What Your Car Insurance Will and Won't Cover

Understanding Car Insurance

Understanding exactly what your car insurance covers is a crucial part of owning a vehicle, but experts say few consumers are fully informed on their auto policies. According to a 2010 survey by the National Association of Insurance Commissioners, or NAIC, more than half of Americans don't know basic facts about auto insurance, and only 45% feel confident making decisions about it.

Here are seven things you need to know about how well your car is covered.

The Rental is Covered ... Sort Of

If the question of whether to purchase rental car insurance puts a blank stare on your face, you're not alone. A 2007 study by the NAIC says more than 2 out of every 5 consumers are confused by rental car insurance or only have a vague idea about what it covers. John-Bernard Duler, founder of the auto insurance company Esurance, says if you rent a vehicle and wreck it, the damage to the car should be covered by your regular auto insurance. Unfortunately, those won't be the only charges.

"The auto rental company could charge you for loss of use," Duler says. "You could get charged for 45 days of renting this car every day, and that's not covered (by insurance)."

In addition to not compensating the rental company for lost income, Duler says your car insurance may not cover the full value of the vehicle. Many insurance policies only provide compensation for the actual value of the vehicle or the cost of repair -- whichever is less.

Car Insurance Covers Your Car, Not What's In It

More than 2,000 motor vehicle thefts on average occur in the U.S. every day, according to the FBI. Comprehensive auto insurance will compensate you if your vehicle is stolen, but it won't cover what's inside the car.

"If it's property specific to the use of your vehicle like a radio, CD player, those things would be covered," says Peter McMurtrie, chief claims officer for Grange Insurance based in Columbus, Ohio. "If your golf clubs are in the trunk of your car, that's not covered."

Mark Desrochers, president of personal lines for Hanover Insurance Group in Worcester, Mass., says comprehensive car insurance probably won't cover add-ons you've made like a sound system or modifications to accommodate the disabled.

"That's customized equipment that needs to be endorsed," he says "You have to upgrade your policy."

Drivers You Live With Aren't Covered

"If you loan the car to your brother-in-law and he wrecks it on the way to the store, (your auto insurance) has to cover that," says Gary Massey Jr., an attorney with Massey & Associates PC in Chattanooga, Tenn., who specializes in auto accidents and personal injury cases. "If your brother-in-law moves in with you, he's not covered anymore."

Massey says to prevent safe drivers from purchasing car insurance for risky drivers they live with, insurance companies only provide coverage for drivers listed on the policy and those outside of the driver's home who borrow the car.

"A person who lives in your house might drive your car all the time, and it significantly increases your risk of that person wrecking your car," Massey says. "A person who doesn't live with you is probably not going to borrow your car enough to affect the overall risk calculation."

Some Need Uninsured Motorist Coverage

Your insurance will cover your car if an accident is your fault. But if you're in a collision with an uninsured motorist, you could be in trouble. According to an analysis this year by Insurance Research Council, or IRC, in Malvern, Pa., roughly 1 in 7 U.S. motorists are uninsured. In high-risk states such as Mississippi, almost 1 in 3 drivers doesn't have auto insurance.

"Everybody needs uninsured motorist coverage, and they need it to the same policy limits as their liability coverage," attorney Massey says.

Many states require car insurance companies to offer consumers uninsured motorist coverage, but insurance providers are not required to tell you exactly how high-risk your state is. Consumers can research it at Ircweb.org.

How You Live Is As Important as How You Drive

"Credit has become one of the large driving factors (in determining the price of your premium)," McMurtrie says. "Better credit typically translates to lower rates."

According to a spokesman for the National Association of Mutual Insurance Companies, most states allow insurance companies to factor credit scores into their pricing formulas. Hawaii and California are the only states that ban this practice with car insurance.

McMurtrie says other variables factor in, too. Those factors can include age, gender, marital status, how long you've been driving, how frequently you use your car, and whether the car comes with safety features such as antilock brakes and air bags.

Not All States Are Equal

States also vary in minimum liability requirements and property damage coverage. For example, New Jersey requires drivers to carry liability insurance, personal injury protection and uninsured motorist coverage, according to the New Jersey Motor Vehicle Commission. By contrast, Virginia doesn't require drivers to hold liability coverage, but those who opt out must register as an uninsured motorist and pay a $500 fee, the Virginia Department of Motor Vehicles says.

Desrochers of Hanover Insurance says consumers should study their state's minimum liability requirements and whether their state requires personal injury protection, or PIP, which pays the medical bills of those injured in your car during an accident.

"The majority of states don't require personal injury protection," Desrochers says. "They require medical insurance, which covers medical (and hospital expenses), whereas PIP might cover (lost) wages and other things, too."

What exactly PIP covers varies from state to state, but it can cover costs including funeral expenses and child care bills in addition to medical costs, according to Allstate.

You Might Need Specialized Insurance

Standard auto insurance is great for family cars, but specialized rides such as motorcycles, motor homes and collector cars call for specialized policies. Laura Bergan, spokeswoman for American Collectors Insurance in Cherry Hill, N.J., says specialty insurance can include add-ons such as reimbursement for specialty parts and labor in a restoration body shop that aren't covered under a standard policy. Specialty insurance is particularly important for collectors because collector policies determine the value of the vehicle differently from traditional car insurance providers, Bergan says.

Standard car insurance defines the value of your car as "actual cash value, or the replacement cost minus depreciation," Bergan says. "Collector vehicles don't depreciate; they appreciate over time."

"(With collector's insurance), the insurance provider and the insured agree on the vehicle's value. It's written into the policy that it's guaranteed in the event of a total loss," Bergan says.