Understanding Car Insurance Coverage

Understanding car insurance coverage starts by recognizing there are multiple types of car insurance coverage. Most states require liability coverage of their drivers, but you also have the choice of adding optional coverage. Enter your ZIP code below to compare quotes for these different types of auto insurance coverage so you can get the best rates.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent

UPDATED: Oct 31, 2020

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People know they need to purchase car insurance, but what is it exactly? Find all you need to know about cheap car insurance quotes and the type of car insurance coverage before you purchase anything. Most states require liability coverage of their drivers, and these people must be able to provide proof that they have purchased it if they are ever stopped by someone in law enforcement.

They also have the choice of adding optional coverage for their own vehicles. The difference between these two types of coverage will be outlined below. Use our FREE car insurance search tool by putting in your ZIP code!

Liability Car Insurance

Liability car insurance is the type of coverage that is generally necessary for people to register their vehicles. Each state has penalties for those who do not purchase the liability coverage in the minimum amounts that they have set. Some of these penalties may be losing their driving privileges and having to pay much higher car insurance premiums.

Liability car insurance covers bodily injuries and property damages, and most states require that their drivers purchase it so that if they are responsible for causing a car collision, they will be able to pay the bills of all third parties.

These insurance policies reduce the need of third parties to sue those who hit them, and they also save the assets of those who inadvertently cause injury to other people.

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Bodily Injury Liability

After there has been a car collision, the insurance companies will do an investigation to determine who was the cause of the accident. After the injured party is determined to have the least fault, this person can file a claim with the at-fault driver’s car insurance company for payment of the medical bills. For this purpose, the injured person will tap the at-fault party’s bodily injury liability coverage.

Property Damage Liability

At the same time, car collisions also cause damages to other people’s vehicles. This would be why people are also required to purchase property damage liability coverage. The affected driver will go through the same process as with bodily injuries; innocent drivers with damages to repair on their vehicles will file a claim with the at-fault driver’s car insurance company.

The Mandatory Minimum Amounts

Liability insurance must be purchased in the amounts that were set by the states. For example, a state may require that people have bodily injury liability coverage for at least $25,000.

After a person purchases bodily injury liability in this amount, one person injured in a car collision will be able to obtain a maximum of $25,000 from the at-fault driver’s car insurance company for payment of medical bills.

Because more than one person may be injured in the collision, the states also require that drivers purchase bodily injury liability coverage that covers everyone hurt in the accident.

The state usually doubles this amount, so for the entire accident, drivers need $50,000 in the above example. This would be the amount of money that will be disbursed to at least two people who file a claim with the car insurance company.

The last liability coverage is property damage liability, and it may be set at $25,000 or some other amount.

Everyone with property damages will file claims with the car insurance company in order to have their repair bills paid with the at-fault driver’s coverage.

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Increasing Liability Coverage

Car insurance companies must sell liability coverage at least in the minimum amounts set by the states. After a collision, all the car insurance company would be required to pay would be the amounts in the example listed above.

After the insurance has run out, the policy holder will be held personally responsible for the rest of the bills. Drivers have two options to prevent the possibility that the liability coverage will not cover the bills by purchasing:

  •  Extra bodily injury/property damage coverage
  •  Umbrella Insurance

Extra Coverage

The state’s minimum requirements are only the maximum amount of insurance coverage that people must have by law. They can also purchase their liability coverage in higher amounts.

For example, if people are concerned that bodily injury medical bills could possibly surpass the $25,000 and $50,000 mandated by their states, they can purchase their coverage in higher amounts depending on how much their insurance companies will allow.

Umbrella Insurance

In the case that they do not believe that they can purchase liability coverage in high enough amounts by just increasing their coverage, they can purchase an umbrella policy.

The umbrella policy adds extra coverage to their liability car insurance policies, and these policies can begin with as much as $1,000,000 but they can be purchased for amounts much more than that.

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Optional Coverage

Beyond liability coverage is optional coverage. It is called optional because drivers do not have to purchase it, but it might be a very good idea for people to do so because they will not be able to ask their car insurance companies to pay the bills. It’s for this reason that people may need to purchase coverage, such as:

  • Coverage that pays repair bills or replaces the vehicle if it is a total loss
  • Coverage for being hit by an uninsured, underinsured or hit-and-run motorist

Collision Coverage

A driver who causes an accident and also has collision coverage will be able to file a claim to have the vehicle repaired. If the car cannot be fixed, the car insurance company will “total” it and offer the policy holder the market value of the vehicle at the time of the accident in most cases.

Comprehensive Coverage

With comprehensive coverage, policy holders will be able to obtain help paying for the repairs on their vehicles in several instances. The comprehensive coverage will generally cover the damages that occur for reasons other than being in a car collision.

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Uninsured Motorist Coverage

After being hit by an uninsured motorist or a hit and run driver, the injured parties will not have a car insurance company with which to file a claim. They will be able to file claims with their own companies for the uninsured motorist coverage.

Underinsured Motorist Coverage

Underinsured motorists have purchased liability coverage as they were supposed to do, but the injured parties’ bills are higher than their car insurance companies are required to pay or more people were hurt than could file a claim for the bodily injury or property damage liability coverage.

After the car insurance company has completed its responsibility and paid the bills in the minimum amounts, the underinsured motorist coverage will begin to pay them from that moment forward.

Comparing Quotes for Low Premiums

As people add coverage to their policies, they increase the amount of money the car insurance company charges every year in premiums. One of the ways that people reduce their monthly costs is by reducing their coverage to just liability.

No one has to do this because all they need to do is compare the car insurance quotes that they will receive on this website. This is where they are going to find the lowest quotes for car insurance. Get started now by entering in your ZIP code and receive a FREE car insurance quote comparison!

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