What does Car Insurance Cover?

If you own a car, you must already have heard about car insurance. Moreover, terms like 'deductible', 'premium' and 'coverage' do ring a bell. But how well do you know and understand the technicalities, what is covered and what not and how much insurance do you really need?

Forty-seven American states require all drivers to hold some basic form of car insurance when driving across their territory. Moreover, some local laws don't even mention the 'driving' part – i.e. you should be insured even if you are in your car, behind the wheel, in a public parking lot. Therefore, you should know the mandatory regulations in your state, or the consequences can be quite harsh.

Here are the main car insurance policies you can purchase.

Liability Insurance

This is the minimum package you must own in most states. This covers the bodily injuries and property damage you cause by negligence or reckless driving, as well as all related legal fees. Each state determines the minimum amounts you should be covered for. You are generally on the safe side with these values, because they are based on the average claims after an accident, but be warned that if you cause substantial damage that isn't covered by your insurance policy you will be sued for the remaining balance.

Collision Insurance

Covers damages to your vehicle caused in an accident where you were at fault. Collisions with another vehicle or object on the road are included.

Comprehensive Coverage

Takes care of all damage that didn't occur as a result of an accident. Natural disasters, vandalism or theft are included here. As an exception, a collision with an animal on the road is covered by a comprehensive policy and not by the aforementioned collision insurance.

Personal Injury Protection

This coverage is required by some states and takes care of the medical expenses for the driver, regardless of who was at fault in the accident.

Uninsured Motorist Protection

Pays for your vehicle's restoration after an accident caused by a driver who didn't have the minimum liability insurance. If you don't have such a policy, you will have to sue the other party on your own for the damage incurred.

Underinsured Motorist Protection

Takes care of the expenses incurred when the other party was at fault in an accident but the liability coverage doesn't suffice. You will want such a policy if you drive a very expensive car, as the mandatory coverage held by most drivers in your state will not cover the repair costs.

Towing Insurance

Helps you get your car to the nearest repair shop should it break down in the middle of the road.

All in all, these are the most frequent forms of insurance you can purchase. Be warned, however, that you may not need each and every one of them. You may run across unscrupulous sales agents who might try to talk you into buying everything they have to sell. You should, therefore, do your homework well before stepping foot into an insurance store (or buying a policy online) so that you don't get conned into buying more than you need.