Money · Insurance

Auto insurance basics

Nearly every state requires liability insurance, which pays for injuries and damage you cause others, written like 25/50/25 ($25,000 per person, $50,000 per crash for injuries, $25,000 for property). State minimums may not cover a serious crash, and if a judgment is bigger than your limits, you pay the difference. Collision and comprehensive cover your own car at market value, not what you owe, and lenders usually require them. Get quotes with identical coverage, ask about good-student and driver-ed discounts, and never give another driver your license number after a crash.

Moderate20 min to read and compareFree to compareChecked October 2, 2026

You'll need

Your car's year, make and model, or VIN
Your driver's license
Your current policy's declarations page, if you have one
Your driving record: tickets and crashes

What to know

Start with liability. Nearly every state requires bodily injury and property damage liability, which covers injuries and damage that you, or another driver using your car, cause to others. Source: III¹ Bodily injury claims can include medical bills, lost wages, and pain and suffering; property damage includes other cars, walls and fences. Source: NAIC³
Read the limits. In "25/50/25," the first two numbers are bodily injury limits and the third is property damage. For example, 20/40/10 means up to $40,000 for everyone hurt in a crash, no more than $20,000 per person, and $10,000 for property. Source: III² Your state insurance department lists your state's minimums.
Buy more than the minimum if you can. State minimums may not cover a serious accident. Source: III¹ Your insurer provides a lawyer if you're sued, but if a judgment or settlement is more than your limits, you pay the difference. Source: NAIC³
Add uninsured motorist coverage. It pays if you're hurt by a hit-and-run driver or someone with no insurance. Source: NAIC³ An estimated close to 13% of U.S. drivers are uninsured. Source: III² Medical payments or personal injury protection (PIP) covers your and your passengers' medical bills; many states require one of these. Source: III¹
Decide on coverage for your own car. Collision pays for crash damage when you're at fault, including potholes and rollovers. Comprehensive covers theft, fire, flood, vandalism, hail and falling trees. Neither is required by law, but lenders usually require both if you finance or lease. Source: III NAIC¹³
Get quotes from several companies with matching coverage and limits. A higher deductible generally lowers the premium, so pick one you could actually pay. Source: NAIC⁴ Fill out the application accurately and keep a copy; most misquotes come from mistakes on the application. Source: NAIC³
Ask about discounts: multiple vehicles, driver education, good student, safety and anti-theft devices, low mileage, and bundling with renters insurance. Not every state offers every discount. Source: NAIC³

Watch out Collision and comprehensive pay the car's market value, not what you paid or still owe. If you finance a newer car, ask about gap insurance. Source: III¹ And your personal policy generally won't cover delivery driving or rideshare work for Uber or Lyft unless you add coverage. Source: III¹

What each coverage pays for

From the Insurance Information Institute and the NAIC. Source: III NAIC¹³

Coverage	Pays for	Required?
Bodily injury liability	Others' injuries you cause	Nearly every state
Property damage liability	Others' cars and property you damage	Nearly every state
Uninsured/underinsured motorist	You, when the other driver has no or too little insurance	Many states
Medical payments or PIP	Your and your passengers' medical bills	Many states
Collision	Your car, in a crash you cause	No, but lenders usually require it
Comprehensive	Your car: theft, fire, flood, hail, vandalism, glass	No, but lenders usually require it
Gap	What you owe beyond the car's value if it's totaled	No

What affects your price

Driving record: tickets and crashes raise rates. Source: NAIC³
Where you live: urban areas have more claims than rural ones. Source: NAIC³
Age and gender: certain age groups have more claims. Source: NAIC³
Mileage, and the make and model: sports and luxury cars average more claims. Source: NAIC³
A gap in coverage or a cancellation for not paying. Source: NAIC³
Even a second not-at-fault crash in one policy period can raise your premium. Source: NAIC³

Quote checklist

Same liability limits on every quote
Same deductibles for collision and comprehensive
Uninsured motorist and medical/PIP included
Discounts asked about: good student, driver ed, bundling
Monthly vs. paid-in-full price
Application filled out accurately, with a copy saved

See it done

Video by Khan Academy Nonprofit

Car insurance basics

Watch on YouTube: Car insurance basics | Insurance | Financial mathematics (TX TEKS) | Khan Academy

Full title on YouTube: “Car insurance basics | Insurance | Financial mathematics (TX TEKS) | Khan Academy”2023 · Checked October 3, 2026

Video won't load at school or work? No problem. Everything you need is in the steps; the video's just a bonus. Watch it on YouTube later.

If it doesn't work

Company charging more than the agent quoted? The company makes the final rating decision after reviewing your information. Intentional low-balling is illegal but hard to prove; ask why in writing. Source: NAIC³
Car totaled? The insurer must pay what it was actually worth just before the crash. Blue Book is only a guide, so research local prices for your make, model and year. Source: NAIC³
Rate jumped at renewal? Get new quotes. Loyalty isn't always rewarded.
Complaint you can't resolve? Contact your state insurance department.

Good to know

The details, if you want them. Tap a line to open it.

Who's covered

Your policy generally covers you and family members on it, and someone driving your car with your permission. Source: III¹

Driving uninsured

Penalties can include fines as high as $5,000 for a repeat offense, license or registration suspension, and in some states jail or impounding the car. Source: III²

Renting a car

If you have collision and comprehensive on your own car, you likely don't need the rental company's damage waiver, which can cost $10 to $20 a day. Card rental coverage is usually secondary, so call your card company. Source: NAIC³

After a crash

Don't give the other driver your license number; it can be misused for identity theft. Source: NAIC³ See Car accident: right now.

Take it with you

Printable card Download card (PDF)

Sources

Insurance Information Institute Insurance industry group Auto insurance basics: understanding your coverage
Insurance Information Institute Insurance industry group Background on: compulsory auto/uninsured motorists
National Association of Insurance Commissioners Auto insurance consumer guide
National Association of Insurance Commissioners Comparing online auto insurance quotes
National Association of Insurance Commissioners State insurance departments

Lesson M8.3 · Last checked October 2, 2026 against the sources listed.

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