Car Insurance Explained

If you feel that you need to learn a whole new language to understand car insurance, don’t worry. We’ll explain all the important points right here.


This is the amount you have to pay in case of an insurance claim. If your deductible is $500 and the repairs cost $2000, the insurance company will pay $1500. Deductibles help reduce your insurance premium.


This is what you pay for your insurance coverage. The amount depends on your deductible, age, car, driving history, type of insurance, and credit history.

Coverage Limit

This is the maximum amount the insurance company will pay when you file a claim. Any amount beyond the limit will come out of your pocket.

No-Fault and At-Fault

No-fault means that the insurance company pays for medical costs regardless of who causes the accident. At-fault means that whoever is deemed to be the cause of the accident must use their insurance to cover the damages for everyone in the accident.

Liability Coverage

Liability coverage protects your life savings. If you’re at-fault in an accident, this cover pays all medical and auto-repair costs for the affected people. Aim to have at least $500,000 worth of liability coverage. This is the basic insurance required for every car owner.

Comprehensive Coverage

Comprehensive insurance covers the costs if your car is damaged or destroyed in a fire, natural disaster, theft, and anything that is not a collision.

Collision Coverage

If you have an accident and it’s your fault, collision coverage will pay for your car repairs. No matter who is at fault, collision coverage will pay to repair or replace your car if you’re in an accident.

Med Pay Coverage

This covers reasonable medical expenses for you, your passengers, or any family members irrespective of who is at fault.

Personal Injury Protection

This is like MedPay but with higher coverage limits and a higher premium. It has a deductible. It will pay for medical expenses, funerals, physical or occupational therapy, substitute services, 60-80% of lost wages, and funds to hire subcontractors.

GAP Coverage

If you’ve financed your new car and then totaled it, GAP covers the remainder of what you owe on your loan.