Read the Spanish version: Conceptos Basicos sobre Seguros de Carros

Besides protecting you financially, car insurance is a social responsibility. Driving without insurance or the ability to pay for the damages you cause in an accident puts others at financial risk.

All states except New Hampshire require car owners to prove they have the financial ability to cover liability costs if they cause an accident, and most require they do so by carrying auto insurance. New Hampshire requires drivers to prove financial responsibility after an accident.

An auto insurance policy contains six main types of coverage. Depending on where you live, some are required and some are optional.

Car insurance is comprised of the following coverages:

  1. Bodily injury liability
  2. Property damage liability
  3. Medical payments (MedPay) or Personal Injury Protection (PIP)
  4. Collision
  5. Comprehensive
  6. Uninsured/Underinsured motorists coverage (UM/UIM)
  7. Extras, like roadside assistance

Also, here are a few terms to know:

Full coverage - When people talk about having “full coverage” they generally mean having liability, collision and comprehensive.

Deductible - The amount you pay out-of-pocket before your insurance coverages kick in. So if you have a deductible of $500 and are in an accident with damages of $2,000, you'd pay the first $500 and your insurer would then take over to pay the remaining $1,500. Deductibles are associated most with collision and comprehensive coverages.

No-fault - States that require personal injury protection (PIP) and require drivers to put medical expenses related to auto accident injuries first through their own PIP coverage instead of the at-fault party's liability coverage.

Let’s look at each coverage type and help you figure out if you need them.

Liability insurance

Liability coverage pays for the damage you do to others. It’s written as three numbers, such as 20/40/10. That translates to $20,000 in bodily injury coverage per person, $40,000 in bodily injury coverage per accident and $10,000 in property-damage coverage per accident.

It also pays for your legal bills if you cause an accident.

Bodily-injury liability will pay for others’ medical bills and lost wages when an accident is your fault, except in “no-fault” states, where your own Personal Injury Protection (PIP) coverage would pay for your injuries.

Property-damage liability pays to repair or replace property that you destroy. This includes other cars or property, such as fences.

States have set minimum limits of car insurance you must buy, but you may find them woefully inadequate. If you cause a major accident you’ll quickly exhaust your limits – and be personally on the hook for the rest.

If you cause $65,000 worth of damage and have an insurance limit of $40,000, you're responsible for the remaining $25,000 and could be sued for it.

Liability insurance has no deductible.

Collision and comprehensive insurance

Unlike property-damage liability, collision coverage pays to repair your own vehicle in the event of an accident. Your collision claim check will be reduced by the amount of your collision deductible.

Collision insuranceYour car is considered "totaled" when the repair costs exceed a certain threshold of the car's value, such as 70%. At that point, the insurance company will tow away the car to the salvage yard and offer you the actual cash value of your car, minus the deductible.

To keep your premium costs down when you buy collision coverage, you can raise your deductible. The higher your deductible, the lower your premium. But remember, you'll have to pay that amount out of your pocket.

Comprehensive coverage pays for damage to your car that isn't due to car accidents. That includes theft, fire, vandalism, natural disasters (for instance, hail damage or flood damage) and collisions with animals (such as hitting a deer). Damage to your windshield may be covered under your comprehensive coverage as well. In some states, comprehensive coverage includes glass repair and replacement with no deductible, but it varies from state to state. Ask your agent about the specifics when you purchase your policy.

While neither collision nor comprehensive coverage is required by any state, your lender (if you are financing your car) may require that you carry this coverage until you have paid for your car in full. After your car is paid off, you can drop collision and comprehensive, although you may want to maintain the coverage to protect your own investment in the vehicle.

Comprehensive and collision is fairly affordable. Comprehensive costs $192 a year, and collision costs $526 a year, on average, according to Insure'com's expert analysis of rate data.

Medical Payments and Personal Injury Protection

Medical payments (called MedPay) coverage pays for the medical expenses suffered by you and your passengers after an accident. You're also covered for injuries if you're driving someone else's car or from injuries suffered if a car hits you. MedPay will pay no matter who caused the accident, although if someone else is at fault your insurer may seek damages from the other party.

States that require PIP coverage








New Jersey

New York

North Dakota



Source: Insurance Information Institute

Personal Injury Protection (PIP) coverage pays for medical expenses and lost wages for you and your passengers who are injured in an accident. It also covers funeral costs. PIP is required in 16 states.

Do you need MedPay or PIP? If you have good health insurance and disability insurance, you can skip PIP or buy only the minimum amount if it's required.

Depending on your state, you may be able to buy just one or both of these coverage types.

Uninsured/underinsured motorist coverage

Uninsured motorists (UM) coverage pays for your medical bills if an uninsured driver strikes your car or if you're a victim of a hit-and-run. According to the Insurance Information Institute, UM coverage is required by law in 20 states and the District of Columbia: Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Vermont, Virginia, West Virginia and Wisconsin.

Similarly, underinsured motorists (UIM) coverage kicks in when someone causes an accident but doesn't have enough insurance to cover all medical bills. In that case, the at-fault person's insurance pays out to its maximum and then your UIM coverage pays for the remaining bills, up to your own limit.

UM and UIM also pay for pain and suffering claims. In some states you can also buy uninsured motorist property damage (UMPD) to cover property damage.

Car insurance extras

A variety of extras are available. Just remember that making a claim for any of them, like towing, goes down as a claim on your record.

  • Rental reimbursement pays for a rental car when your vehicle is damaged or stolen. Check for the per-day dollar limits and overall maximum to make sure you're getting a good value for your premium dollar.
  • Towing and roadside assistance coverage pays for fees due to  vehicle breakdowns.
  • Gap insurance for a new vehicle pays the difference between the actual cash value of the vehicle and the amount left on your car loan if your vehicle is totaled.

Car insurance rates

Car insurance companies expend considerable time and effort deciding how to price policies. The risk factors usually used are:

  • Your address.
  • Your driving record.
  • Your credit (except where state law bans the use of credit information in insurance pricing).
  • Your past claims.
  • Your vehicle.
  • Your daily commute and/or annual mileage.
  • Your age.

Other pricing factors also come into play, such as whether your car will be parked in a garage when you’re home.

Types of high-risk car insurance

A poor driving record can send you on an unpleasant insurance journey for years. You may be forced into alternate policy types until your record improves, such as:

  • SR-22 and FR-44. The dreaded SR-22 and FR-44 are insurance certificates that prove to your state that you have auto insurance. You may be required to get one if you’ve gotten a DUI, reckless driving conviction or were caught driving uninsured. Not all insurers will supply an SR-22 or FR-44 so you may have to make some calls or do research online.
  • Non-standard policies. If you’ve racked up a bunch of accidents or tickets, insurers may judge you as “high-risk.” This means you’ll pay substantially more for car insurance until your accidents and violations fall off your record. Many insurers sell high-risk policies.

Where to buy car insurance

It’s easy to get car insurance quotes, and comparing prices from multiple insurers can save you hundreds of dollars. Even if your driving record is less than stellar, shopping around can save you money.

You can get quotes from:

  • Local insurance agents.
  • Sites that provide quotes from multiple insurers.
  • Directly from car insurance companies.’s annual customer satisfaction study can help you find the best car insurance companies.

In addition, many state insurance departments release annual reports showing the number of consumer complaints against each insurance company that does business in the state. Check your state insurance department’s website.