What Does Auto Insurance Cover?
In plain English
Auto insurance is a contract that protects you financially against vehicle-related losses including accidents, theft, and natural disasters. It typically includes liability coverage for damage you cause others, collision coverage for your own vehicle in an accident, comprehensive coverage for non-collision events, and optional protections like uninsured motorist and medical payments coverage.
What Are the Main Types of Auto Insurance Coverage?
Liability covers bodily injury and property damage you cause to others — it's legally required in most states. Collision pays to repair or replace your vehicle after an accident regardless of fault. Comprehensive covers non-collision damage including theft, vandalism, weather, and hitting an animal. Uninsured/underinsured motorist coverage protects you when the at-fault driver has insufficient insurance.
What Are the State Minimum Auto Insurance Requirements?
Every state except New Hampshire requires some minimum auto liability coverage, though limits vary widely. Minimum requirements are often expressed as a split limit (e.g., 25/50/25), representing $25,000 per person bodily injury, $50,000 per accident bodily injury, and $25,000 property damage. State minimums are often inadequate — most financial advisors recommend higher limits to protect your assets.
How Can You Lower Your Auto Insurance Premium?
Strategies to reduce auto premiums include maintaining a clean driving record, increasing your deductible, bundling with homeowners insurance, qualifying for good driver or good student discounts, installing anti-theft devices, taking a defensive driving course, and comparing quotes from multiple insurers annually. Your credit score also affects premiums in most states.
Frequently asked questions
Do I need collision and comprehensive insurance?
If you have a car loan or lease, your lender typically requires both. If you own your car outright, it's optional — but consider whether you could afford to replace your vehicle out of pocket. If your car's value is low relative to your premium plus deductible, dropping these coverages may make financial sense.
Does auto insurance cover rental cars?
It depends on your policy. If your auto policy includes collision and comprehensive, that coverage typically extends to rental cars in the US. Your credit card may also provide rental car coverage. Review both before paying for the rental company's optional insurance, which is often overpriced.
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Related terms
Liability Insurance
Liability insurance pays for damages and legal costs when you are found legally responsible for injuring someone or damaging their property. It is a core component of most personal and business insurance policies.
Umbrella Insurance
Umbrella insurance provides extra liability coverage beyond the limits of your home, auto, and other policies. It kicks in when those policies are exhausted and protects your assets from large judgments.
Insurance Deductible
A deductible is the amount you pay out of pocket before your insurance starts covering costs. Choosing a higher deductible typically lowers your monthly premium.
Insurance Premium
An insurance premium is the regular payment you make to keep your insurance policy active. It is typically billed monthly, quarterly, or annually.
Insurance Claim
An insurance claim is a formal request to your insurer for payment or coverage after a covered loss or event occurs. The insurer reviews the claim and pays out according to your policy terms.