Car Insurance Coverage 101 – What Is Required And What Is Optional?

Are you confused with what coverage you need on your car insurance policy? Most drivers don’t understand basic auto insurance coverage options and which combination makes sense for them. Today insurance companies try to differentiate themselves from the rest of the pack by coming up with fancy names coverage options. This only confuses the customer when they are trying to compare rates from other companies which is probably the plan all along. I will try to better explain which options you have for car insurance and why you might need them.

As an auto insurance consumer you need to understand the two types of coverage available on any standard car insurance policy.

Required Coverage – Most states have a minimum level of coverage that is legal to own and operate a motor vehicle. This usually includes liability insurance for bodily injury, medical payments and property damage.

Optional Coverage – Beyond what is required to meet state law you have many more options to add-on an auto policy. This optional coverage can provide protection for your vehicle, towing services, and much more.

I will first discuss the details of required coverage and then explore many of the most popular optional coverage features available today.

Required coverage is often referred to as “minimum liability limits” or just “liability insurance”. Each state will have their own set of limits that is required by an owner of a motor vehicle. These limits provide protection for all other drivers in the event of an accident. Here is an explanation of the most common required coverage limits:

  • Bodily Injury – Expenses resulting from other people’s injuries or death for which you are legally responsible. Such expenses include loss of income, medical bills and pain & suffering. Most states will have a minimum limit represented in dollars such as $25,000 in bodily injury per person.
  • Property Damage – Coverage for your liability of damaging another person’s personal property after an accident. Such items can include motor vehicle, house, or fence. Again most states will have a minimum limit represented in dollars such as $15,000 in property damage per accident.
  • Medical Payments – Some states have passed laws requiring medical payments coverage or a waiver must be signed to deny it. This coverage pays for medical expenses if you or a passenger in your vehicle are injured. Sometimes coverage will extend to other vehicles you are riding in up to the amount specified on the policy.
  • Personal Injury Protection (PIP) – In no fault states personal injury protection (PIP) is usually required. This coverage allows for a broader range of medical expenses to be covered over standard medical payments coverage. It can cover lost wages and other medical bills that would not be covered by medical payments.
  • Uninsured/Underinsured Motorist Coverage – This covers you and your passengers in an accident where the at-fault party is either under insured or not insured at all. It will also cover accidents where the other party has hit-and-run you in a vehicle or as a pedestrian. While required in most states it can also be waived in most cases. It is not recommended to waive this type of coverage.

Now that you understand what can be required on auto insurance we will shift our focus to optional coverage items. There are too many options to list them all in this article but I will detail a few popular coverages and what they are used for.

  • Comprehensive coverage – True to its name comprehensive coverage encompasses almost everything besides hitting another object. Common claims would include theft, vandalism, wind damage, hail damage and much more. This type of coverage will have an associated deductible that would be due at the time of the claim. If you have a loan on your vehicle this coverage is generally required by your lender.
  • Collision coverage – The name says it all, collision coverage will protect the vehicle against running into something else including another vehicle or object. Usually this is used after an accident where the driver is at fault for the damage done to the vehicle. A deductible is associated with this coverage and can range from $0 up to $1500. If you have a loan on your vehicle this coverage is generally required by your lender.
  • Roadside assistance/Towing – Most insurance companies offer this coverage for a very small premium and it is one of the most used. From a flat tire to a tow to the nearest repair shop this coverage is worth the price. Expect to pay $20 to $50 per year for this coverage depending on the year, make and model of your car.
  • Rental Car Reimbursement – Each company has a different name for this coverage but in the event you need to rent a vehicle while yours is being repaired this is what you will need. It usually only pays for a rental car if the vehicle is in the shop under a covered claim such as an auto accident. Expect to pay between $50 and $150 year for this coverage depending on the daily limit.
  • Uninsured Motorist Property Damage – Most people don’t realize that even if they have uninsured motorist liability coverage that doesn’t mean your vehicle is covered if someone hits-and-runs. This will provide protection for the vehicle in the event you don’t have collision or comprehensive coverage and the vehicle was hit by an uninsured motorist.
  • Glass coverage – Only a few auto insurance providers offer this coverage but it is a very nice coverage to have. It will replace any glass in the vehicle or repair it for a small or no deductible. Expect to pay $25 to $75 per year for this coverage depending on your vehicle type.