Auto insurance policies aren’t something drivers often give much thought to.
Sure, you need them before you drive. But the details?
Who cares.
Except they should.
The difference between coverage types means everything when it comes to what damages your auto insurance covers. Especially if you ever need to make a claim.
Guess what? You will make a claim. And right now, your insurance is more important than ever before. Prices increased 11.3% in 2024 meaning drivers everywhere need every dollar of their policy to do some serious work.
Don’t sweat the details though. We got you covered.
What you’ll learn:
- Why Auto Insurance Coverage Should Matter to You
- Types of Damage Your Auto Insurance Covers
- Types of Damage Your Auto Insurance Won’t Cover
- Making Sure You’re Fully Covered
Why Auto Insurance Coverage Should Matter To You
Consider this.
14% of drivers on the road aren’t insured.
That means every accident you’re involved in has a significant chance of involving at least one driver who’s uninsured. If you’re underinsured or uninsured yourself, that accident could cause thousands of dollars in damage…and all of it falls on your shoulders.
Ouch.
But it doesn’t have to. Auto insurance is capable of covering damage to your car caused by others, severe weather, medical expenses, and more. Policies offer protection against a wide variety of scenarios.
Knowing the difference between coverage options can also help when it’s time to pay the bill. Companies like Hugo insurance share customer reviews that give you an inside look at how auto insurance companies handle things like coverage and paying out claims. Anything that can give you insight before you sign the dotted line is well worth your time.
Types of Damage Your Auto Insurance Covers
Don’t think of insurance as one blanket policy. It’s a collection of coverage types that pay out for different damage.
Liability Coverage
Liability coverage is extremely common and is required by most states.
It covers damage to others when you’re at fault. That includes:
- Repair costs for the other driver’s vehicle
- Medical expenses for anyone injured
- Damage to other property besides vehicles
Liability does not cover damage to your own vehicle. Not helpful? Only if you have no other coverage.
Collision Coverage
Collision coverage refers to damages to your vehicle in the event of an accident.
Whoever caused the accident is irrelevant. Someone rear-ends you on the freeway? Collision coverage. You hit a parked car? Collision coverage.
Take note if you drive a newer car or one that’s particularly high-value. Collision coverage is one of the most common additional coverages that drivers purchase on top of liability insurance.
Comprehensive Coverage
If collision coverage is damages caused by accidents, comprehensive covers anything else.
Examples of covered damages include:
- Theft
- Vandalism
- Weather (hail, storms)
- Flood
- Fire
- Falling objects…even if that object is a tree
If you live in an area with frequent severe weather, comprehensive coverage can be a lifesaver. Roughly 80% of insured drivers also carry comprehensive coverage with their liability insurance.
Uninsured/Underinsured Motorist Coverage
So uh…remember how 14% of drivers don’t have insurance?
That’s what this is for. If you get into an accident with someone who either doesn’t have insurance or whose coverage can’t handle the entire claim, uninsured/underinsured motorist coverage steps in to cover your damages.
It might be one of the least known coverages, but it’s also some of the most useful.
Personal Injury Protection (PIP)
PIP covers medical expenses incurred by drivers and passengers of the insured vehicle. No matter who is at fault.
States that require PIP to be included in policies usually require insurers to cover:
- Medical expenses
- Lost wages
- Rehabilitation costs
- Funeral expenses
Some states consider PIP optional, while others require it as part of minimum coverage. If you have it, great. If not, consider buying more if you can.
Gap Insurance
Here’s one that’s often overlooked by new car buyers.
Say your car is totaled. Your insurance will cover the current value of the vehicle, which may not be the amount you owe on the car’s loan. GAP coverage covers the difference.
It’s protection against being stuck paying a car loan on a car you can’t drive.
Types of Damage Your Auto Insurance Won’t Cover
Just as important to understand as what is covered, is what damages your auto insurance doesn’t cover.
Insurance will not pay out for:
- Wear and tear or mechanical breakdowns. While you’re certainly covered if someone rear ends you and damages your transmission, they will not cover if your transmission suddenly decides to stop working on its own.
- Personal property inside the vehicle. Your stolen smartphone isn’t covered under your auto insurance policy. But it likely is under whatever homeowner’s or renter’s insurance policy you have.
- Damage you intentionally cause. If you crash your car on purpose, your insurance isn’t going to cover it.
- Driving on a racetrack. Taking your street car to the local track? Don’t expect insurance to cover you if you crash.
- Business use. If you’re using your personal vehicle for business purposes (deliveries, rideshare) without proper coverage you’re likely not covered.
Making Sure You’re Fully Covered
Having the right amount of coverage isn’t hard. It does require some common sense though.
Ask yourself these questions:
- How much is your car actually worth? If it’s older with a low value, you might not need full comprehensive and collision coverage.
- What are you required to have? Every state has minimum insurance requirements. Having the minimum is better than nothing, but likely won’t leave you properly covered.
- Is your car leased or financed? If so, you’ll likely be required to have comprehensive and collision by your lender.
- How much risk are you willing to take? The higher your deductible, the lower your monthly payment will be. But you’ll have to pay more out-of-pocket when you file a claim.
Sit down with your agent and figure out what your family needs. Anything less than that, and you’re just hoping for the best. Don’t do that, especially when insurance prices and claim severity are at record highs.
TL;DR
Auto insurance keeps you legal on the road, but it also keeps you from financial ruin. Understanding what your policy covers is the first step to ensuring that it does everything you need it to.
Coverage Types:
- Liability – Pays for damage you cause to others.
- Collision – Pays for damage to your car due to an accident.
- Comprehensive – Pays for damages that are not caused by a collision.
- Uninsured/Underinsured Motorist – If you hit an uninsured driver, this covers you.
- PIP – Pay for medical bills for passengers and drivers.
Gap Insurance – Pays the difference if your totaled car is worth less than you owe on it.
