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What Is Auto Insurance?
Whether you're a new driver or a seasoned veteran, it's important to understand the basics of auto insurance to ensure you're fully protected on the road.
Auto insurance financially protects drivers involved in collisions and provides coverage for various risks, including damage, theft, and liability.
Some comprehensive plans even pay for the costs associated with damage or theft to your car, even if you are not at fault.
Auto insurance is mandatory in almost every state. There are many types of auto insurance coverage, but the most common is liability coverage, which protects drivers from financial responsibility in an accident.
At PolicyScout, we explore all of the finer details of auto insurance and review auto insurance companies to help consumers make the best decision about insuring themselves, their loved ones, and their belongings.
What Kind of Car Insurance Coverage Do You Need?
Auto insurance options cover different types of incidents. While you do not need all these types of insurance, having more than one insurance plan is common.
Becoming familiar with the different coverage options and what they cover is critical to avoid the financial burdens of being underinsured.
The following are some common types of auto coverage:
Uninsured and underinsured motorists.
Personal injury protection.
The most common type of auto insurance is liability coverage. Liability coverage includes coverage for both bodily injury and property damage. Liability coverage will financially protect you from the costs of injuries or damage to personal or business property due to an accident.
Almost every state (except New Hampshire) requires a minimum amount of liability insurance, and failing to have enough coverage can result in fines, license suspension, and even jail time.
Types of Car Insurance
Collision coverage pays for vehicle damage if you cause an accident. This can happen due to hitting another car or a structure such as a pole, mailbox, or tree. Although state laws do not require this coverage, lenders will.
Comprehensive coverage pays for damage caused by events other than motor vehicle accidents. These plans will generally offer coverage for theft, vandalism, glass breakage, animals chewing through wiring, and falling objects, such as a tree in a windstorm.
Just like collision coverage, comprehensive coverage isn’t required by law. However, most lenders will ask for a comprehensive insurance plan when you buy or lease a car.
Uninsured and underinsured motorist coverage is a type of insurance coverage that protects you if you are in an accident with a driver who doesn't have insurance or doesn't have enough insurance to cover the damages.
It also covers you if your car is damaged or stolen and the other driver can't be found. There are two types of uninsured and underinsured motorist coverage: bodily injury coverage and property damage coverage.
Personal injury protection, or PIP coverage, is a type of insurance coverage that helps pay for injuries and expenses, such as medical bills and lost wages.
There are two main types of PIP coverage: medical payments coverage and income loss coverage. Medical payments coverage helps to pay for medical expenses related to an injury, while income loss coverage helps to replace lost wages.
Learn how liability insurance and full coverage auto insurance are different. Find out which one is right for you and see what alternatives are out there.
Auto insurance policies can be dense, confusing documents. But drivers need to know what they're reading so they can make smart decisions when comparing policies and understanding what's covered.
Typical auto insurance policies tend to deal with accidents caused by the policy owner. Uninsured motorist coverage deals with accidents that are not your fault. Uninsured motorist insurance protects you against paying out of pocket for extra damages you cannot afford.
Your auto insurance is there to help protect you financially when the unexpected occurs. Bodily injury and medical payments coverage are two components an insurance policy that can protect you financially should you, your passengers, or anyone in the other vehicle involved get injured. While they might seem similar, the two coverages are very different.
Liability insurance is the part of your car insurance policy that pays the other party involved in the accident if you are at fault. It is mandatory in almost all states in the U.S. and makes up a majority of the cost of the policy.
If you are responsible for a car accident, you may find that your auto insurance rates increase dramatically. Fortunately, by finding the right car insurance policy, you can reduce the long-term impact that any at-fault accident has on your driver record.
What's Not Covered by Auto Insurance?
Like all insurance policies, you are covered for several possible incidents—but there are some standard exclusions that you should be aware of to understand coverage gaps.
You should ask your insurance company if they cover the following situations:
Vehicle wear and tear.
Vehicles used for ridesharing or delivery.
Personal belongings inside the vehicle.
In most cases, you may be able to get additional endorsements to ensure coverage for these types of situations. Before deciding whether any coverage is adequate for you, consult with your agent and have them walk you through all the policy details.
Take time to understand what bumper to bumper warranty actually means, how much it costs what it covers and doesn’t. The specifics of this warranty can make all the difference when protecting your new vehicle.
It's the moment that every Uber or Lyft driver dreads. You've gotten the notification and look away for just a second when you hear the dreaded "THUMP-CRUNCH!"
Other Types of Auto Insurance
A few specialized auto insurance options ensure you are well protected no matter the situation.
Custom equipment coverage.
Gap insurance is "guaranteed asset protection" and is usually required when leasing or financing a car. If you total your car, your gap insurance will cover the difference between the vehicle's total value and the balance on your loan.
Rideshare insurance policies are designed for people who drive for ride-sharing services such as Uber and Lyft. Rideshare policies provide extra coverage when a driver's personal or company insurance may not cover them.
Most auto insurance companies now offer rideshare insurance, but it's best to consult with your agent if you plan on making a little extra money with your car.
Forgiveness coverage is a type of coverage that protects policyholders from premium increases if they are at fault in a car accident.
This is typically a one-time policy, meaning that any subsequent accidents will raise your premium. This is a good option for responsible drivers who rarely put themselves in danger.
Glass coverage is optional car insurance that helps to repair or replace your vehicle's windshield, windows, and other glass parts. Glass coverage can be valuable if you live in an area where severe weather or vandalism is a concern. This can be included in a comprehensive policy, but it's best to ask your insurance agent if this extra coverage is worth having.
Custom Equipment Coverage pays for the cost of aftermarket, custom-fitted equipment damaged or stolen from your vehicle. This could include running boards, a stereo, exhaust pipes, or custom paint jobs.
Pay-per-mile insurance is a type of policy that calculates your rates based on how many miles you drive in any given year. The less time spent behind the wheel, and therefore a lower annual mileage total, means lower prices for both driver and company. Your driving behavior is monitored with an app installed onto your phone or through a device that plugs into your car's electronics system.
There are a number of things that determine your car insurance premiums. If you cover an average of 25 miles per day, most insurance companies will consider you as a low mileage driver which helps to achieve a lower premium amount.
It doesn't matter if you're the best driver on the road or a newbie behind the wheel: accidents happen. Adding accident forgiveness to your policy can protect you from financial and legal issues associated with accidents.
Being involved in an auto accident that damages your windshield can be scary and expensive. Unlike other car damages, such as a fender-bender, you can’t drive your car until you fix it. Here’s the information you need about auto insurance and windshield replacement.
What Factors Influence My Insurance Rate?
Insurers look at multiple factors, including driving history, age, and types of vehicles, when approving someone for a policy. Auto insurance policies are highly customizable, so research online before calling around for quotes.
Some common factors that affect vehicle insurance rates include:
Your driving record.
Your state, city, and zip code.
Insurers will also look at:
Age of the vehicle.
Safety features in your vehicle.
Technological advances in the auto industry have made driving virtually fool-proof. New vehicles now come equipped with all types of crash avoidance technologies to help drivers stay safer on the road. Advanced systems that were once special options on select luxury models have steadily grown to become the new standard.
Many factors go into determining the amount of premium you pay for your auto insurance but one of those variables is your age. Insurance companies use statistical data about different age groups to determine risk and therefore, your premium payment amounts.
What's the Minimum Amount of Car Insurance I need?
Being uninsured can result in huge fines and the loss of your driving privileges, so it’s something you don’t want to risk. Here are a few things to consider if you want to get the absolute minimum amount of coverage:
Find the state's minimum requirements. You should only follow the state minimum if you have enough money to cover potential property damage. If you own a car, the state minimum requirement may suffice.
Check with your lender about the requirements if you lease your vehicle. Failure to meet your lender's requirements could result in the termination of the contract with your lender.
Determine the worth of your assets. Do you have enough money to cover the damages you are legally responsible for if you cause an accident? If you are found at fault for the accident, a court may order you to make up the difference, even if it means selling your assets.
The cost of additional insurance is usually minimal in comparison to the potential costs you could incur by being underinsured.
We've compiled a list of the best and cheapest auto insurers on the market, so if you're concerned about your premium costs, consider some of our recommendations for the best-rated auto insurance companies of 2022.
What Is Proof of Insurance?
Proof of insurance can take several forms and is necessary to have on hand if you are pulled over, involved in a car accident, or when you register a new vehicle.
Proof of insurance is typically a card or ID that your insurance company sends you to print out. It contains information about your policy, the policy number, and vehicle.
Many companies now provide a digital ID via their apps or send a digital document you can save to your mobile device.
Other documents you’ll get with your car insurance policy:
Declarations page: This page lists the insured drivers and vehicles, and the type of coverage you chose for your policy.
Insuring agreement or base policy: This is the section of your insurance policy that discusses your policy's provisions, the scope of your coverage, and the insurer's responsibilities. It also states when you must pay your premiums, how much they cost, and how to report an accident.
Policy exclusions are items or situations that are specifically not covered by your insurance policy. These exclusions can vary from policy to policy, but some common examples include intentional damage, wear and tear, and remodeling or repairs.
Policy conditions are the terms and conditions of your car insurance agreement. They outline what is covered by your policy and under what circumstances you will be liable for damage or loss.
Policy definitions include the specific coverage terms and conditions of the policy. Most definition sections will contain coverage terms for bodily injury, personal property damage, and medical payments.
Have a question about your auto insurance policy or what coverage you have? The auto insurance declarations page has all of the information that you might need, but it can be a lot of information to sort through. We highlight what it is and what you should look for.
If you’re wondering how you’re supposed to have insurance before you’ve purchased a car, you’re not alone. How are you supposed to have a policy ready to go the same day you take your new car home? Here’s what you need to know about how to get car insurance before buying a car.
There are some circumstances where you might need to know if you need car insurance on a car that you don't own. Obtaining auto insurance may be a little more challenging if you don’t own a car, but there are several ways to go about getting coverage.
How to Buy Car Insurance
The first step in purchasing car insurance is determining how much coverage you require. Know your state's requirements and limitations before you begin.
Minimum coverage may be sufficient if you have an older car and are less concerned about the total value of the vehicle. You may want to increase your liability coverage in case you are at fault in an accident. If you lease your car, you may require gap coverage or coverage that exceeds the state minimum.
Knowing how much coverage you need before shopping for rates, will help you when comparing quotes from different companies.
Next, do some company research and get some quotes. Look online at customer reviews and overall satisfaction scores. When searching for quotes, we suggest getting at least three quotes from different insurers so you can evaluate the differences in premiums.
The premiums should not differ too much, and if you find an outlier, it may mean you are either overpaying for coverage, or underpaying and exposing yourself to incidents that are not covered.
Some other things to take note of include bundling discounts and safe driving discounts. You may want to go with a higher premium than you can lower over time to save money.
Are you interested in finding the best car insurance? We’ve compiled a list of the best auto insurance companies to help you decide where to get cheap rates, excellent cover, and market-leading service.
/2023 Best Providers
What does auto insurance cover?
Is auto insurance a requirement?
Are there different types of auto insurance coverage?
How long does it take to get an auto insurance quote?
Does my credit score affect my insurance premiums?
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