Auto Insurance Coverage Explained- Full Coverage and Liability

All US states require some basic auto insurance coverage which lends financial protection if you are involved in a car accident if another driver causes damage to your vehicle or your property, or in case you damage someone else’s vehicle or property.

To make informed decisions about auto insurance coverages and to decide what best suits your needs, you need to be well-educated about the different types of coverages, what’s included and what isn’t, and of course, what’s optional and what’s mandatory.

Coverage amounts also play an important role when purchasing auto insurance. Higher levels of coverage provide more security than the state-required minimums.

Below, we’ve explained all insurance terms you should know in plain and simple language, so read on!

What Does Car Insurance Cover

Auto insurance can be broken down into two types of car insurance coverages:

  • Liability coverages
  • Physical damage coverages

Liability coverages fall into basic coverage requirements. They include bodily injury, property damage, personal injury protection or PIP, and uninsured and underinsured motorist coverage.

Physical damage coverages, on the other hand, include collision, comprehensive, towing and labor, roadside assistance, and gap coverage. In case your car is leased, physical damage is required; if it’s fully paid, it becomes optional.

Two Types of Car Insurance Coverage

The key to understanding the components of two different coverage types can be summed up into the following:

  • Auto liability insurance is there to protect you in case you cause an accident, and it is used to pay for the other person’s expenses, whether it is someone else’s property or injuries.
  • Physical damage coverages are mostly optional, but if there is damage caused to your own car, these coverages pay for the expenses.

Liability Coverages

BI and PD liability are mandatory coverages required by each state. To be able to drive legally, you must carry at least the state minimum coverages. Liability limits are the maximum amount your policy can pay in case of an accident.

Bodily Injury Liability (BI)

Should a driver cause an at-fault accident that injures the other party, this type of insurance will pay for legal and medical expenses. It can also pay for the lost wages of the other driver and their passengers.

Property Damage Liability

This portion of an auto policy covers the repairs or the replacement of damaged vehicles or damaged property of the other party. Personal assets covered under this part of the policy can include fences, mailboxes, and other personal assets.

Medical Payments or Personal Injury Protection (PIP)

Medical Payments or PIP is there to provide coverage for medical expenses and a portion of lost wages for both the driver and the other passengers involved. The cost of personal injury protection insurance varies from state to state, and although it isn’t obligatory, it’s recommended that you get it because other liability coverages do not protect you and your passengers.

Uninsured Motorist and Underinsured Motorist Coverage

The uninsured motorist coverage portion of your insurance is there to protect you if you are involved in an accident with a driver who isn’t covered by insurance. Underinsured coverage, on the other side, is there when you are involved in a mishap with a driver who has limited coverage and doesn’t have enough liability insurance to cover your medical expenses or damage.

Physical Damage Coverages

These coverage options pay to repair your car and property damaged due to an accident or situation like vandalism, flood, or theft.

If you’re looking to lease or take a loan out on your car, many lenders want proof of physical damage coverage.

Collision Coverage

Collision insurance is optional coverage and is there to defray the expense of repairing your vehicle when you hit another vehicle or an object. Whether another vehicle hits you or you collide with a stationary object, such as a pothole or fence, collision is there to cover the costs of repairing your car.

Collision coverage has its own deductible. The rule of the thumb is that the higher deductible means a lower premium, and vice versa – so choose your deductibles according to your budget and needs.

Comprehensive Coverage

Collisions aren’t the only threat to your vehicle, and comprehensive insurance is there to cover the remaining risk points. Vandalism, theft, and different natural disasters and mishaps such as hail fall under this portion of your auto insurance policy.

Towing and labor coverage

Towing and labor auto insurance is an optional portion of your auto insurance that can be purchased through your insurance company. It is there to protect you against hassles associated with your car breaking down or being stuck in the middle of the road.

Roadside Assistance

An inexpensive additional insurance coverage option, roadside assistance covers an occasional flat tire or a dead battery. It is a great cost-effective addition to your auto insurance policy.

Gap Coverage

If your car is leased, auto insurance companies will require both collision and comprehensive as part of your car insurance coverage.

Both of these cover the market value of your car; in case your car gets totaled, there is a “gap” between the price you owe and your insurance. Therefore, it’s best to get gap coverage in order to cover the difference.

Who is Covered — and When?

Your auto policy will cover you and your family members, no matter if you’re driving your insured car or someone else’s car.

Your personal auto insurance policy is limited to personal driving (i.e., driving to work, going on a road trip) and it will not cover you in the event that you use your car for business ventures and commercial purposes.

Riding share services that have gained popularity (such as Lyft and Uber) can be covered under supplemental auto insurance as well, but are not included in your personal auto insurance policy.

Get the Best Auto Quote for Free

To get the right coverage, you should explore different quotes auto policies and see what fits you best.

Insurance Geek allows you to find the right insurance company by comparing quotes from multiple carriers if you use our quote calculator tool.

You just need to enter your basic info (such as the ZIP code) and we will generate the quotes for you.

There’s also the possibility to save money with different discounts, such as the multi-policy discount (obtaining other policies, e.g., home and life insurance with the same company).