- Car insurance protects you, your family, your vehicle, and your assets.
- Most basic car insurance policies include four types of coverage; each provides a different type of protection.
- Understanding your car insurance coverage leads to better choices; a good insurance broker can help.
Car insurance is designed to protect you, your family and your vehicle when your car is damaged or if you’re involved in an accident. Coverage also protects your assets if you are found responsible (liable) for causing the accident.
While car insurance sounds complicated, there are a few basic elements that form most insurance policies. We’ll break down the terms to help you understand how the pieces fit together.
While actual requirements vary by state, most basic car insurance policies include these four elements.
4 Elements of Basic Car Insurance
1. Liability coverage
Nearly every state requires a car owner to carry liability coverage, which pays for the damage you do to others. It is broken down into two types—Bodily Injury and Property Damage.
If you cause an accident that injures other people, your Bodily Injury Liability coverage pays for their medical bills, lost wages, legal settlements, and pain and suffering. Property Damage Liability coverage pays for damage you cause during the accident to someone’s property, such as their vehicle or a tree, telephone pole, or building.
Liability coverage is often shown as three numbers, such as 100/300/100. This translates to $100,000 in bodily injury coverage per person, $300,000 in bodily injury coverage per accident, and $100,000 in property damage coverage per accident.
Consider your needs carefully when choosing liability coverage. The minimum requirement for auto liability coverage in some states is too low to protect the assets of many Alaska USA members. A good insurance broker can help you choose the right amount for you and your family.
2. Collision and comprehensive coverage
Collision pays for damage done to your car when you hit something, like another vehicle. It even covers damage from road hazards, such as potholes.
Comprehensive coverage covers most losses other than collision and includes things such as theft, hail, flood, fire, and vandalism. In addition, if you hit a deer, damage to your car is taken care of by your Comprehensive coverage. Costs of repairing damaged windshields and other glass breakage are usually also covered by Comprehensive.
3. Uninsured/Underinsured motorist
Uninsured and underinsured motorist coverage provides bodily injury and property damage coverage if the other driver who caused the accident is either not insured or has insurance but doesn’t have enough coverage. Uninsured coverage also pays if the accident is caused by a hit-and-run driver.
4. Personal injury protection (PIP) and medical payment coverage (MPC)
Medical costs can add up quickly if you are injured in a car accident. MPC pays just the medical expenses for you or those who were riding in your car if they are injured, regardless of who caused the accident; it also pays if you hit a pedestrian or a bicyclist.
PIP coverage, which is broader than MPC but not available in all states, pays for medical expenses as well as items like lost wages, childcare if needed, and funeral expenses.
Did you know?
You may save money by paying the entire amount of your annual car insurance premium instead of paying just a portion of it every month.