Guide to Car Insurance

When accidents happen, car insurance helps protect your finances by helping cover the resulting bills. The amount of coverage you have will depend your specific policy, but policies vary in costs and terms. That's why choosing the best car insurance to meet your needs is important.

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In this guide, we'll review the types of car insurance and how to decide which ones fit your situation. Then we'll review how to buy car insurance, including the potential costs and how to save money. Finally, we'll look at how to file a claim with your car insurance company in the event of an accident or other damage.

What Is Car Insurance?

Like other types of insurance, car insurance helps protect you against financial losses that occur as a result of accidents, theft, and weather-related events.

A car insurance policy is basically a contract between you and an insurance company that says you will pay premiums to the company, and in return, the company agrees to cover the costs of medical bills, vehicle repairs, and other property damage. The wording of that contract spells out exactly what is covered by your insurance policy.

How Much Car Insurance Do You Need?

The biggest factor in determining how much insurance you need is where you live. Each state (and the District of Columbia) legally requires certain types and amounts of car insurance coverage. There are two exceptions:

• New Hampshire doesn't require car insurance.1
• Virginia lets drivers opt out of buying car insurance by paying a $500 fee.2

However, both states have financial responsibility laws that mean you could be held liable for damages if you cause an accident. Without insurance, you will also be on your own to cover medical costs and repair bills.

In addition to the state requirements, you may also need to consider lender requirements if you have a car loan or lease. Because the lender has an interest in the car, it may require you to have certain types or amounts of coverage.

Even if you own your car outright, you may want to consider a policy that goes beyond your state minimums. A higher coverage amount might cost more, but would provide more protection in the event of an accident, and optional coverages could help cover major repair bills that you might not be able to pay out of pocket.

Types of Car Insurance

A car insurance policy is typically a bundle of multiple types of coverage. The composition of your policy depends on your state requirements, as well as your own preferences about optional coverages. Understanding the types of car insurance will make it easier for you to put together a policy that fits your needs.

Liability Coverage

Almost every state requires minimum amounts of liability insurance, which covers other people's expenses related to an accident you cause and can protect you financially from personal lawsuits. It comes in two types:

• Bodily injury liability: This insurance covers costs associated with injuries, like medical expenses and lost wages. It's required in the District of Columbia and 49 states, including in New Hampshire and Virginia if you choose to buy car insurance.
•  The only state that doesn't require bodily injury liability coverage is Florida.4
• Property damage liability: This insurance covers costs to repair or replace damaged vehicles and property, such as a fence or mailbox. Property damage liability required in all states, including in New Hampshire and Virginia if you buy car insurance.

The amount of liability insurance in a policy is typically written as three numbers that represent the coverage for bodily injury per person and per accident, and for property damage per accident. For example, California's minimum required liability insurance can be written as "15/30/5," which translates to:5

• $15,000 per injured person
• $30,000 per accident if more than one person is injured
• $5,000 for damaged property

Uninsured and Underinsured Motorists Coverage

Uninsured motorist coverage protects you if you're in an accident with a driver who doesn't have insurance. Similarly, underinsured motorist coverage protects you if the at-fault driver has some insurance, such as the state-required minimum liability amounts, but not enough to fully cover your costs. Like liability insurance, uninsured and underinsured motorist coverage come in two parts: bodily injury, which pays for medical bills, and property damage, which pays for repair costs.

Uninsured motorist coverage is required in some states and optional in others.

 Underinsured motorist coverage is required in a few states and optional in others.

 Some states combine these coverages into uninsured/underinsured motorist coverage.10

 The details and terms of coverage vary based on state laws and insurance policies, so make sure to read the fine print and ask your insurance agent if you have questions.

Collision and Comprehensive Coverage

If you're in an accident that's not your fault, the other driver's insurance (or your uninsured motorist coverage) will pay for repairs to your vehicle. But if your car is damaged in an accident that's deemed to be your fault, or by a natural disaster, you'll need to rely on your own insurance. This is where two optional but important coverages come into play.

• Collision coverage: helps pay for damage stemming from an accident with another vehicle or an object like a fence or tree.
• Comprehensive coverage: helps pay for damage from incidents other than accidents, such as falling trees, floods, or fires.