured motorist policy, which would cover your expenses in the event that another driver involved in an accident does not have sufficient insurance to pay the costs associated with the accident.

Consider purchasing personal injury protection (PIP) and uninsured motorist coverage even if doing so is not required in your jurisdiction. Doing so will provide you with a higher level of financial security.

What additional common forms of coverage do most vehicle insurance policies include?

The majority of basic auto insurance, which is required by law, covers the damage that your automobile does to other vehicles, but it does not cover damage to your own vehicle. You should give some thought to the following supplementary coverages in order to protect your own vehicle:

  • If you cause a collision with another vehicle or another object, such as a tree or a guardrail, and you are found to be at fault for the accident, your collision insurance will pay for any damages to your vehicle that are a direct consequence of the accident. Collision coverage will pay for repairs to your vehicle if it is damaged by things like potholes or rolling over, but it will not compensate you for losses incurred due to mechanical failure or natural wear and use on your vehicle.
  • Comprehensive insurance protects against losses incurred as a result of theft as well as damage brought on by events other than collisions, such as fire, flood, vandalism, hail, falling boulders or trees, and other risks; in certain cases, it will even cover damage brought on by being struck by an asteroid.
  • Glass Coverage protects drivers and passengers against the frequent occurrence of windshield damage. There are many vehicle insurances plans that feature deductible-free glass coverage, which covers not just the windshield but also the side windows, rear windows, and glass sunroofs. You also have the option to purchase additional glass covering.

What exactly is gap insurance, and do I need it in any way?

The market value of your vehicle is the only thing that collision and comprehensive insurance cover; not the amount that you bought for it. However, the value of a new vehicle decreases very rapidly. There may be a “gap” between the amount that you owe on the vehicle and the amount that your insurance coverage pays you if your automobile is stolen or damaged. In order to compensate for this, you may wish to investigate the possibility of getting gap insurance to make up the difference. Keep in mind that gap coverage is often included in the monthly payments that you make for leased automobiles.