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Auto Insurance: A Summary

Auto insurance is an agreement between you and the insurer, safeguarding you from financial losses in case of an accident or theft. By paying a premium, the insurance company commits to covering your losses as specified in the policy.

Auto insurance offers coverage for:
Property –including damage to or theft of your vehicle
Liability – your legal obligations for bodily injury or property damage to others
Medical – expenses for treating injuries, rehabilitation, and occasionally lost wages and funeral costs

Basic auto insurance is required in most U.S. states, with varying laws. Coverage options are priced individually, allowing you to tailor coverage levels to your needs and budget.

Policies typically last for six months or a year and are renewable. The insurer will notify you when it's time to renew the policy and pay the premium.
Your auto insurance covers you, your family members on the policy, and anyone driving your car with your permission, whether it's your vehicle or someone else's. It only covers personal driving, such as commuting, running errands, or traveling. Commercial use or providing ride-sharing services like Uber or Lyft are not covered, though some insurers offer supplemental coverage for an additional cost.
Auto insurance requirements differ by state, and lenders may have their own stipulations if you're financing a car. Most states mandate:
Bodily injury liability– covering expenses related to injuries or death caused by you or another driver operating your car.
Property damage liability – compensating others for damage caused by you or another driver using your car to another vehicle or property, like a fence, building, or utility pole.
Many states also require:
Medical payments or personal injury protection (PIP) – reimbursing medical expenses for injuries to you or your passengers, as well as covering lost wages and other related costs.
Uninsured motorist coverage – compensating you when an accident is caused by a driver without insurance or in a hit-and-run situation. Underinsured motorist coverage can also be purchased to cover costs when another driver has insufficient coverage for a severe accident.
Consider adding PIP and uninsured motorist coverage to your policy for better financial protection, even if they're optional in your state.
Other common auto insurance coverage types include: Collision – reimbursing you for damage to your car resulting from a collision with another vehicle or object when you're at fault. It doesn't cover mechanical failure or normal wear and tear but will cover damage from potholes or rolling your car.
Comprehensive – covering theft and damage caused by incidents other than collisions, such as fire, flood, vandalism, hail, falling objects, and other hazards—even asteroid impacts!
Glass Coverage – covering windshield damage, which is frequent. Some policies include no-deductible glass coverage for side windows, rear windows, and glass sunroofs, or you can purchase supplemental glass coverage.
Gap insurance covers the difference between your car's market value and what you paid for it, as new cars depreciate quickly. If your car is totaled or stolen, there might be a "gap" between what you owe and your insurance coverage. Gap coverage is often included in lease payments for leased vehicles.
For more information, explore this infographic on required and optional auto insurance coverages.