Understanding Auto Insurance Coverage Types

What Is Auto Insurance?

Auto insurance is a contract between you and an insurance company that protects you financially if you're in an accident or your car is damaged. In exchange for paying a premium, the insurance company agrees to cover your losses as outlined in your policy.

Types of Coverage

Liability Coverage

Liability coverage pays for injuries and property damage you cause to others in an accident. Most states require minimum liability coverage. It comes in two parts:

• Bodily injury liability: Covers medical expenses, lost wages, and legal fees for others
• Property damage liability: Pays to repair or replace other people's property

Collision Coverage

Collision coverage pays to repair or replace your car after an accident, regardless of who's at fault. This is optional but often required by lenders if you have a car loan.

Comprehensive Coverage

Comprehensive coverage protects against non-collision events like theft, vandalism, natural disasters, and animal strikes. Like collision, it's optional but commonly required by lenders.

Uninsured/Underinsured Motorist Coverage

This coverage protects you if you're hit by a driver who doesn't have insurance or doesn't have enough to cover your expenses.

How Much Coverage Do You Need?

The right amount of coverage depends on your assets, driving habits, and state requirements. A good rule of thumb is to carry enough liability coverage to protect your total assets.