Complete Guide to Car Insurance

When accidents happen, car insurance helps protect your finances by helping cover the resulting bills. The amount of coverage you have will depend your specific policy, but policies vary in costs and terms. That's why choosing the best car insurance to meet your needs is important.

In this guide, we'll review the types of car insurance and how to decide which ones fit your situation. Then we'll review how to buy car insurance, including the potential costs and how to save money. Finally, we'll look at how to file a claim with your car insurance company in the event of an accident or other damage.

What Is Car Insurance?

Like other types of insurance, car insurance helps protect you against financial losses that occur as a result of accidents, theft, and weather-related events.

A car insurance policy is basically a contract between you and an insurance company that says you will pay premiums to the company, and in return, the company agrees to cover the costs of medical bills, vehicle repairs, and other property damage. The wording of that contract spells out exactly what is covered by your insurance policy.

How Much Car Insurance Do You Need?

The biggest factor in determining how much insurance you need is where you live. Each state (and the District of Columbia) legally requires certain types and amounts of car insurance coverage. There are two exceptions:

• New Hampshire doesn't require car insurance.1
• Virginia lets drivers opt out of buying car insurance by paying a $500 fee.2

However, both states have financial responsibility laws that mean you could be held liable for damages if you cause an accident. Without insurance, you will also be on your own to cover medical costs and repair bills.

In addition to the state requirements, you may also need to consider lender requirements if you have a car loan or lease. Because the lender has an interest in the car, it may require you to have certain types or amounts of coverage.

Even if you own your car outright, you may want to consider a policy that goes beyond your state minimums. A higher coverage amount might cost more, but would provide more protection in the event of an accident, and optional coverages could help cover major repair bills that you might not be able to pay out of pocket.

Types of Car Insurance

A car insurance policy is typically a bundle of multiple types of coverage. The composition of your policy depends on your state requirements, as well as your own preferences about optional coverages. Understanding the types of car insurance will make it easier for you to put together a policy that fits your needs.

Liability Coverage

Almost every state requires minimum amounts of liability insurance, which covers other people's expenses related to an accident you cause and can protect you financially from personal lawsuits. It comes in two types:

• Bodily injury liability: This insurance covers costs associated with injuries, like medical expenses and lost wages. It's required in the District of Columbia and 49 states, including in New Hampshire and Virginia if you choose to buy car insurance.123 The only state that doesn't require bodily injury liability coverage is Florida.4
• Property damage liability: This insurance covers costs to repair or replace damaged vehicles and property, such as a fence or mailbox. Property damage liability required in all states, including in New Hampshire and Virginia if you buy car insurance.132

The amount of liability insurance in a policy is typically written as three numbers that represent the coverage for bodily injury per person and per accident, and for property damage per accident. For example, California's minimum required liability insurance can be written as "15/30/5," which translates to:5

• $15,000 per injured person
• $30,000 per accident if more than one person is injured
• $5,000 for damaged property
  

Medical Payments (MedPay) or Personal Injury Protection (PIP) Coverage

Both medical payments (MedPay) and personal injury protection (PIP) cover medical expenses for you and your passengers after an accident, regardless of whose fault it was, up to the limits on your policy. Some policies may also cover funeral expenses.6 In some states, PIP may also cover a portion of lost wages and child care costs while you're injured.7

PIP is required in some states and offered as an optional endorsement in others. For example, PIP is mandatory in Massachusetts, but you can opt out of PIP coverage in Texas by telling the insurance company in writing.89

MedPay is optional in most states, but it's mandatory in Maine.10 It's also required in New Hampshire if you buy car insurance.

Uninsured and Underinsured Motorists Coverage

Uninsured motorist coverage protects you if you're in an accident with a driver who doesn't have insurance. Similarly, underinsured motorist coverage protects you if the at-fault driver has some insurance, such as the state-required minimum liability amounts, but not enough to fully cover your costs. Like liability insurance, uninsured and underinsured motorist coverage come in two parts: bodily injury, which pays for medical bills, and property damage, which pays for repair costs.

Uninsured motorist coverage is required in some states and optional in others.12 Underinsured motorist coverage is required in a few states and optional in others.138 Some states combine these coverages into uninsured/underinsured motorist coverage.10 The details and terms of coverage vary based on state laws and insurance policies, so make sure to read the fine print and ask your insurance agent if you have questions.

Collision and Comprehensive Coverage

If you're in an accident that's not your fault, the other driver's insurance (or your uninsured motorist coverage) will pay for repairs to your vehicle. But if your car is damaged in an accident that's deemed to be your fault, or by a natural disaster, you'll need to rely on your own insurance. This is where two optional but important coverages come into play.

• Collision coverage: helps pay for damage stemming from an accident with another vehicle or an object like a fence or tree.
• Comprehensive coverage: helps pay for damage from incidents other than accidents, such as falling trees, floods, or fires.14

  North Carolina Department of Insurance. "A Consumer's Guide to Automobile Insurance," Page

Other Types of Coverage

Depending on your state laws and insurance company, you may be able to add more optional coverages to your policy, including:141515

• Roadside assistance coverage
• Gap insurance
• Rental car reimbursement coverage
• Rideshare insurance
• Accident forgiveness
• Original equipment manufacturer (OEM) coverage
• Custom equipment coverage, which pays to replace modifications like an upgraded stereo, custom paint job, or off-road equipment
  
• Pet injury coverage

Coverage is also available for specialty situations. For example, classic car insurance covers vintage or collectible vehicles, while a non-owner policy offers liability protection if you occasionally drive someone else's car.

The Cost of Car Insurance

The price you pay for car insurance is known as a premium, and it varies widely based on factors like your:

• Age
• Gender, in states that allow it to be considered
• Vehicle make, model, and age
• Driving record
• Insurance and claims history
• Credit score, in states that allow it to be considered
• Selected coverages and limits
• Deductibles
• Applicable discounts, such as for vehicle safety features or having multiple policies16

Paying more money for car insurance doesn't necessarily mean you have a better policy. Likewise, paying less for car insurance isn't a bad thing—but it may mean that you don't have enough coverage in case of a major accident.

How to Buy Car Insurance

Choosing the right coverage from the list above is the first step to buying car insurance. The next is requesting quotes for that coverage from multiple insurance companies. Shopping around by comparing multiple quotes from reputable car insurance companies helps you find the best fit for your needs and budget. Also compare customer satisfaction and complaints through the National Association of Insurance Commissioners (NAIC) complaint index.

You can request quotes online through the websites of major insurers like Progressive, Nationwide, and Geico. If you prefer, you can also request quotes through aggregator sites that return quotes from multiple insurers after you fill out a single form, or you can speak with a local insurance broker.

How to Save Money on Car Insurance

Shopping around by collecting quotes on the same coverage from multiple insurers is typically the best way to save on car insurance. For example, a Consumer Reports survey of more than 40,000 readers in 2022 found that about a third had switched insurers in the previous six years—and 58% of them did so because they found a lower premium.18

Ask about discounts that can help lower the cost of your premium. For example, some insurers offer discounts to active or retired military members, federal employees, homeowners, and students who maintain at least a B average.1920

Liberty Mutual. "Car Insurance Discounts."

21

Maintain or improve your driving record by driving safely and avoiding speeding. You can also work on improving your credit score, which some insurers factor into their calculations when setting your premiums—though this practice isn't allowed in California, Hawaii, and Massachusetts.22

Consider dropping coverages you don't need or that duplicate other protection. For example, if you have a AAA membership, you may not need roadside assistance coverage. If you could use another vehicle or take public transit while your car is repaired after a covered accident, you could remove rental reimbursement. If your car is older or in rough shape, consider dropping comprehensive and collision coverage, which might cost you more over time than you'd recoup after an accident—though if you're still paying off a loan or lease, your lender may require you to keep these coverages.23

Review your policy after major life events or changes, which may allow you to reconsider your coverages or qualify for additional discounts. Take another look at your policy if you:

• Sell a vehicle or buy a new one.
• Move in with a partner, get married, or break up and need to remove someone from your policy.
• Buy a house or move.
• Have a teen who recently got a driver's license.
• Change jobs and have a different commute, or begin working remotely and reduce your mileage significantly.

How to File a Claim With Your Car Insurance

After an accident, first make sure everyone's safe and call for medical assistance if necessary. It's typically a good idea to call the police as well, as you may need to file a police report with your car insurance claim.

Take photos of the scene and any damage, and get names, contact details, and insurance information for any other drivers involved. Notify your insurance company as soon as possible, and then work with your assigned claims adjuster to assess the damage and determine how much the insurer will pay to have it repaired. You may need to submit photos, receipts for towing, or other information.

Your insurer may recommend a repair shop, or you can choose your own. The amount your insurer will pay depends on the coverage and deductible you chose. For example, if your collision coverage has a $500 deductible, you'll pay that amount and your insurer will cover the rest, either by paying the repair shop directly or by reimbursing you after you pay.24

What Car Insurance Do You Need?

Bodily injury liability and property damage liability coverage are mandatory in nearly every state and the District of Columbia. However, New Hampshire allows drivers to choose not to buy car insurance.1 Virginia allows drivers to opt out of car insurance by paying an annual fee.2 Florida doesn't require bodily injury liability coverage on personal vehicles.4 To learn what car insurance you'll need, check your state's department of motor vehicles website.

What Is the Best Car Insurance Coverage to Have?

It's important to have at least the minimum amounts of mandatory coverage in your state. If you have a loan or lease on your car, your lender may require additional coverages. After that, the best coverage for you depends on your needs and budget.

What Happens If You Don't Have Car Insurance?

If you're named on a housemate or partner's policy, or you borrow a friend's car occasionally, their insurance covers you while you're driving.25 But if you drive your own car without insurance, you may face penalties including fines and even jail time. For example, the first-offense penalty for driving without insurance in Massachusetts is a fine of up to $500.17

What Isn't Covered By Car Insurance?

The answer depends on the coverages and limits you chose when you purchased your policy, so you'll need to read the fine print. Ask your insurance agent if you're not sure about your coverage. Typically, personal car insurance doesn't cover commercial driving, racing, or using your car for illegal activities. Car insurance also doesn't cover regular maintenance or repairs needed due to wear and tear.26

Liberty Mutual. "9 Scenarios Where Your Car Insurance May Not Provide Coverage."

 It may also not cover driving in Mexico.27

The Bottom Line

Buying car insurance is a critical part of car ownership, but not all policies are the same. Check your state-required minimum coverages, and then consider whether you need any optional coverage to make sure you're protected in the event of an accident. Shop around by requesting quotes from multiple insurers to find the best car insurance for your needs.

Trade around the clock

Did you know that 82% of NVidia's gains between March 2024 and February 2025 happened outside of regular Nasdaq hours?* Pepper stone offers CFDs on 100+ US shares 24 hours a day, meaning you never need to miss out when the markets move. Join now for super-fast execution backed by dedicated support. 74-89% of retail CFD accounts lose money *Data from the Pepper stone platform.

New Hampshire Insurance Department. "2022 Automobile Insurance Consumer Frequently Asked Questions," Page 7.