Coverage 101: Comprehensive Guide to Car Insurance Options

You probably don't want a crash course in car insurance -- but how about an easy outline of your main coverage options? Having a firm grasp on the basics of auto coverage has its advantages. Your auto quotes make more sense, for one. More importantly, you'll make better decisions and probably save money in the process. 

Read on for that easy overview of required and optional types of auto coverage.

Auto coverages that are required in most states 

In 2022, all states except New Hampshire require drivers to have minimum levels of auto insurance.¹ Most states ask you to hold some form of liability insurance. Liability insurance, as you'll see below, doesn't pay your costs after an accident -- it covers costs others incur due to an accident you caused.² 

Liability coverages 

The two types of auto liability insurance are property damage and bodily injury. 

Property damage liability coverage pays for repairs to someone else's property that gets damaged by an accident caused. That property can be another car, a building, or a fence. 

Bodily injury liability coverage pays someone else's medical bills (or, worst case, funeral expenses) that result from an accident you caused.

Generally, you buy property damage and bodily injury liability together. There are two formats -- split limit coverage and combined single limit coverage. 

Split limit liability coverage has three policy limits, presented like this: 30/60/20. The first number is your limit on bodily injury coverage per person. The second number is the bodily injury limit per accident. The last number is the property damage limit per accident.³ 

Here are two examples showing how these values differ. Say you cause an accident. There are two people in the other car. With 30/60/20 coverage, your insurance will pay maximum medical bills of $60,000 but no more than $30,000 per person. 

1. If each person submits medical bills of $25,000, your policy limits are sufficient. 

2. If one person's medical bills total $50,000 and the other's total $20,000, your policy will pay $30,000 for the first person and $20,000 for the second. You may have to fund the rest out of your pocket. 

Combined limit liability policies provide one limit to cover any property damage and bodily injury costs per accident. The coverage here is broader since there are no stipulations on per-person damages. For that reason, combined limit coverage is usually more expensive than split limit coverage.⁴  

You might prefer combined limit coverage if you have a lot of assets. Broader coverage can provide more protection against high-dollar lawsuits. 

Auto coverages that are required in some states 

Medical payments (MedPay)

If you or a passenger in your car are injured in an accident, your MedPay coverage should foot the bill -- no matter who is at fault.⁵ MedPay also applies if you suffer injuries while walking, riding a bike, riding in another person's car, or traveling on public transportation.⁶ 

Personal injury protection (PIP) 

PIP is a more comprehensive alternative to medical payments coverage. PIP covers medical expenses for you and your passengers, plus lost wages, rehabilitation, and other accident-related costs. You may have a deductible on your PIP coverage.⁷

No-fault states generally require PIP insurance.

Uninsured motorist (UM) and underinsured motorist (UIM)

In most states, the person who causes an accident is financially responsible for the resulting damages. The drawback of that system becomes clear when the at-fault person doesn't have insurance. In that scenario, the cost of the damages reverts to the victim.

This is where UM and UIM can help. If you are hit by a driver who doesn't have insurance or doesn't have enough insurance, your UM or UIM coverage steps in to cover your costs. In some states, you can also use your UM or UIM coverage to pay for damages after a hit-and-run.⁸

UM and UIM most commonly provides bodily injury coverage -- meaning they pay your medical bills in qualified incidents. These policies typically have a per-person limit and a per-accident limit. 

In some states, you can get UM and UIM to cover property damage as well.⁹ That would help you with car repair costs after a qualified accident. 

Honest Policy Tip: Know your state's requirements for UM and UIM. Some states require insurers to quote these coverages to you, but you may have the option to decline them. 

Optional coverages 

Optional auto coverages include comprehensive, collision, gap insurance, glass coverage, towing, and rental reimbursement. Let's look at each of these.

Comprehensive auto insurance 

Comprehensive insurance pays for damages to your vehicle from non-collision events -- things like theft, vandalism, or hail damage. Interestingly, driving into an animal also falls into the bucket of non-collision events (but hitting a building or fence is a collision).¹⁰ 

Comprehensive insurance has a deductible. This is the amount you pay on a claim before your insurance carrier kicks in. Lower deductibles have higher premiums. 

Generally, the cap on your comprehensive coverage is the actual cash value of your car.¹¹ 

No states require comprehensive coverage, but your lender will require it if the car is financed.

Collision auto insurance 

Collision coverage covers damages to your car that result from collisions. Collisions include hitting another car or driving into a building, mailbox, or fence. 

As with comprehensive coverage, the collision has a deductible and the maximum payout is usually the actual cash value of your car.¹² Lenders also require collision insurance, but states do not.

Gap insurance 

If your carrier deems your car a total loss, your maximum payout is normally the actual cash value of the car less your deductible. Because cars depreciate quickly, it's possible that your insurance payout will not be enough to pay off your auto loan. 

Gap insurance is handy in this situation. This coverage pays off any remaining balance on your auto loan after your car is totaled.¹³

Glass coverage 

Glass coverage functions as a deductible waiver when your car suffers windshield or window damage. Comprehensive insurance typically covers glass damage (say, from hail or vandalism) -- albeit with a deductible. If you have glass coverage alongside comprehensive, your insurer should pay to replace the damaged glass with no deductible. 

Roadside assistance 

Roadside assistance provides towing and roadside repair services like jumpstarts and tire changes. 

You can get roadside services from your car dealer or other organizations, like American Automobile Association (AAA). The plans car insurers provide are a middle-ground between what you'd get from a car dealer and AAA. Car dealer programs are often free when you buy a car and provide a limited set of services. AAA plans are more expensive and have more features than carrier-provided roadside assistance.

Rental reimbursement 

Rental reimbursement pays for a rental car if your car is in the shop for a collision or comprehensive claim. The coverage has a daily limit plus a cap on the number of days.

Rental reimbursement is useful when you don't have a backup vehicle and you can't be without transportation, even for a day.

Choosing car coverages 

Your first step in choosing coverages is understanding what your state requires. You'd then look at your finances and your transportation habits to select additional protections. For example, if you are wealthy, you might want high liability limits. That would provide greater protection against lawsuits. And if you spent a lot of time on the road, you could probably use roadside assistance.

Of course, that analysis requires you to have a working knowledge of how these coverages work. So, it's a good thing you're here. Because better choices on your insurance directly improve your finances. You'll be protected where you need it most and you won't pay for coverage that doesn't suit you.