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What is Auto Insurance?
Understanding auto insurance—the basics
Auto insurance provides coverage for:
- Property – such as damage to or theft of your car
- Liability – your legal responsibility to others for bodily injury or property damage
- Medical – the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses
Who is covered by my auto insurance—and under what circumstances?
Is auto insurance coverage mandatory?
Bodily injury liability – which covers costs associated with injuries or death that you or another driver causes while driving your car.
- Property damage liability – which reimburses others for damage that you or another driver operating your car causes to another vehicle or other property, such as a fence, building or utility pole.
In addition, many states require that you carry:
- Medical payments or personal injury protection (PIP), which provides reimbursement for medical expenses for injuries to you or your passengers. It will also cover lost wages and other related expenses.
- Uninsured motorist coverage reimburses you when an accident is caused by a driver who does not have auto insurance—or in the case of a hit-and-run. You can also purchase under insured motorist coverage, which will cover costs when another driver lacks adequate coverage to pay the costs of a serious accident.
What other types of auto insurance coverage are typical?
- Collision reimburses you for damage to your car that occurs as a result of a collision with another vehicle or other object—e.g., a tree or guardrail—when you’re at fault. While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from potholes or from rolling your car.
- Comprehensive provides coverage against theft and damage caused by an incident other than a collision, such as fire, flood, vandalism, hail, falling rocks or trees and other hazards—even getting hit by an asteroid!
- Glass Coverage provides coverage from windshield damage, which is common. Some auto policies include no-deductible glass coverage, which also includes side windows, rear windows and glass sunroofs. Or you can buy supplemental glass coverage.
What is gap insurance and do I need it?
What is Covered by a Basic Auto Insurance Policy?
While different states have different mandates for auto insurance, most basic car policies consist of six types of coverage. Here’s what you need to know about each.
While different states mandate different types of insurance and there are several additional options (such as gap insurance) available, most basic auto policies consist of: bodily injury liability, personal injury protection, property damage liability, collision, comprehensive and uninsured/underinsured motorist.
Note that each type of coverage is priced separately, so there is variability in policy limits and pricing.
Bodily Injury Liability
Bodily injury liability coverage applies to injuries that you, the designated driver or policyholder, cause to someone else. You and family members listed on the policy are also covered when driving someone else’s car with their permission.
It’s very important to have enough liability insurance, because if you are involved in a serious accident, you may be sued for a large sum of money. It’s recommended that policyholders buy more than the state-required minimum liability insurance, enough to protect assets such as your home and savings.
Medical Payments or Personal Injury Protection (PIP)
This coverage pays for the treatment of injuries to the driver and passengers of the policyholder’s car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.
Property Damage Liability
This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else’s property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit.
Collision
Collision coverage pays for damage to your car resulting from a collision with another car, an object, such as a tree or telephone pole, or as a result of flipping over (note that collisions with deer are covered under comprehensive). It also covers damage caused by potholes.
Collision coverage is generally sold with a separate deductible. Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible. If you’re not at fault, your insurance company may try to recover the amount they paid you from the other driver’s insurance company and, if they are successful, you’ll also be reimbursed for the deductible.
Comprehensive
This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object. Comprehensive covers events such as fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer. It will also pay to repair your windshield if it is cracked or shattered.
Comprehensive insurance is usually sold with a separate deductible, although some insurers may offer the glass portion of the coverage without a deductible.
Uninsured and Underinsured Motorist Coverage
Underinsured motorist coverage reimburses you, a member of your family, or a designated driver if one of you is hit by an uninsured driver or a driver who doesn’t have sufficient insurance to pay for your total loss. This coverage also offers protection in the event a covered driver is the victim of a hit-and-run or if, as a pedestrian, you are struck by an uninsured or underinsured motorist.
What determines the price of your auto policy?
The amount you’ll pay for car insurance is impacted by a number of very different factors—from the type of coverage you have to your driving record to where you park your car. While not all companies use the same parameters, here’s a list of what commonly determines the bottom line on your auto policy.
- Your driving record – The better your record, the lower your premium. If you’ve had accidents or serious traffic violations, it’s likely you’ll pay more than if you have a clean driving record. You may also pay more if you’re a new driver without an insurance track record.
- How much you use your car – The more miles you drive, the more chance for accidents so you’ll pay more if you drive your car for work, or use it to commute long distances. If you drive only occasionally—what some companies call “pleasure use”—you’ll pay less.
- Location, location, location – Due to higher rates of vandalism, theft and accidents, urban drivers pay a higher auto insurance price than those in small towns or rural areas. Where you park your car (on the street or in a secure garage) and anti-theft features may impact the bottom line as well.
Other factors that affect premium price that can vary from one area or state to another are: cost and frequency of litigation; medical care and car repair costs; prevalence of auto insurance fraud; and weather trends.
- Your age – In general, mature drivers have fewer accidents than less experienced drivers, particularly teenagers. Insurers generally charge more if teenagers or young people below age 25 drive your car.
- Your gender – Statistically, women tend to get into fewer accidents, have fewer driver-under-the-influence accidents (DUIs) and—most importantly—have less serious accidents than men. So all other things being equal, women often pay less for auto insurance than their male counterparts.
- The car you drive – The cost of your car is a major factor in the cost to insure it. Other variables include the likelihood of theft, the cost of repairs, its engine size and the overall safety record of the car. Automobiles with high quality safety equipment might qualify for premium discounts.
Insurers not only look at how safe a particular vehicle is to drive and how well it protects occupants, but also how much potential damage it can inflict on another car. If a specific vehicle model has a higher chance of inflicting damage when in an accident, an insurer may charge more for liability insurance.
- Your credit – Similar to your credit score, your credit-based insurance score is a statistical tool that predicts the likelihood of your filing a claim and the likely cost of that claim.
- The type and amount of auto insurance coverage – The limits on your basic auto insurance, the amount of your deductible, and the types and amounts of policy options (such as collision) that are prudent for you to have all affect how much you’ll pay for coverage.
- NEVER race or religion – It is illegal to use race or religion to set insurance rates.
Average Car Insurance Rates by State
| STATE | LIABILITY | COLLISION | COMP | TOTAL |
|---|---|---|---|---|
| Alabama | $478.68 | $366.12 | $169.90 | $1,014.70 |
| Alaska | $561.06 | $370.63 | $140.50 | $1,072.19 |
| Arizona | $607.66 | $312.95 | $204.93 | $1,125.54 |
| Arkansas | $458.33 | $364.07 | $216.70 | $1,039.10 |
| California | $565.70 | $453.88 | $96.15 | $1,115.73 |
| Colorado | $639.99 | $326.39 | $228.32 | $1,115.73 |
| Connecticut | $743.61 | $398.50 | $133.91 | $1,194.70 |
| Delaware | $843.98 | $344.34 | $133.19 | $1,276.02 |
| District of Columbia | $744.18 | $497.81 | $497.81 | $497.81 |
| Florida | $964.28 | $343.41 | $137.88 | $1,445.57 |
| Georgia | $735.15 | $381.66 | $169.68 | $1,286.49 |
| Hawaii | $468.99 | $342.17 | $106.97 | $918.13 |
| Idaho | $403.37 | $246.22 | $130.86 | $780.46 |
| Illinois | $507.40 | $336.00 | $133.32 | $976.73 |
| Indiana | $432.08 | $277.65 | $130.71 | $840.43 |
| Iowa | $339.12 | $244.39 | $211.60 | $795.10 |
| Kansas | $399.96 | $280.48 | $267.10 | $947.54 |
| Kentucky | $585.99 | $300.45 | $157.38 | $1043.82 |
| Louisiana | $936.94 | $468.87 | $231.76 | $1637.57 |
| Maine | $370.18 | $286.22 | $108.54 | $764.94 |
| Maryland | $700.58 | $393.57 | $162.34 | $1,256.49 |
| Massachusetts | $642.92 | $427.17 | $145.10 | $1,215.18 |
| Michigan | $873.73 | $462.80 | $157.50 | $1,494.03 |
| Minnesota | $483.93 | $257.41 | $197.67 | $939.01 |
| Mississippi | $511.45 | $365.06 | $229.41 | $1,105.92 |
| Montana | $423.03 | $278.31 | $267.84 | $969.19 |
| Nebraska | $417.32 | $263.68 | $253.30 | $934.30 |
| Nevada | $798.52 | $344.81 | $115.46 | $1,258.79 |
| New Hampshire | $425.84 | $319.72 | $115.63 | $861.19 |
| New Jersey | $932.43 | $403.19 | $129.12 | $1,464.74 |
| New Mexico | $548.33 | $304.46 | $197.95 | $1,050.73 |
| New York | $869.13 | $437.13 | $179.31 | $1,485.58 |
| North Carolina | $371.51 | $333.60 | $133.49 | $838.61 |
| North Dakota | $303.66 | $263.72 | $241.51 | $808.90 |
| Ohio | $438.68 | $297.50 | $128.46 | $864.64 |
| Oklahoma | $502.71 | $343.57 | $254.61 | $1,100.90 |
| Oregon | $677.07 | $265.06 | $101.80 | $1,043.93 |
| Pennsylvania | $539.44 | $363.42 | $162.59 | $1,065.44 |
| Rhode Island | $869.96 | $460.49 | $136.58 | $1,467.02 |
| South Carolina | $645.39 | $302.52 | $197.24 | $1,145.15 |
| South Dakota | $327.34 | $236.35 | $308.71 | $872.40 |
| Tennessee | $456.05 | $343.10 | $158.13 | $957.28 |
| Texas | $631.22 | $430.54 | $234.17 | $1,295.93 |
| Utah | $568.07 | $293.62 | $122.44 | $984.12 |
| Vermont | $375.02 | $324.51 | $142.83 | $842.36 |
| Virginia | $468.79 | $305.61 | $146.00 | $920.40 |
| Washington | $666.72 | $297.16 | $113.77 | $1,077.65 |
| West Virginia | $513.12 | $345.68 | $213.34 | $1,072.14 |
| Wisconsin | $412.46 | $243.52 | $148.83 | $804.81 |
| Wyoming | $354.35 | $290.18 | $291.22 | $935.76 |
| U.S. Average | $611.12 | $363.08 | $159.72 | $1,133.92 |
By Kevin Nolan
As a licensed insurance agent and editor, Kevin is responsible for researching and writing about all matters related to insurance. He has over ten years of experience in insurance and financial planning. His history involves working with StateFarm, MassMutual, and other mutual companies.
Find the Best Deal on Auto Insurance
Learn more about the factors that dictate your costs and compare auto insurance rates from top companies with an AMG agent.
