Published: May 16, 2022Updated: August 1, 2022

Auto Insurance Coverage: What’s Required?

There are so many types of auto insurance coverage. Do you know them all?

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If you’ve bought a car in the U.S., then you know you need auto insurance coverage, but you may not be sure what exactly is necessary. Car insurance requirements vary by state, and beyond the bare legal minimum, you can also buy supplementary coverage. If you want to learn about car insurance coverage and financial protection in insurance terms you can understand, read our articles below.

Types of Coverage Options

Nearly every state requires bodily injury and property damage liability, but some states, like Massachusetts, also require uninsured/underinsured motorist coverage as well as medical payments or personal injury protection.1 Here are brief descriptions of the most important types of auto insurance coverage.

  • Property damages liability: Property damages liability reimburses you for damages that you or someone else caused to another vehicle or property, like a building, with your car. Property damages liability is the only coverage that every state in the U.S. requires. On average, the coverage minimum is around $18,000. Remember that you’ll need to pay your deductible before the insurance kicks in. Once you’ve paid your deductible, the insurance provider will pitch in, up to the limit you’ve selected. Learn more about how deductibles work.
  • Bodily injury liability: Bodily injury liability covers any deaths or injuries that you caused with your car. Every state except Florida and New Jersey requires bodily injury liability coverage.
  • Medical payments coverage or personal injury protection: Otherwise known as PIP, this covers any medical expenses that you or your passengers have incurred from an accident, including lost wages. PIP is mandatory in no-fault states, meaning that the insurance provider has to cover the incident even if it’s your fault. However, only 15 states require PIP coverage, so it’s not the most common. Interestingly, the state of Michigan, the only state with no limit on PIP,2 will pay all necessary medical expenses and lost wages from car accidents.
  • Uninsured/underinsured motorist coverage: Even though states have minimum auto insurance requirements, not everybody follows the rules. If you’ve had a collision with an uninsured or underinsured motorist, this coverage will reimburse you. It’s also useful for hit-and-runs where you can’t get the other driver’s information.

Types of coverage options

Did You Know?

Less than half of the states in the U.S. — 23 out of 50 — require coverage for uninsured or underinsured motorists.

Some types of coverage are optional in every state, such as:

  • Accidental death and dismemberment coverage: Also called AD&D, this coverage kicks in after an accident if you sustain a permanent impairment, like losing a limb or your eyesight.
  • Classic car insurance: Classic cars are often not as safe or reliable as modern vehicles, so it’s in your best interest to buy insurance specific to vintage or classic cars if you have them.
  • Comprehensive coverage: This coverage includes theft and damage reimbursement from events other than collisions, including fires, floods, falling rocks, and other natural disasters.
  • Collision coverage: Collision coverage will reimburse you for damage to your vehicle or another object when you’re at fault, whereas property damage liability covers only damage that is someone else’s fault. However, collision coverage doesn’t include normal wear and tear or damage from potholes, among other things.
  • Custom equipment coverage: This coverage will replace any stolen or damaged aftermarket products in your car, such as these items:
    • Personal electronics
    • Sound systems
    • Video equipment

    To qualify for custom equipment coverage, the item in question can’t be installed by your car manufacturer; it must be added later on.

  • Gap coverage: Cars are a notoriously bad investment, depreciating in value as soon as you leave the lot. That’s why gap coverage exists. Gap coverage will reimburse you for the difference between what you paid for your car and what it’s currently worth if your car is stolen or totaled. However, gap coverage doesn’t apply to leased cars, as the depreciation is included in lease payments.
  • Glass coverage: Windshield damage is common, which is why there’s glass coverage. It protects side windows, rear windows, and sunroofs. While glass coverage is sometimes included in auto insurance policies, it can also be supplemental.
  • Rental reimbursement: If your car is being repaired under a covered claim and you need a rental car, rental reimbursement coverage will reimburse you for the cost of your rental car.
  • Ride-sharing coverage: If you use your car to drive for Uber or Lyft, you’ll need ride-sharing coverage, as typical auto insurance doesn’t cover driving for commercial reasons.
  • Emergency road service: This coverage will provide roadside assistance if your car breaks down, including reimbursements for towing, lockout services, or battery jumps.
  • Mechanical breakdown insurance: If you have a relatively new car with low mileage, you can get mechanical breakdown insurance, which will cover all mechanical part repairs. You can renew it for up to seven years or 100,000 miles, whichever comes first, with providers like Geico. However, mechanical breakdown insurance doesn’t cover wear and tear or maintenance.
  • New car replacement coverage: Again, new cars lose value as soon as you buy them, unfortunately. New car replacement coverage helps you to mitigate that loss if your vehicle:
    • Is less than a year old
    • Has under 15,000 miles on it
    • Is under your ownership, and is not a lease
    • Is under comprehensive coverage or collision coverage
    • Has no previous owners
  • Optional basic economic loss coverage: Otherwise known as OBEL, this adds $25,000 to $50,000 onto your policy. The best part is that you can decide when you want to use it for instances such as:
    • Loss of income
    • Rehabilitation
    • Physical therapy
  • Transportation/travel expense coverage: If you are traveling at least 50 miles away from home and your car is damaged and undrivable, this coverage will include mealing, lodging, and transportation costs, even of your return trip to pick up your car. However, the collision or comprehensive insurance must cover the damage for travel coverage to kick in.

The more coverage you get, the higher your premiums will be. Of course, you have to balance that with the cost of needing to use that coverage. High premiums could mean future savings; it all depends on how much protection you want.

After you figure out what your state requires, learn about the other types of coverage available, from leased vehicles coverage to flood coverage.

Coverage Comparisons

While most states don’t require comprehensive or collision coverage, you may want to add them anyway. While collision insurance reimburses you for damage to your car when you’re at fault, like from running over potholes, comprehensive insurance covers damages from theft and damages, although not damages from natural disasters like fires.3 Learn more about collision coverage, comprehensive coverage, and more in our comparisons below.

Coverage comparisons

Best Auto Insurance Coverage

Once you’ve figured out which auto insurance coverage you need and want, you can go about choosing a provider and a policy. Our best-of lists will help you make an educated decision on an insurance company that covers the cost of accidents, theft, vandalism, and more.

Tip

To save on auto insurance, bundle it with other insurance policies, like homeowners insurance.

Why You Need Auto Insurance

You need auto insurance because most states require it. State requirements are otherwise known as statutory insurance, while optional add-ons are known as supplemental insurance. Most states require bodily injury liability and property damages liability as a bare minimum, while some states also require uninsured/underinsured motorist coverage, medical payments coverage, and more.

Auto Insurance Discounts

You can get a discount on your auto insurance policy in a few different ways:

  • Adjust your deductible: Raising your deductible will mean lower premiums. Of course, if you get into an accident, you’ll have to pay more before your auto insurance will kick in, so there is a trade-off there.
  • Take a safe driving course: Many auto insurance providers offer discounts if you take a safe driving course. That’s especially true for teen drivers, who are notoriously more expensive to insure, as they are more likely to get into car accidents.
  • Bundle your auto insurance: You can save money by bundling your auto insurance with homeowners insurance, renters insurance, health insurance, and other types of policies. Most national providers, like Geico, offer multiple services aside from auto insurance.
  • Drop coverage: Again, dropping coverage is a trade-off. For example, if you drop rental reimbursements coverage to save money on your premiums and then you need to rent a car because of covered damages, you’ll have to pay out of pocket. Of course, there’s no guarantee that you’ll ever need to rent a car because of covered damages, so it could save you money. For older cars, you might want to drop collision or coverage insurance.

Auto Insurance Terminology

Auto insurance terminology

As you explore different types of auto insurance coverage, you may come across some words and phrases you’re not familiar with. We’ve defined the most common ones below.

  • Actual cash value: Otherwise known as ACV, this is the value of a car, taking into account its mileage, model, make, age, and condition.
  • Adjuster: An adjuster is a person who investigates and settles claims. Once you submit a claim, the adjuster will determine if the insurance provider will cover it or not.
  • Appraisal: An appraisal is when an adjuster estimates a vehicle’s value, a property’s value, or the damage from an accident at the time of loss.
  • At-fault accidents: At-fault accidents are accidents in which the policyholder is at fault.
  • Carrier: A “carrier” is another word for the insurance company, provider, or insurer.
  • Certificate of satisfaction: When you pick up your car from a repair shop, you may have to sign a certificate of satisfaction to indicate that you’re satisfied with the repairs.
  • Claim: A claim is a payment request to the insurer.
  • Credit-based insurance score: This score is what insurance providers use to determine how much your policies and premiums should be. Good credit indicates less likelihood of filing claims, meaning lower premiums, so bad credit means higher premiums. Credit-based insurance scores are confidential.
  • Declarations page: Typically on the front page of your policy, the declarations page includes basic information such as:
    • Name
    • Address
    • Descriptions of the insured vehicle
    • Dates of policy
    • Coverage amounts
    • Premiums
  • Deductible: The amount the policyholder pays toward a covered claim is the deductible. Most auto insurance policies have multiple deductibles, and the insured can choose their deductibles when they sign up for policies.
  • Defensive driving: Defensive driving is driving in a way that reduces the risk of accidents. It can include actions such as:
    • Maintaining distance from other cars
    • Scanning the road ahead
    • Keeping both of your hands on the wheel
  • Diminished value: A car has diminished value after it’s been in an accident and been repaired. Even with the repairs, it’s still less valuable than before the accident. However, if you have gap insurance, the provider could pay you for the diminished value of the car along with the costs of the repairs.
  • Distracted driving: Distracted driving is self-explanatory — driving while distracted. Often illegal and dangerous, distracted driving can include activities such as:
    • Adjusting the radio
    • Applying makeup
    • Eating and drinking
    • Looking at a map or a GPS navigation system
    • Talking with passengers
    • Texting and driving
  •  Economic benefits: Economic benefits include any out-of-pocket expenses, such as:
    • Lost wages
    • Medical costs
    • Rehabilitation costs
    • Other essential services
  • Effective date: The effective date is the date your insurance coverage starts.
  • Exclusion: Exclusions are any restrictions in your policy that are specifically not covered. These could include perils like floods, certain locations, people, or property.
  • Field adjuster: A field adjuster is a person who investigates accident scenes and damages, meeting with policyholders in person.
  • Financial responsibility laws: These are laws that require people to have enough money on hand to compensate anyone they injure in an accident. Liability insurance satisfies financial responsibility laws, which is why it’s required in most states.
  • Indemnification: Indemnification is compensation for losses that put the person or entity at a financial loss back to the position they were at before the loss.
  • Liability: Liability insurance is standard in most insurance policies, as most states require it. In at-fault accidents, It reimburses people for their injuries, medical bills, or property damages, including repairs.
  • Monetary threshold: A monetary threshold is an amount, set by states with no-fault laws, that must be met before a lawsuit against the at-fault driver can take place.4
  • OEM and generic auto crash parts: OEM stands for “original equipment manufacturer,” referring to the auto parts from the original manufacturer or supplier.
  • Premium: A premium is what you’ll pay regularly to your insurance provider to keep your policy active. Usually, people pay premiums on a monthly, quarterly, biannual, or annual basis. If you don’t pay your premium, your insurance provider might stop your coverage.
  • Primary use: Primary use is how you use your vehicle most of the time, which could include:
    • Commuting to work
    • For business
    • For farm use
    • For pleasure
  • Tort: Tort is any wrongful act that causes damage or injury on which a civil action could be based. However, tort doesn’t include breach of contract.5
  • Totaled: If a vehicle is totaled, it means that the cost of the vehicle’s repair exceeds the value of the vehicle. If you have collision or comprehensive insurance and your vehicle is totaled, you’ll get compensated for the value of your car or your policy limit, save for the deductible if you’re at fault.
  • Umbrella liability: An umbrella liability is a policy with a high amount of additional liability coverage that exceeds the limits of the auto policy. In other words, umbrella liabilities are coverages that other liability policies exclude.
  • Underwriting: Underwriting is the process of how the insurer decides whether or not they will cover an applicant.

Recap

It can be difficult to get accurate and easily digestible information about auto insurance coverage, but that’s why we’re here. We use data and a network of experienced insurance agents to get you the data you need to make a smart decision. Knowledge is power, so we hope we’ve helped you get the information you’re looking for. If not, check out our auto insurance FAQs, where we answer the questions we get the most.

Citations

  1. Understanding Auto Insurance. Mass.gov. (2022).
    https://www.mass.gov/service-details/understanding-auto-insurance

  2. Your Guide to Automobile Insurance. DIFS. (2020).
    https://www.michigan.gov/documents/difs/Auto_Insurance_Guide_448003_7.pdf

  3. What is auto insurance? Insurance Information Institute. (2022).
    https://www.iii.org/article/what-auto-insurance

  4. What is Monetary Threshold? The Law Dictionary. (2022).
    https://thelawdictionary.org/monetary-threshold/

  5. Auto Insurance Glossary of Terms. RMIIA. (2022).
    http://www.rmiia.org/auto/steering_through_your_auto_policy/Glossary_of_Auto_Terms.asp