Some car insurance policies tend to be fairly bare-bones, while others offer protection for nearly every scenario of loss or damage. With a number of auto insurance companies, coverage types and policies to choose from - where do you even begin? Below we’re discussing the basics of car insurance coverage, including what’s required by law, what coverage you may want to consider and the importance of understanding deductibles.

Car Insurance Basics

When you purchase an insurance policy, you buy protection that will absorb some or all of your damage costs.

Deductible

That process allows you to file a claim for coverage. If you have a deductible, it means you agree to pay a share of the damage cost out of pocket. This lowers your insurance cost upfront, but it means you pay more when damage has occurred.

Limits

Once you’ve paid your deductible, then your coverage depends on limits (i.e. how much is covered in total per accident), and for what kinds of losses. Every policy has a limit; no insurer provides unlimited loss coverage. The total ceiling amount will vary depending on the plan you buy. The types of losses are spelled out in the agreement and cover various types of damage that could occur.

Premium

Your premium is the amount you pay each month to keep your coverage in place and active. Miss a payment, and the insurer can choose to cancel your policy or charge a late fee.

High Vs. Low Deductible

Why does the deductible matter? Because insurance providers offset their risk with premiums. The longer a customer pays, the more likely a claim that does occur can be paid back with recovered premium payments. However, when a customer also agrees to bear some of the cost of a claim, that reduces the provider’s risk as well.

Simply put, a higher deductible will likely mean lower monthly premiums. A lower deductible will typically keep monthly premiums higher. Just remember, when a damaging event does occur, you’ll be on the hook for that deductible amount before your insurance provider kicks in its share.

Types of Car Insurance Coverage

The type of coverage you choose to have will impact what damage is protected and how much you can expect to pay every month.

Basic Coverage

Basic coverage typically encompasses the minimum requirements your given state requires all drivers have in terms of insurance protection.

Liability

A common example of basic coverage is liability insurance. If you are determined to be at fault in an accident, liability insurance will pay for the damage to the other cover/driver. In many states, this is the only type of insurance required. It does not, however, cover any damage to your own vehicle. 

Collision

Collision covers the cost of damage caused by a drivers’ vehicle to other vehicles and property. Notably, this protection does not cover medical costs incurred by injured parties.

Extended Coverage

Extended coverage can include a variety of coverage types you pick and choose to add to your insurance policy. Some examples of extended or premium coverage add-ons include:

• Gap coverage: Provides a value return between the market value of a car and what you originally paid for the vehicle.
• Vandalism protection: Protects your vehicle from intentional damage.
• Powertrain coverage: Protects the expensive inner workings of your vehicle, including the engine, driveshaft, transmission, etc. Many new car buyers find this protection built into their car purchase from a dealer.
• Extended coverage: Provides additional coverage for areas already covered by a car warranty plan for an extended period of time (beyond what the original warranty was set for).

Comprehensive or Premium Coverage 

Just as it sounds, comprehensive coverage covers all major types of losses, both for you and other parties you damage. These plans will typically provide additional benefits for theft, travel problems, roadside assistance and more. The cost tends to be higher to account for all the additional coverage, but it can be lowered with a higher deductible and a good driving record.

It can be tough to determine what type of car insurance coverage you may need. Review your options with your insurance agent, run through “what if” scenarios to determine how much and when you’d be liable to pay and assess your monthly premium.