Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Sep 27, 2020

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Key takeaways...

  • All states require a minimum level of car insurance coverage for any vehicle you own
  • Collision covers the cost of damage to your car in an accident
  • Comprehensive covers includes miscellaneous damage that does not occur during a collision, such as fire, theft, and storm damage
  • Liability Coverage is required by most states and minimum requirements vary by state
  • While all states require drivers to carry auto insurance, we know that there are always people who don’t. Consider adding underinsured/uninsured motorist coverage

Aside from your home, your car is probably your largest purchase. All states require a minimum level of car insurance coverage for any vehicle you own.

In addition, finance companies generally require minimum coverage while the car is being financed, regardless of whether the vehicle is leased or purchased.

When researching policies and coverage, it’s wise to know the terminology so you can choose the types of car insurance coverage that are right for your situation.

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Table of Contents

Collision

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Collision covers the cost of damage to your car in an accident. The amount of coverage is determined by the vehicle that’s being insured; the higher the value of the car, the higher the level of coverage.

This coverage generally not required by most states, but is required by finance and leasing companies to cover the cost of damages. Collision is important when a car is new since replacing the car is expensive.

However, as the value of the vehicle declines or when loans are repaid, coverage can be revised to meet your needs.

Collision, like some other coverage, is subject to a deductible. Deductibles are amounts that an insured is required to pay by the insurance company before they will make payments. The purchaser selects the deductible.

Deductibles can be as low as $100 and as high as $1,000. The higher the deductible is, the lower the premium will be.

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Comprehensive

Comprehensive covers includes miscellaneous damage that does not occur during a collision, such as fire, theft, and storm damage. This coverage can also cover damage that occurs during a collision with an animal like a deer.

Comprehensive coverage pays for repairs or replacement of your vehicle.

Like collision, you choose the deductible for your policy. And, like collision, is often required by lenders if the car is under lease or financing. Comprehensive coverage is often bundled with collision as a package.

Liability for Bodily Injury

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Liability Coverage is required by most states and minimum requirements vary by state. Bodily injury liability covers medical expenses for the other driver or vehicle when you are at fault for the accident.

The minimum required by any state is $10,000 per person and $20,000 per accident. Many experts recommend carrying higher limits, such as $100,000 per person and $300,000 per accident.

When you are at fault in an accident, you are liable for the difference between what your policy pays and the total amount of the bills. Any expenses incurred beyond your policy limits will be your responsibility. This is not a place to skimp on coverage.

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Liability for Property Damage

Coverage for property damage is used to replace the vehicle when the accident is your fault. It is also required by states and minimums vary.

Again, the minimum coverage required will probably not be enough to reimburse the parties involved in the event of an accident. With many new cars being valued at $40,000 or more, this is coverage to maximize.

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Medical Expense

Medical expense coverage covers the cost of medical care for yourself and any passengers in your vehicle in the event of an accident.

With medical expense coverage, you choose the limit yourself and the amount you chose applies equally to everyone in the vehicle.

For example, say you chose $2,500 for each driver on the policy and you had two passengers at the time of the accident.

The policy would pay you as the driver, and both passengers each up to $2,500 for medical expenses incurred as a result of the accident.

Uninsured/Underinsured Motorists Coverage

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While all states require drivers to carry auto insurance, we know that there are always people who don’t. This coverage pays when you are involved in an accident and the party at fault is either uninsured or underinsured.

Underinsured motorists auto insurance coverage pays the difference between their coverage and the actual cost of repairs.

Uninsured Motorists coverage pays for any repairs and medical expenses incurred as a result of an accident. Payment will not exceed your own policy’s limits.

Some states limit coverage to bodily injury, while others will cover property damage as well. Limits on coverage as well as requirements are set by each state.

Personal Injury Protection (PIP) or No-Fault Coverage

PIP covers medical expenses and those of your passengers regardless of who’s at fault.

Some states require this coverage and set the limits for the coverage. PIP covers medical, funeral, rehabilitation and lost wages incurred as a result of an accident.

Generally, payments are made at a percentage, such as 80 percent of their value.

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Other Coverage

These are optional additions to policies and are gaining in popularity. While they may be appealing, they are not required by states. They will also add to the overall premium of the policy.

  • Loan/Lease Payoff  This option covers the difference between the settlement amount of the claim and the total amount owed on the vehicle should it be declared a total loss in the event of an accident.
  • Rental Reimbursement  This covers the cost of a rental car while the vehicle is being repaired due to a Comprehensive or Collision claim.
  • Roadside Assistance  Should your car require a repair or tow when broken down, this coverage will cover the cost.

Since many of these coverage options have minimums required by the state, it’s important that you know exactly what your state requires.

Prior to purchasing any policy, be sure you know what your state, and financing company if applicable, requires so you purchase the coverage that best meets your needs and budget.

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