Expert Insights from Russell Araya of Ramos Law
The best time to protect yourself in a car accident is before it even happens—with the right insurance. Not all policies are created equal, and having inadequate coverage can cost you thousands of dollars when you’re at your most vulnerable after a crash.
Understanding the various types of auto insurance coverage can help you make informed decisions and ensure you’re adequately protected in the event of an accident. In this guide, we’ll explain the different types of auto insurance available and help you choose coverage that actually works when you need it most—not just the minimum required by law.
Why Your Auto Insurance Choices Matter
Too many drivers only find out they’re underinsured when it’s too late. Your coverage choices directly determine what your insurer pays after a crash and what painful expenses come out of your own pocket when you’re least prepared to handle them.
According to a 2023 study by the Insurance Research Council, about 14% of motorists were uninsured in 2022. Furthermore, nearly half of American drivers carry only minimum liability insurance, leaving them financially exposed in serious accidents that exceed these limits. While minimum coverage might save you $20-30 per month now, it could cost you tens of thousands after a significant collision.
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Types of Auto Insurance Coverage
Liability Insurance
Liability coverage pays for damage you cause to others and is mandatory in almost every state. This fundamental protection includes both bodily injury coverage for medical expenses and property damage coverage for vehicle repairs or replacements of other parties involved in an accident you cause.
Collision Coverage
Collision insurance pays for damage to your own vehicle, regardless of who is at fault in the accident. Without this coverage, you’ll be responsible for all repair costs to your own car even if another driver caused the accident but lacks adequate insurance.
Collision coverage applies when your vehicle sustains damage in an accident while driving. Whether you hit a deer, a tree, or another car (regardless of fault), this coverage ensures those repairs are taken care of.
Comprehensive Coverage
Comprehensive coverage protects against theft, fire, vandalism, weather-related damage, and collisions with animals. This protection fills crucial gaps that collision coverage doesn’t address, ensuring your vehicle is protected from both accident and non-accident related damages.
Comprehensive coverage applies to non-collision-related damage to your vehicle, such as damage from falling trees, fire, water, hail, and similar events. It’s important to note that comprehensive coverage typically does not include glass coverage—which requires a separate policy to cover damage like windshield cracks caused by rocks or damage to side or rear windows.
Uninsured/Underinsured Motorist (UM/UIM) Coverage
UM/UIM provides critical protection if the at-fault driver has no insurance or insufficient coverage to pay for your damages. Approximately one in eight drivers on the road is completely uninsured, making this often-overlooked coverage one of the most important protections you can purchase.
Uninsured Motorist (UM) Coverage
UM coverage protects you when the at-fault driver has no insurance. It covers medical bills, pain and suffering, impairment, and lost wages when the driver responsible for the accident doesn’t have insurance to pay for your damages.
Underinsured Motorist (UIM) Coverage
UIM coverage applies when the at-fault driver has insufficient insurance to cover your damages. For example, if your total bills are $50,000 but the other driver’s policy only covers $25,000, your UIM policy covers the remaining amount. This ensures full compensation for expenses like medical costs and lost income.
Medical Payments Personal Injury Protection (PIP)
Medical payments coverage (MedPay) and PIP cover medical expenses for you and your passengers, regardless of who caused the accident. In no-fault insurance states, PIP is required and serves as your primary coverage for medical bills regardless of fault determination.
MedPay provides financial protection by covering immediate medical expenses following an auto accident, regardless of who is at fault. This is particularly crucial for individuals without health insurance, as MedPay helps with costs like ambulance rides, emergency room visits, primary care consultations, co-pays, medications, and even medical equipment.
MedPay is distinct from other coverages, such as bodily injury liability, uninsured motorist (UM), or underinsured motorist (UIM) coverages. While those protect against other parties’ liabilities or lack of insurance, MedPay specifically ensures that your out-of-pocket medical costs are promptly addressed after an accident.
Optional Coverages That Can Make a Big Difference
Gap Insurance
Gap insurance covers the difference if your car is totaled but you still owe more on your loan than the vehicle’s actual cash value. Without this protection, you could end up making payments on a car you no longer have while simultaneously needing to finance a replacement vehicle.
Gap insurance is an optional add-on that covers the difference between what you owe on a car loan and the vehicle’s actual cash value (ACV) in the event of a total loss, such as theft or a severe accident. For example, if you owe $30,000 on a car but its ACV at the time of loss is only $25,000, gap insurance would cover the $5,000 difference, preventing you from paying that amount out of pocket.
However, gap insurance only covers the loan balance versus the car’s value—it does not cover bodily injuries, death, or other property damage from the accident itself. It’s advisable to consult with your finance company or dealership and carefully read the fine print before purchasing a policy.
Rental Reimbursement
Rental reimbursement pays for a rental car while yours is being repaired after a covered accident.
Roadside Assistance
Roadside assistance covers emergency services like towing, flat tire changes, and lockout assistance, providing significant peace of mind for relatively little additional cost.
How Much Coverage Do You Really Need?
Choosing coverage based on your actual risk factors rather than just meeting state minimums is the smart approach. Consider the value of your vehicle, your daily driving habits and mileage, whether you live in a high-accident or high-theft area, and your financial ability to cover unexpected expenses out of pocket.
Insurance experts typically recommend liability limits of at least 100/300/100 ($100,000 per person, $300,000 per accident for bodily injury, and $100,000 for property damage), full coverage for vehicles under 10 years old, and always including UM/UIM protection to match your liability limits.
Is State Minimum Coverage Enough?
Many drivers believe that meeting the legal requirement is enough, but this assumption can be dangerous. If you cause an accident that results in serious injury to another person, the medical expenses alone could easily reach hundreds of thousands of dollars. These costs can include hospital bills, lost wages, and compensation for pain, suffering, and impairment. Unfortunately, state minimum policies—often set at $15,000 or $25,000—typically fall far short of covering these kinds of liabilities.
It’s strongly recommended that drivers opt for higher coverage limits than the state minimum. Protecting yourself financially on the worst possible day is crucial. By investing in more robust insurance, individuals can better safeguard their assets and avoid significant out-of-pocket expenses in the event of a severe accident.
Understanding "Full Coverage"
The term “full coverage” in auto insurance is often misunderstood by drivers. Many assume that full coverage means complete financial protection in any situation, but this isn’t the case. Instead, full coverage refers to a combination of several different types of policies that address various situations, such as bodily injury liability, uninsured/underinsured motorist (UM/UIM) coverage, collision, comprehensive, glass coverage, and medical payments (MedPay). Drivers can choose to purchase all or just some of these coverages, tailoring their insurance to their needs.
Furthermore, coverage limits vary significantly, with some policies starting as low as $25,000, depending on the state. This reinforces that full coverage is not a fixed package, but a customizable set of policies that should be carefully selected based on individual risk tolerance and financial circumstances.
What Happens If You're Underinsured After an Accident?
If you’re underinsured and cause significant damage, you may be sued personally for expenses that exceed your policy limits. Even when the accident isn’t your fault, insufficient coverage can leave you unable to fully repair your vehicle or cover mounting medical bills if the at-fault driver lacks adequate insurance.
Insurance companies might deny or delay claims if they discover gaps in your coverage, leaving you without the protection you thought you had. Spending just a few dollars more each month on higher coverage limits can save you thousands in potential out-of-pocket costs after an accident.
How to Compare and Choose the Right Auto Insurance Policy
1. Know Your State’s Minimum Requirements
Start by understanding what your state legally requires, but remember these minimums are rarely enough for adequate protection. State minimums vary widely and are often woefully inadequate, with some states requiring as little as $15,000 in bodily injury coverage—barely enough for an emergency room visit.
For example, in California, the minimum required auto insurance coverage has recently increased to $30,000 for bodily injury per person, $60,000 for bodily injury per accident, and $15,000 for property damage per accident, effective January 1, 2025. It’s advisable to consult your state’s department of insurance website or a legal professional to determine the specific requirements in your area.
2. Understand the Value of Each Coverage Type
Evaluate which coverages provide the most protection based on your specific situation and driving habits. Remember that comprehensive and collision coverage become less cost-effective as your vehicle ages, while liability and UM/UIM protection remain crucial regardless of vehicle value.
3. Shop and Compare Multiple Quotes
Get quotes from at least three different insurers to compare both prices and coverage options. Look beyond the headline premium number and compare deductibles, coverage limits, and added benefits that might be included with each quote.
4. Review the Insurer’s Claim Reputation
Research each company’s claims satisfaction ratings and complaint records before making your final decision. A company that saves you $100 annually but fights legitimate claims isn’t actually saving you money—they’re transferring risk back to you when you need protection most.
5. Ask About Discounts
Inquire about multi-policy discounts, good driver discounts, low mileage discounts, and other savings opportunities with each insurer. Many companies offer substantial discounts for bundling home and auto insurance or for maintaining a clean driving record for several years.
6. Read the Fine Print
Carefully review deductibles, exclusions, and coverage limits before selecting a policy. Pay special attention to whether your policy covers original manufacturer parts, provides for diminished value claims, or includes extras like new car replacement coverage.
Pro Tip: Choose an insurer with a strong claims process—not just the cheapest rate. The true test of insurance comes when you need to file a claim, not when you’re paying the premium.
What to Do After an Auto Accident
If you’re involved in an auto accident, take these immediate steps:
- Call the police immediately so they can document all relevant details, including personal information, driver’s licenses, and insurance data from everyone involved.
- If injuries occur, paramedics will assess the situation and provide necessary care, including hospital transport if needed.
- Even if no injuries are apparent and you can drive away from the scene, notify the other driver’s insurance company as soon as possible. This ensures they begin their investigation promptly and facilitates smoother claim processing.
Taking these steps early helps preserve critical evidence and information, making it easier to navigate the legal process if required.
Handling Property Damage vs. Bodily Injury Claims
Property damage claims focus on your vehicle and are generally straightforward to handle without an attorney. After an accident, you can contact the insurance company’s adjuster, who assesses your vehicle and determines the fair market value if it’s a total loss or estimates the cost of repairs. Once evaluated, the insurer issues a payment for repairs or the vehicle’s value.
Bodily injury claims deal with medical expenses, lost wages, and other personal harm resulting from the accident. These claims are typically managed by attorneys, who negotiate with insurance companies to ensure fair compensation.
For property damage, insurers only owe you the vehicle’s current market value, not what you originally paid. For instance, if a car bought for $15,000 is now worth $7,000, the insurer pays only $7,000.
When Insurance Companies Deny Claims
If an insurance company denies your claim or disputes liability after an auto accident, hiring an attorney is crucial. An attorney can investigate the case, review accident reports, speak with witnesses, and communicate directly with the insurance adjuster to challenge the denial.
The attorney’s role includes gathering evidence like photos, videos, or eyewitness accounts that can support your claim and persuade the insurance company to reverse its decision. Without legal representation, individuals often face resistance from insurers, as companies may only respond seriously to attorney intervention.
Dealing with Medical Liens
A lien is essentially a right to repayment for medical services provided after an accident. When you receive treatment covered by third parties like private health insurance, workers’ compensation, or government programs like Medicaid or Medicare, these entities place a lien on your settlement from the auto insurance claim. This means that when you receive a settlement, those entities are entitled to be repaid for the medical costs they initially covered.
An attorney plays a crucial role in managing these liens during the settlement process. The attorney negotiates to reduce the amounts owed on these medical liens, ensuring that you, as the client, retain more of your settlement funds.
Handling Hit-and-Run Accidents
If you are involved in a hit-and-run, the first priority is to ensure your safety and that of your passengers, followed by calling the police to document the incident. Gathering photos of the scene and your vehicle, and seeking any necessary medical care, are also key steps.
If the driver responsible is not found, and you have uninsured motorist coverage, you can file a claim with your own insurance for medical expenses and property damage (assuming you also have collision coverage).
If the at-fault driver is located, their insurance information will be shared, allowing you to file a claim against their policy. Otherwise, your compensation comes from your own uninsured motorist policy.
Special Situations in Auto Accidents
Chain Reaction Accidents
In chain reaction accidents, the driver who initiated the crash is legally responsible for the damages and injuries of all vehicles involved. If the at-fault driver’s policy has a coverage limit, such as $100,000, and multiple parties have damages, the insurance proceeds are divided proportionally based on the percentage of each person’s total damages relative to the available coverage.
Pre-existing Medical Conditions
If you have pre-existing medical conditions that are aggravated by an auto accident, insurance companies often attempt to argue that the pain is solely due to the prior condition, not the recent accident. It’s the attorney’s role to demonstrate that the auto accident either worsened the pre-existing condition or caused a new injury altogether. Being honest and upfront about any prior injuries with your attorney is crucial so they can effectively argue your case.
When No One Has Insurance
When neither driver has insurance coverage in an accident with injuries, options for compensation are limited. If the injured person has health insurance, it can cover medical treatments, although it won’t compensate for non-economic damages like pain or impairment.
For those without health insurance, there may still be recourse through restitution if the at-fault driver is criminally charged, such as for careless driving. Courts may order that driver to pay medical expenses. Another potential resource is the crime victims assistance board, which some district attorneys’ offices work with.
Reasonable and Necessary Medical Care
After an accident, injured parties may undergo various treatments—ranging from x-rays and physical therapy to chiropractic care, massage, acupuncture, or even pain management procedures. When it comes time to negotiate a settlement, insurance companies may challenge the necessity or reasonableness of certain treatments.
In such cases, the treating doctor may need to testify that the chosen treatments were both reasonable and medically necessary. Otherwise, the insurance company could refuse to cover those medical expenses.
When to Speak with a Lawyer About Your Coverage
You should consult with an attorney after a serious accident, especially if the other driver is underinsured or uninsured. Legal counsel is also crucial if your insurer is denying or delaying your rightful payout or if you believe you’re being unfairly blamed for an accident you didn’t cause.
If you’re unsure whether your current policy adequately protects you and your assets, a consultation with an attorney experienced in auto insurance matters can provide valuable peace of mind. Insurance policies are complex legal contracts, and professional guidance can help ensure you’re truly protected.
Factors That May Increase Your Insurance Premiums
Insurance premiums reflect your risk level to the insurance company. Receiving speeding tickets signals risky behavior, raising the likelihood of an accident, which in turn prompts the insurance company to increase your premiums. Even filing a glass repair claim can result in a premium hike.
Other contributing factors include being at fault in an accident where the insurer must cover injury or property damage, as well as lending your vehicle to high-risk drivers (like someone with a poor driving record or an excluded driver from your policy). If these individuals cause an accident, your insurance company may raise your premiums to compensate for the increased risk exposure.
Understanding Negligent Entrustment
Negligent entrustment occurs when you allow someone to drive your car even though you know (or should know) they are unfit to drive—such as having a revoked or suspended license, or a history of dangerous driving or criminal activity. If this person causes an accident, your insurance company may deny coverage, leaving you personally responsible for the damages caused.
In such situations, the injured party has the right to file a lawsuit against the vehicle owner, potentially making the owner personally liable for medical bills, property damage, and other losses.
(FAQ) Frequently Asked Questions
What is the most important coverage to have?
Liability is legally required, but UM/UIM and collision are often just as critical to protect yourself. The most important coverage depends on your individual circumstances, but having only liability leaves major gaps in your protection, especially if you can’t afford to repair or replace your vehicle out-of-pocket.
Is minimum coverage enough?
It may meet legal standards—but it likely won’t cover all your costs in a real-world accident. State minimums were established decades ago and haven’t kept pace with rising medical costs and vehicle repair expenses, making them inadequate for all but the most minor fender benders.
Can I change my coverage after an accident?
No. Your policy must be in place before the accident occurs to apply. Insurance companies won’t allow you to retroactively increase coverage to cover an accident that’s already happened, which is why selecting adequate coverage from the start is so essential.
What does UM coverage stand for?
UM stands for Uninsured Motorist coverage. It protects you if you’re in an accident caused by a driver who has no insurance.
When would I use UIM coverage?
Underinsured Motorist (UIM) coverage applies when the at-fault driver’s insurance doesn’t fully cover your damages, and your UIM policy pays the remaining balance.
Why should I have UM/UIM coverage?
These coverages ensure you are protected financially in case of accidents with uninsured or underinsured drivers, covering medical expenses, lost wages, and other damages.
How do I know if I have UM/UIM coverage?
You can check your auto insurance policy or contact your insurance provider to confirm if UM/UIM coverages are included and understand the coverage limits.
How are medical bills handled for both the driver and passengers after an accident?
When another driver is at fault, their bodily injury insurance policy covers medical expenses, pain and suffering, impairment, and lost wages for everyone involved—including passengers. If the at-fault driver’s insurance coverage is insufficient, other policies like MedPay or UIM coverage can provide additional compensation.
For more information about insurance requirements, visit your state’s Department of Insurance website, the National Association of Insurance Commissioners (NAIC), or the Insurance Information Institute (III) for up-to-date data on insurance statistics and requirements.