Auto insurance is required in most states, but few people understand what they're actually buying. Each coverage type protects against something different. Here's what you need to know.
The Two Categories of Coverage
Coverage for Others (Required)
Protects other people when you cause an accident.
Coverage for You (Optional)
Protects you and your vehicle.
Liability Coverage (Required in Most States)
What it covers: Damage you cause to OTHER people and their property.
Written as three numbers like: 100/300/100
- $100,000 per person for injuries you cause
- $300,000 total per accident for all injuries
- $100,000 for property damage you cause
Watch Out
State minimums are usually way too low. A serious accident can easily exceed $100,000 in medical bills. Consider at least 100/300/100.
Collision Coverage (Optional)
What it covers: Damage to YOUR car when you hit something (another car, tree, pole, etc.)
When you need it:
- Your car has significant value
- You have a car loan (lenders require it)
- You couldn't afford to replace your car
When to skip it:
- Your car is worth less than 10x the annual premium
- You have savings to replace the car
Comprehensive Coverage (Optional)
What it covers: Damage to YOUR car from everything EXCEPT collisions:
- Theft
- Vandalism
- Weather (hail, flooding, fallen trees)
- Animal strikes (deer, etc.)
- Fire
- Broken windshields
Often called "comp" or "other than collision" coverage.
Uninsured/Underinsured Motorist (UM/UIM)
What it covers: Your injuries and damages when the at-fault driver has no insurance or not enough.
This is critically important. About 13% of drivers are uninsured. Even more are underinsured.
Pro Tip
UM/UIM coverage is cheap and can save you from financial disaster if hit by someone with minimal insurance. Get limits matching your liability coverage.
Medical Payments / Personal Injury Protection (PIP)
Medical Payments (MedPay): Covers your medical bills regardless of fault, up to a limit.
PIP (required in no-fault states): Broader coverage including lost wages and medical expenses.
Useful if you have a high-deductible health plan or want faster medical bill payment.
How Deductibles Work
Your deductible is what you pay before insurance kicks in.
Example with $500 deductible:
- $3,000 repair bill
- You pay: $500
- Insurance pays: $2,500
Higher deductible = Lower premium
| Deductible | Typical Annual Savings |
|---|---|
| $250 → $500 | $100-150 |
| $500 → $1,000 | $150-200 |
Choose a deductible you could comfortably pay from your .
What Affects Your Premium
Factors You Control
- Coverage levels and deductibles
- Your driving record
- Annual mileage
- Credit score (in most states)
- Car safety features
Factors You Can't Control
- Age and gender
- Location (urban = more expensive)
- Your car's theft rate and repair costs
Money-Saving Strategies
1. Shop Around Annually
Prices vary dramatically between insurers. Get 3-5 quotes each year.
2. Bundle Policies
Combine auto + renters/home insurance for 10-25% discounts.
3. Ask About Discounts
- Good driver / accident-free
- Good student
- Defensive driving course
- Low mileage
- Anti-theft devices
- Paying in full
4. Raise Deductibles Strategically
If you have emergency savings, a higher deductible can significantly reduce premiums.
5. Review Coverage as Car Ages
Once your car is worth less than $5,000, dropping collision/comprehensive may make sense.
How Much Coverage Do You Need?
Minimum recommended:
- Liability: 100/300/100 (or higher if you have significant assets)
- UM/UIM: Match your liability limits
- Collision/Comprehensive: If car value justifies it
- Medical: At least $5,000 if you have high-deductible health insurance
Consider umbrella insurance if your assets exceed your liability limits.
The Bottom Line
Auto insurance protects you from financial catastrophe, not just fender benders. Understand each coverage type, carry adequate liability limits, and shop around annually to get the best rates for proper protection.