An auto insurance policy is actually a package of different coverages. Most states require you to purchase a minimum amount of certain kinds of coverage. If you are interested in better protecting yourself you may want to carry higher limits than what is required by your state law.
Liability coverage is the foundation of any auto insurance policy, and is required in most states. If you are at fault in an accident, your liability insurance will pay for the bodily injury and property damage expenses caused to other parties in the accident, including legal bills (up to the limit covered by your policy). Bodily injury expenses include medical bills and lost wages. Property damage expenses pay for the repair or replacement of things, which were damaged during the accident.
Depending on your policy, you might also have coverage for legal costs if you are at fault and involved in litigation due to the accident.
Each state determines the minimum level of required auto liability insurance you must carry on each of your vehicles. However, if you are found at fault in a serious accident, minimum insurance may not cover you adequately. That's why it's a good idea to consider buying more than what your state requires.
AUTO LIABILITY BASIC
Individuals in the insurance industry refer to liability coverage limits as a set of three numbers. For example, your agent might say that your policy carries liability limits of "15/30/25". This would mean your auto insurance policy covers up to:
$15,000 in bodily injury coverage per person,
$30,000 in bodily injury coverage per accident,
and $25,000 in property damage coverage per accident.
If you cause or are at fault in an accident, collision coverage will pay to repair your vehicle. You usually can't collect any more than the actual cash value of your car, which is not the same as the vehicle's replacement cost. Collision coverage is normally the most expensive component of auto insurance. By choosing a higher deductible, say $250 or even $500, you can reduce your auto insurance premium. However, keep in mind that you must pay the amount of your deductible before the insurance company reimburses you any money after an accident.
Comprehensive coverage will pay for damages to your car that was not caused by an auto accident: Damages from theft, fire, vandalism, natural disasters, or hitting a deer all qualify. Comprehensive coverage also comes with a deductible and your insurer will only pay as much as the car was worth when it was damaged.
Medical coverage will pay for you and your passengers' medical expenses after an accident. These expenses can arise from accidents while you're driving your car, someone else's car (with their permission), and injuries you or your family members incur when you're pedestrians. The coverage will pay regardless of who is at fault, but if someone else is liable, your insurer may seek to recoup the expenses from them.
UNINSURED AND UNDER INSURED MOTORIST COVERAGE
Uninsured motorists (UM) coverage pays for your injuries if a hit-and-run driver or someone who doesn't have auto insurance strikes you. It is required in many states.
Under insured motorists (UIM) coverage pays for damages if the driver who hit you causes more damage than his or her automobile liability insurance covers. In some states, UM or UIM coverage will also pay for property damages.
ADDITIONAL COVERAGE OPTIONS
Many insurance companies write supplemental auto policy coverages, either as separate premium items or included in augmented policies.
Rental reimbursement, a common add-on, covers vehicle rentals required because your car is damaged or stolen.
Coverage for towing and labor charges in case of a road breakdown is also common.
The above description provides a brief overview of the terms and phrases used within the insurance industry. These definitions are not applicable in all states or for all insurance and financial products. This is not an insurance contract. Other terms, conditions and exclusions apply. Please read your official policy for full details about coverages. These definitions do not alter or modify the terms of any insurance contract. If there is any conflict between these definitions and the provisions of the applicable insurance policy, the terms of the policy control.