What is Car Insurance?
Car insurance is a contract between you and your insurance company where you pay in exchange for protection if something happens to you or your vehicle.
Most states require all drivers to carry some form of auto insurance. Additionally, all states, except New Hampshire, require at least liability coverage.
Types of Car Insurance
|Item||What Is It?||When Does It Kick In?||What Does It Cover?|
|Property Damage - Collision||Protects you financially if your vehicle is damaged due to collision. Also covers rollovers.||When you collide with a car or nonliving object and you are at fault.||Your policy will pay for some or all of the cost of repairing or replacing your vehicle.|
|Property Damage - Comprehensive||Protects you financially if your vehicle is damaged due to other causes, including: Fire, Vandalism, Theft, Natural Disaster, Falling Objects, Hitting an animal||When your vehicle is damaged by non-collision causes for which you are not at fault.||Your policy will pay for some or all of the cost of repairing or replacing your vehicle.|
|Liability||Protects you financially and legally if someone else is injured or suffers property damage. This coverage is required in most states.||When you are at fault for a collision in which someone else suffers damage or injury.||Your policy will pay for the cost of injuries or property damage suffered by others. If there is litigation, your insurance company will hire an attorney to defend you.|
|Medical||Protects you financially by covering your medical costs resulting from an injury.||When you or your passenger are injured in an accident regardless of fault.||Your policy will cover costs related to injuries sustained by you or your passengers. Sometimes covers funeral costs.|
|Personal Injury Protection (PIP)||Protects you like medical coverage. Covers injuries sustained by you or your passengers.||When you or your passenger are injured in an accident regardless of fault.||Covers like medical coverage. Also covers: Lost wages, Cost of services you'd normally perform yourself but can no longer handle, Child care|
|Uninsured / Underinsured Motorist||Protects you financially if you are in an accident with an uninsured or underinsured driver.||When you are in an accident for which the other driver is at fault if the driver does not have insurance or their insurance is not sufficient.||You policy will cover your property damage and injury-related costs if the at-fault driver’s insurance cannot.|
Podcast: Risk vs Return
Who Is Covered?
Car insurance covers you and any other licensed drivers in your household that you put on the policy as regular drivers. However, if you loan your car to a friend for the day, he/she is usually still covered under a provision called “Permissive Use.”
Car insurance typically “travels with the car,” meaning that, in general, it doesn’t matter who is driving as long as they are either listed on the policy or rarely use the vehicle. Liability coverage, however, “travels with the driver”, so even if you’re driving someone else’s car, your liability policy covers you if you are at fault for an accident.
To be on the safe side, be sure to add any regular drivers to your policy in a timely manner.
Calculator: How much will you have at retirement?
- Premium—The amount you pay each month to keep your policy in force.
- Deductible—The amount you must pay out-of-pocket before your policy kicks in to cover your costs. Most policies carry a per-claim deductible, meaning you must cover the first small portion of your accident-related expenses yourself.
- Coverage Limit—The most your policy will pay for a given cost. You will have separate limits for liability, property damage, medical, and uninsured motorist coverage. Many states have specific requirements about the minimum allowable insurance limits, so be sure to check on your state’s requirements.
- The type of car you drive, your driving record, and your credit score can all affect your premium.
- Vehicles with only two doors typically have the most collision claims.
- Insurance companies assess your risk of filing a claim using numerous factors, including your occupation and marital status. If you’re married, for example, you may qualify for a discount because married drivers tend to get into fewer accidents.