The Foundation: Liability Coverage
Liability is the only coverage required by law in almost every state, and it is the base layer of every auto policy. It protects other people from your driving mistakes. It does not protect you or your car.
Bodily injury liability pays the other party’s medical bills, lost wages, pain and suffering, and legal defense costs if you get sued after an at-fault crash. Limits show up as two numbers: max per person, max per accident. A 100/300 policy pays up to $100,000 per injured person and up to $300,000 per accident.
Property damage liability pays to fix or replace the other car, fence, building, or anything else you damaged. Most state minimums are $10,000 to $25,000 of property damage. The cost to repair newer cars blows past those minimums fast. Most advisors push for at least 100/300/100 in limits. State minimum is a recipe for a lawsuit you cannot cover.
Collision Coverage
Collision pays to fix or replace your own car after a crash with another vehicle or a stationary object, no matter who was at fault. Back into a pole in a parking lot? Collision pays. Get hit by someone whose liability does not fully cover your repairs? Collision pays the gap after your deductible.
Common deductibles run $250, $500, $1,000, $2,000. Higher deductible, lower premium. Lower deductible, more coverage but more cost a year. For cars worth more than $10,000 to $15,000, collision almost always earns its keep. For cars worth $4,000 or less, the annual collision premium can hit or beat the car’s actual cash value.
Comprehensive Coverage
Comprehensive pays for damage to your car from things other than a crash: theft, fire, hail, flooding, falling objects, animal strikes, vandalism. It has a deductible like collision, and it makes the most sense on cars with real market value.
The rule of thumb: drop comprehensive and collision when the combined annual premium for both is more than 10% of the car’s market value. A $5,000 car paying more than $500 a year combined is a candidate for dropping these and self-insuring the body damage.
Personal Injury Protection and Medical Payments
Personal Injury Protection (PIP) and Medical Payments (MedPay) both pay medical bills for you and your passengers after a crash, regardless of fault. PIP is broader. It can also cover lost wages, childcare costs, and funeral expenses. MedPay covers only medical bills.
PIP is required in 12 no-fault states, where each driver’s own insurance pays their medical bills regardless of who caused the crash. In fault-based states, both are optional, but they can fill real gaps, especially if your health insurance has a high deductible or fights you on auto-crash claims.
Uninsured and Underinsured Motorist Coverage
Uninsured motorist bodily injury (UM) pays your medical bills when the at-fault driver has no insurance. Underinsured motorist (UIM) fills the gap when the at-fault driver has insurance but not enough to cover your losses.
About 14% of U.S. drivers are uninsured, per Insurance Research Council estimates. In some states, the rate clears 20%. UM/UIM typically runs $30 to $80 a year and is one of the highest-value add-ons on a standard policy. Skipping it to save $5 a month is dumb math.
Optional Coverages Worth Knowing
Gap insurance covers the gap between your car’s actual cash value and what you still owe on the loan or lease after a total loss. Cars depreciate fast in the first two years, and the loan balance can easily run past the insurance payout. Dealers sell gap at steep prices. Your auto insurer almost always sells it for a fraction.
Rental reimbursement pays for a rental car while yours is in the shop after a covered claim. Roadside assistance adds towing, lockout service, jump-starts, and flat tire changes. These add-ons usually run $5 to $15 a month and earn their keep the one time you actually need them.