What does car insurance cover?
Car insurance covers many costs associated with vehicle accidents and other incidents. This includes:
- Damage to the insured vehicle
- Damage to other vehicles
- Damage to other physical property
- Injury to the driver, passengers, other motorists, and pedestrians
Not all of these coverages exist on every car insurance policy. For example, insuring damage to the vehicle itself is often optional (though highly recommended).
There are many types of car insurance coverage, but they generally fall within three categories: physical damage, liability, and accident benefits.
Within physical damage coverage, the main two types you’ll see are collision coverage and comprehensive coverage. Collision protects the insured vehicle from damage sustained in collisions, while comprehensive coverage protects it from damage sustained elsewhere.
However, the most essential coverage on a car insurance policy is liability coverage. Liability is the term for when you’re legally deemed responsible for something. Car liability insurance helps cover legal costs and damages after an accident for which you’re responsible. For example, if you rear-end another vehicle at a stop sign, it’s your liability coverage that would pay for repairs to the other vehicle.
Finally, there are accident benefits coverages. These vary in nature, but generally pay medical and rehabilitation costs for anyone injured in a vehicle accident. They also often include loss of income benefits for those who can’t work following an accident.
It’s important to note that, when you buy personal car insurance, it doesn’t typically cover business use of the vehicle. If you use your car for business activities (including ridesharing or food delivery), you’ll need to speak with your insurance provider to make sure you have appropriate coverage.
Car insurance premiums and deductibles
When you buy a car insurance policy, you pay a premium in exchange for the coverage. The amount you pay depends on many factors, the largest of which is the insurance company’s expected claims costs for the upcoming year. Since everyone’s premiums are pooled to pay for claims, higher claims costs mean higher premiums.
The other factors that influence car insurance premiums are details about the vehicle and driver, as well as the coverage selected. For example, drivers with great driving records are theoretically less likely to be involved in an accident, so there’s usually a discount for clean driving histories. Similarly, vehicles that commute to work every day usually cost more to insure than vehicles that only leave home on the weekend (known as pleasure use).
When you apply for car insurance, the insurance provider will ask for information about the vehicle and how it’s used before they determine how much it will cost to insure.
At that point, you’ll be able to choose coverage limits and optional coverages. These will also affect the price you’ll pay for the policy.
You’ll usually be able to choose a deductible, too. The deductible is the amount of money you’ll pay when you make a claim, before the insurer covers the remainder. Depending on the provider from whom you’re buying, you can choose deductibles ranging from about $250 through $2,000—or more. You will often have separate deductibles for different policy coverages, like a collision deductible and a comprehensive deductible.
When you choose a low deductible, your premiums will be higher, but you’ll have a smaller amount to pay if you make a claim. Conversely, if you choose a high deductible, you’ll pay less for your policy, but pay more if you make a claim.
