How Car Insurance Works

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Part of why auto insurance is so confusing is because there are different types of coverage. Some are required by law; some are not. And the specifics vary by state. But, since it’s so crucial to understanding your quotes, here is an overview of the major components of an auto insurance policy — and what they cover.

Liability insurance: Consider this the cornerstone of all car insurance policies, given it’s thetype of coverage required by nearly every state. Liability insurance actually falls into two buck- ets. Bodily Injury (BI) covers the cost of any injuries (or death) that result from an accident you caused, while Property Damage (PD) covers the damage made to another vehicle or piece of property your car crashes into.

Medical expenses or Personal Injury Protection (PIP): These policies primarily cover any injuries incurred by you or your passengers.

Uninsured/underinsured motorist insurance: Covers you if you are hit by a driver that does not have or has limited insurance.Collision coverage: Covers any damage to your car incurred in an accident that was your fault.

Comprehensive coverage: Covers any damage incurred outside of a collision. So, think theft, vandalism or falling skies. Collision and comprehensive coverage are sometimes referred to as “optional” car insurance, since it’s not required by the states, but it’s usually good to get some anyway.

Gap insurance: Covers the difference between what your car is currently worth — since that’s the value car insurance companies will go by when process- ing a claim — and what you still owe on GAP insurance is meant to protect you against depreciation, which happens to cars very, very quickly.