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Car insurance can’t keep you from getting into an accident, but it can help pay the hefty medical bills and repair costs that come from a serious wreck. How much your policy will pay out depends on the types of car insurance you buy and the limits you choose. Here’s a guide to coverage options.
How car insurance works
Most auto policies include several types of car insurance coverage, each designed to pay for different expenses. For example, one part of your policy might cover repairs for your vehicle, while another pays for someone else’s damage.
Each type of coverage has a limit — the maximum your policy will pay. You can customize many of these limits 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 buy, the less financial responsibility you’re likely to face after an accident — but the more expensive your insurance will be.
To decide what coverage you need, research what’s required in your state and what will best protect your finances.
What car insurance coverage is required?
At the very least, your car insurance policy will include your state’s minimum required coverage types and limits. While minimum car insurance requirements vary by state, the main types of insurance coverage you could be required to get are:
Liability insurance, which pays for expenses due to an accident you cause.
Personal injury protection, or PIP, or medical payments, or MedPay, to cover your own medical expenses after an accident, no matter who’s at fault.
Uninsured and underinsured motorist coverage to pay for damage from drivers without car insurance, or without enough to pay for damage they cause.
Types of car insurance coverage at a glance
How your car insurance works depends on the coverage you buy. Take a look below at the main types of car insurance coverage and how they work; then read on for more details and real examples.
What it pays for
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.
Repair expenses from traffic-related accidents, regardless of who is at fault.
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.
The difference between what you owe on your car and your car’s true market value.
If you cause a car accident, liability auto insurance will cover the cost of any subsequent damage, injuries or deaths. All states, except New Hampshire and Virginia, require this coverage.
There are two types of liability coverage for auto policies:
Bodily injury liability pays for expenses from injuries or deaths in an accident you cause.
Property damage liability covers repair costs if you hit another vehicle or other property such as a fence or building.
The amount of liability coverage in a policy is usually expressed as three numbers. For example, 100/300/50 means:
$100,000 bodily injury for each person in an accident.
$300,000 for bodily injury per accident.
$50,000 for property damage per accident.
Your car insurance will pay up to the limits on your policy. After that, you’ll be on the hook for additional expenses.
How it works: You cause a multicar accident, damaging two other vehicles and injuring four people. Your property damage liability coverage would cover repairs for the two vehicles, while your bodily injury coverage would pay the medical bills of the people you injured.
The lowest possible limit will apply. If you had the coverage listed above and caused $100,000 worth of injuries to four different people, those medical bills wouldn’t be completely covered because your per-accident maximum is $300,000.
To make this type of scenario less likely, in some states you can choose a combined single limit instead.
PIP and MedPay
Personal injury protection and medical payments coverage pay your own medical expenses after a car accident, no matter who was at fault. They also cover medical expenses for injured passengers.
Personal injury protection, sometimes called "no-fault insurance," may also cover funeral costs, child care or lost wages due to injuries from an accident.
How it works: You and a passenger are both injured in an accident, and you end up missing work for a couple of weeks. Because you live in a no-fault state, your policy includes PIP, which pays for hospital bills for both you and your passenger, plus your lost wages.
Uninsured and underinsured motorist coverage
Uninsured motorist coverage pays costs that result from an uninsured driver hitting you. About 1 in every 8 drivers don't have car insurance, according to a 2019 study by the Insurance Research Council.
Underinsured motorist coverage pays out when the at-fault driver has insurance, but their limits are too low to cover all of the damage.
Some states require a minimum amount of uninsured or underinsured motorist coverage. Here are four coverage types that may be required:
Uninsured motorist bodily injury coverage, or UMBI, pays for medical expenses caused by an uninsured driver.
Uninsured motorist property damage coverage, or UMPD, pays for repair expenses caused by an uninsured driver.
Underinsured motorist bodily injury coverage, or UIMBI, pays out if the cost of injuries and repairs is more than an at-fault driver’s bodily injury liability limits.
Underinsured motorist property damage coverage, or UIMPD, pays for repair costs that surpass the at-fault driver’s property damage liability limits.
How it works: A driver rear-ends you at a red light. When you go to exchange insurance information, you discover the driver has none. Your UMPD coverage pays to repair your bumper, while UMBI coverage pays for medical expenses.
Collision and comprehensive coverage
Collision and comprehensive insurance are optional in every state, but may be required by your contract if you financed or leased a vehicle. This coverage pays to either fix your car or reimburse you for its value if it’s stolen or damaged beyond repair.
Collision insurance pays for damage to your car after an accident, regardless of who was at fault. It will also pay for pothole damage.
Comprehensive insurance pays out if your car is stolen or damaged by anything other than a car accident. That includes damage from storms, floods, falling objects, explosions, earthquakes, vandalism or contact with an animal, such as hitting a deer.
Both comprehensive and collision coverage generally come with a deductible, which is the amount of the insurance claim you’ll have to cover before your insurer pays. The higher the deductible you choose, the lower your premium will be.
How it works: You hit a deer and damage the hood of your car to the tune of $3,000. Your comprehensive insurance deductible is $1,000, which you pay to the repair shop. After that, the remaining $2,000 is covered by your insurer.
A new car’s value begins to drop the moment it leaves the car lot — faster than loan balances decrease at first. If you total a new car that hasn’t yet been paid off, gap insurance will cover the difference between what the car is worth and how much you owe on your loan.
If you’re leasing a car, the leasing company might require you to carry gap insurance. Usually, the car dealer will provide the gap insurance, and the cost will be included as part of the lease payment. However, that results in paying interest on coverage you can typically get cheaper through an insurer.
How it works: You owe $20,000 on your auto loan when you get into a bad accident and your new car is totaled. Your collision coverage would cover the total amount of your car’s market value (minus deductible), about $18,000. If you have gap insurance, your insurer would cover the remaining $2,000 on your auto loan.
Additional coverage options
You can choose from a variety of extra options, which usually don’t cost too much to add to a policy but can come in handy in an emergency. You’ll need to buy collision and comprehensive to be eligible to purchase some of these extras.
Rental reimbursement pays for a rental car while your car is in the shop following a covered claim repair.
Roadside assistance, or towing and labor coverage, provides help if you break down and need a battery jump or a tow.
New car replacement insurance works similarly to gap insurance and will pay for the value of a new car if yours is totaled in an accident. Most insurers offer one coverage or the other only.
Full glass coverage pays to repair or replace chipped or broken window glass, without a deductible.
Rideshare insurance will cover you when you’re driving for a rideshare service such as Uber or Lyft.
Once you’ve determined the coverage options you want, it’s important to shop around and compare car insurance rates. Gather at least three quotes to make sure you’re getting the best possible deal on whichever coverage you choose.