What does car insurance cover? This is a common, normal question that all car owners have in mind. When you have to make a monthly expense on something, you want to know what to get from it, right? You want to know the benefits and the outcome of your investment. It’s true that car insurance can prevent accident from happening, but it can safely save you a lot of money. Accidents typically result in repair cost and medical expenses, and they are costly. Imagine having to pay all of them out of your pocket.
Now, there are different types of (car) insurance, and it will determine how much coverage you can get. The amount of policy to cover your expenses will depend on car insurance types you choose and also the limits. What does car insurance cover? We are going to discuss about it.
- 1 Car Insurance and How it Works
- 2 The Common Required Coverage
- 3 Different Types of Car Insurance
- 4 Liability Insurance
- 5 MedPay and Personal Injury Protection
- 6 Underinsured and uninsured motorist coverage
- 7 Comprehensive and Collision Coverage
- 8 Gap Insurance
- 9 Extra Coverage Options
- 10 FAQ: What Does Car Insurance Cover?
Car Insurance and How it Works
In order to know what does car insurance cover, you need to know the basic nature of car insurance first. Most car policies offer different types of coverage, each of which is aimed to pay for different things. For instance, one type may be dealing with vehicle repairs, while another type would cover your medical expenses. Another one may pay out someone else’s loss and damage.
Every type has its own limit, referring to the maximum amount that the policy would pay. This maximum amount is customizable. You are free to set the limits, based on your willingness to pay (on monthly basis) and the extent of coverage you need. Basically, the higher your limits are and the more coverage types you purchase, the less financial burden you have to face if you are faced with an accident. However, it will also mean that you will be facing expensive insurance. The question is: Would you be willing to have it?
It’s related to your financial standing and health, in general. So, if you want to know what coverage is needed, you need to find out which one would provide the best protection (especially for your finance) and what’s needed in your state. In some states, some coverage are required and should be owned by car owners.
The Common Required Coverage
So, what does car insurance cover? It should include the state’s minimum requirements related to coverage limit and types. Keep in mind that minimum requirements from one state are different from the others, but there are several main insurance types coverage that all car owners are required to have:
- Liability insurance. It would pay for the expenses that may happen as a result of an accident, in which you are responsible for. Basically, it’s your fault that the accident happens.
- Personal injury protection. Also known as MedPay, medical payments, or PIP, this coverage if for your own medical bills after the incident, regardless which party is wrong or not
- Underinsured or uninsured motorist coverage. It is to cover damage payment for those drivers without car insurance or for drivers without having enough funds to pay all the damages they have caused.
Different Types of Car Insurance
As you can see, there are different car insurance coverage types. The decision of what does car insurance cover depends on the coverage you choose.
- Liability coverage. This is the medical costs for deaths or injuries from accident that you have caused, and it includes the repair costs for damages to the property (that you are responsible for)
- Uninsured motorist coverage. It is for repair and medical costs (after the accident) with uninsured driver.
- Underinsured motorist coverage. It is for covering expenses from accident with insured driver with minimalist limit. The coverage would pay once the coverage limits (from the underinsured driver) have been met.
- Medical payments coverage. It is to cover medical expenses for you and also your passengers after the accident, no matter who is at fault
- Personal injury protection insurance. It is to cover medical expenses resulted from the accident, no matter who is at fault, such as funeral costs, child care, lost wages, etc
- Comprehensive coverage. It is for the repair costs from events happening out of your control, including vandalism, theft, hitting an animal during driving, and weather events
- Dc n, such as funeral costs, child care, lost wages, etc
- Comprehensive coverage. It is for the repair costs from events happening out of your control, including vandalism, theft, hitting an animal during driving, and weather events.
- Collision coverage. It is for the repair expenses from accidents related to traffic, no matter who is at fault.
- Gap insurance. It is for the difference of what you actually owe (on the car) and your vehicle’s true (market) value.
In liability insurance alone, there are two types of coverage offered. If you are responsible for a car accident, this one would cover the subsequent injuries, damage, and even death costs. All states would require drivers to have this coverage, expect for Virginia and New Hampshire.
What does car insurance cover and what are their types?
- Bodily injury liability. It means that the coverage would pay for expenses resulting from deaths or injuries in the accident that you cause
- Property damage liability. It would cover the repair costs if you crash into another vehicle or other properties, like building or fence.
Liability coverage amount within a policy is typically expressed as 3 digits arrangements. If you see numbers as 100/200/60, it would mean:
- $100 bodily injury for every person within the accident
- $200 for bodily injury for each accident
- $60 for property damage for each accident
The insurance company will pay to the maximum limits on your policy. If you have extra expenses, it is your own responsibility.
MedPay and Personal Injury Protection
Both of these coverage would pay for your own medical bills after an accident happens, regardless of whoever is at fault. The same coverage is also used for the medical expenses of the injured passengers, if any.
PIP is often called as no-fault insurance can also be used to cover the costs of funeral, lost wages, child care, and others related to the injuries from the accident.
Underinsured and uninsured motorist coverage
The coverage would pay the costs resulting from the uninsured driver that is responsible for the accident. Based on a study conducted by Insurance Research Council in 2019, around 1 person from 8 drivers doesn’t have car insurance.
Underinsured motorist coverage would pay for the expenses when the responsible driver has insurance, but the limits are too low for all the damages caused. Some of the states need a minimum amount of the coverage. There are 4 types of coverage that is typically required:
- UMBI (Uninsured Motorist Bodily Injury) coverage. It pays for the medical expenses resulted from an uninsured driver.
- UMPD (Uninsured Motorist Bodily Injury) coverage. It pays the repair bills that is caused by the uninsured driver
- UIMBI (Underinsured Motorist Bodily Injury) coverage. It pays for repairs and also injuries that is more that the limit (of bodily injury liability) owned by the responsible driver.
- UIMPD (Underinsured Motorist Property Damage) coverage. It pays the repair bills that exceeds the limits (of property damage liability) owned by the at fault driver.
Comprehensive and Collision Coverage
What does car insurance cover in this coverage? This insurance coverage is basically optional and it’s applied in every state. However, if you lease or finance a vehicle, it may be considered mandatory by your contract. It would pay to reimburse or fix the car (for the value) in case it is damaged beyond repair or stolen.
Collision insurance would pay for the damage happening to the car after the accident happens, no matter who is responsible for the accident. It also covers the pothole damage. Comprehensive coverage would pay if the car is stolen or badly damaged by causes besides of a car accident, which may cover damage from floods, storms, explosions, falling objects, vandalism, earthquakes, or contact with an animal.
Both the coverage usually comes with deductible, or the insurance claim’s the amount that you must cover before the insurance company pays. The higher your deductible, the lower your premium would be. Let’s say that you hit a wild coyote while driving. Your hood is damaged because of the contact. The cost for the repair work is around $3000. Your deductible is $1000, which means that it’s the amount you pay for the repair. What about the remaining $2000? Well, that would be covered by your insurance.
The value of a new car would drop from the moment it leaves the dealership. It would be faster than the loan balances decrease, at first. In case you total off a new car (which hasn’t been paid off completely), the gap insurance will cover the difference, between the worth of the car and the amount of money you owe (for the loan).
If you lease a car, it’s quite common that the leasing company asks you to have the gap insurance. The car dealer would typically provide this type of insurance, where the cost would be a part in your lease payment. However, if this is the case, you would be paying interest (on the coverage). If you get through an insurer, you can get lower offer.
Imagine this: You have $20,000 loan (on your car) and then you are involved in a bad accident. Naturally, the new car must be totaled. What does car insurance cover? The collision coverage covers the total amount of the market value of your ride (not including the deductible), which is about $18,000. If you have gap insurance, you won’t have to worry about the remaining $2000 because your insurer would cover it.
Extra Coverage Options
Aside from those major coverage options, there are some extra options that you can get. These extras won’t cost you a lot. If you add them to your policy, they can be quite handy, especially during emergencies. But in most cases, you need to have comprehensive and collision coverage first to be considered eligible for these extras.
- Rental reimbursement. What does car insurance cover? It would pay for the rental car during the time your car is being repaired in the shop, following a (covered) claim repair.
- Roadside assistance. Also known as labor and towing coverage, it would offer you financial help in the event your car needs a tow, a battery jump, or if it simply breaks down.
- Full glass coverage. It will pay for the replacement or repair of broken (or chipped) window glass, and it goes without deductible.
- Rideshare insurance. It will cover you during your drive with rideshare service, like Lyft and Uber
- New car replacement insurance. It basically shares similar features like gap insurance. It would pay off a new car’s value in the event yours has been totaled in an accident.
Those are the overall facts and information about the insurance cover. Now that you know what does car insurance cover and what benefits you can get, you can pick one that suits your needs.
FAQ: What Does Car Insurance Cover?
Does car insurance cover theft?
Insurance, in general, covers damage to the vehicle caused by collision or overturning. Theft While insurance can cover theft of a car, it does not cover the theft of a laptop or an iPad left on a seat's car.
Does car insurance cover flood damage?
In most of the cases, car insurance does cover flood damage. However, the water damage or flood damage coverage in the standard insurance policies may vary and the coverage could be either excluded or limited.
How car insurance coverage works?
Car insurance policy is an agreement between you and an insurance company. It covers your car against loss, damage or liability in case of an accident. There are 3 types of car insurance - third party, comprehensive and collision. Third-party car insurance covers injury or loss suffered by others, in case of an accident with your insured vehicle. It does not cover your own vehicle. Comprehensive car insurance includes third party injury and liability along with damage to your own car. It covers theft, fire, flood, and any other natural calamity. Collision insurance covers damage to your vehicle in the event of an accident. It covers fire and theft, along with damage caused due to weather conditions. It also covers vandalism.
Will car insurance cover stolen items?
No, car insurance doesn't cover stolen items.