Buying a car that fits your budget and needs is a big deal. But there’s another big decision you’ll have to make in tandem with that: getting your car insured to protect yourself and your loved ones in the case of an accident.
There are several car insurance coverage types to consider, which gives you the freedom to choose a highly personalized policy—but it shouldn’t be complex. Understanding the basic features of common policies will ensure you’re meeting your state and lender’s minimum coverage requirements while protecting yourself from unexpected costs associated with car accidents.
How does car insurance work?
Auto insurance acts as a buffer between you and any financial losses that arise following an accident or other damages beyond your control. Drivers pay a specific price, called a premium, to an insurance company and in return, the insurer agrees to pay for any potential losses covered by your policy.
But what claims are covered depends on the type of car insurance you pay for. Some types of coverage—like bodily injury and property damage liability coverage—are required by nearly all states, while others are optional. Drivers have the choice to pay for additional coverage beyond their state’s minimum requirements to meet their insurance needs.
Types of car insurance coverage and what it covers
Common types of coverage include liability, collision, and comprehensive coverage, which protect you against damages, accidents, or theft. Some states require drivers to have uninsured or underinsured motorist coverage, which protects you against drivers with too little to no insurance.
Here is a general overview of some common types of car insurance and what they cover. (We’ll dive into the specific details in the next sections.)
What it is: Liability coverage helps protect you against the