A car insurance policy is really a bundle of separate coverages, each paying for a different kind of loss. Some are required by your state, some are required by your lender and some are optional. Understanding what each one does makes it much easier to choose limits that protect you without paying for coverage you do not need.
This guide explains each common coverage type, how limits and deductibles work, which coverages most drivers need and where people commonly end up underinsured. It is general information, not insurance advice. Requirements and available coverages vary by state, so check your state’s rules and your policy documents.
The main types of car insurance
| Coverage | What it pays for | Usually required? |
|---|---|---|
| Bodily injury liability | Injuries you cause to other people in an accident | Required in almost every state |
| Property damage liability | Damage you cause to other people’s cars or property | Required in almost every state |
| Collision | Damage to your own car from a crash, regardless of fault | Required by most lenders and leasing companies |
| Comprehensive | Theft, vandalism, fire, hail, flooding, falling objects and animal strikes | Required by most lenders and leasing companies |
| Uninsured/underinsured motorist | Your injuries, and in some states car damage, caused by a driver with too little or no insurance | Required in some states |
| Personal injury protection (PIP) or medical payments | Medical costs for you and your passengers, regardless of fault | Required in no-fault states |
| Gap insurance | The difference between your loan balance and the car’s value if it is totaled | Sometimes required on leases |
| Rental reimbursement and roadside assistance | A rental car during repairs; towing and jump-starts | Optional |
Liability coverage: the part that protects everything else
Liability coverage pays when you are responsible for an accident. It covers other people’s medical bills, lost wages and property damage, and it pays for your legal defense if you are sued. It does not pay for your own car or your own injuries.
Limits are usually written as three numbers, such as 50/100/50. That means up to $50,000 for each injured person, up to $100,000 total for all injuries in one accident and up to $50,000 for property damage. State minimums are often much lower than that and can be far below the cost of a serious accident, especially one involving several people or a newer vehicle. If damages exceed your limits, you can be held personally responsible for the rest.
For that reason, many drivers choose limits well above the state minimum, particularly if they own a home or have savings to protect. People with significant assets sometimes add an umbrella policy, which adds extra liability protection on top of auto and home insurance.
Example: A driver with the minimum property damage limit in his state rear-ends a new luxury SUV and pushes it into another car. The combined repair bills are far higher than his limit. His insurer pays up to the limit, and the remaining amount can be pursued against him personally. Higher liability limits usually cost relatively little extra compared with that risk.
Collision and comprehensive: protecting your own car
Collision pays to repair or replace your car after a crash with another vehicle or object, no matter who is at fault. Comprehensive covers most other damage, such as theft, hail, storms, fire, vandalism and hitting a deer. Together they are often called “full coverage,” although that term is informal and does not mean everything is covered.
Both come with a deductible, the amount you pay before insurance pays the rest. A higher deductible lowers your premium but means paying more out of pocket after a claim. Insurers generally pay up to the car’s actual cash value, which accounts for depreciation, not what you originally paid.
Uninsured and underinsured motorist coverage
Not every driver carries enough insurance, and some carry none. Uninsured motorist coverage pays for your injuries if a driver without insurance hits you, and in many states it also applies to hit-and-run accidents. Underinsured motorist coverage helps when the at-fault driver’s limits are too low to cover your costs. It is one of the less expensive coverages and is worth considering even where it is optional.
Personal injury protection and medical payments
In no-fault states, personal injury protection is required and pays medical costs, and sometimes lost wages, for you and your passengers regardless of who caused the crash. In other states, medical payments coverage is an optional, smaller version that helps with medical bills and health insurance deductibles. If you have strong health insurance, you may need less of this coverage, but check how your health plan handles auto accident injuries.
Step-by-step: choosing your coverage
- Learn your state’s requirements. Check your state insurance department’s website for minimum liability and any required coverages.
- Choose liability limits. Set limits that reflect what you could lose in a lawsuit, not just the legal minimum.
- Decide on collision and comprehensive. Keep them if your car is financed, leased or would be costly to replace.
- Add uninsured motorist coverage. Match it to your liability limits where possible.
- Pick deductibles. Choose amounts you could pay comfortably after an accident.
- Review optional add-ons. Consider gap insurance on a new financed car, rental reimbursement if you have no backup vehicle and roadside assistance if you do not already have it elsewhere.
Coverage you may be able to skip
On an older car worth only a few thousand dollars, collision and comprehensive may cost more over a year or two than the most the insurer would pay after a total loss. If the car is paid off and you could replace it yourself, dropping them can save money. Roadside assistance may duplicate a membership or credit card benefit you already have, and rental reimbursement may be unnecessary if your household has another car.
What is rarely worth cutting is liability coverage. It protects your savings and future income, and the cost of raising limits is usually modest compared with the cost of being underinsured.
Reading your declarations page
Your declarations page, usually the first page of the policy, lists each coverage, its limit, the deductible and the premium. Review it at every renewal and after any change, such as buying a car, moving or adding a driver. Check that every vehicle and driver is listed correctly and that the limits are what you chose. For ideas on lowering what you pay without cutting important protection, see our main site’s guide to lowering your car insurance premium.
Common questions
What does full coverage car insurance mean
It usually means liability plus collision and comprehensive. It is an informal term, and it does not mean every possible loss is covered.
How much liability insurance should I have
Many drivers choose limits well above their state minimum, often at least 100/300/100, and more if they own a home or have significant savings. The right amount depends on what you need to protect.
Is uninsured motorist coverage worth it
Often, yes. It is relatively inexpensive and protects you when the at-fault driver has little or no insurance.
Should I drop collision on an older car
It can make sense if the car’s value is low, it is paid off and you could afford to repair or replace it yourself.
Before you buy or renew
Start with your state’s requirements, then build up liability limits to match what you could lose. Keep collision and comprehensive while the car has meaningful value or a loan, add uninsured motorist coverage and choose deductibles you can afford. Review your declarations page every year.
Editorial note: This article is general information and not insurance advice. It is not affiliated with any insurer. Coverage requirements, names and availability vary by state and company. Review your policy and your state insurance department’s guidance before making changes.