Choosing car insurance often feels like ordering off a menu in a foreign language. Agents toss around terms like "Bodily Injury," "Comprehensive," and "Gap," assuming you know the difference. But in 2026, with repair costs hitting record highs and medical inflation spiking, picking the wrong "menu item" can cost you your life savings.
This guide is your translator. We stripped away the legal jargon to create a simple "Who Pays For What" map. Whether you are buying your first policy or auditing an old one, this framework ensures you are actually protected—not just "legal."
Key Takeaways
- ✓ Liability is for "Them": It pays for the other driver's injuries and car repairs. It does protect you or your car.
- ✓ Full Coverage isn't Magic: It simply means you have Liability + Collision (accidents) + Comprehensive (weather/theft).
- ✓ UM/UIM is Mandatory for Safety: With 1 in 8 drivers uninsured, Uninsured Motorist coverage is your only safety net if you get hit.
- ✓ Deductibles Matter: Raise your Collision/Comprehensive deductible to $1,000 to save money, but keep Liability limits high.
Table of Contents
1. The Foundation: Liability (BI & PD)
Liability coverage is the bedrock of any policy. It is legally required in almost every state. Crucially, Liability never pays a cent to you. It protects your financial assets (house, savings, wages) from lawsuits if you injure someone else.
Bodily Injury (BI)
Pays for the other person's medical bills, lost wages, and pain & suffering.
$50k per person max
$100k per accident total
Property Damage (PD)
Pays to fix the other person's car, or property you hit (fences, guardrails).
$50k total for property damage per accident.
2. Protecting Your Car: Collision vs. Comprehensive
If Liability is for "them," these two coverages are for "you." Lenders require them if you have a loan. If your car is paid off, they are optional—but recommended unless your car is worth less than $3,000. (Note: Vintage rides need classic car insurance).
Collision Coverage
- ➢ What it Covers: Crashing into another car, hitting a tree/pole, or rolling over.
- ➢ The Catch: You pay a deductible (e.g., $500 or $1,000) before insurance kicks in.
Comprehensive Coverage ("Other Than Collision")
- ➢ What it Covers: Theft, fire, hail damage, flood, falling trees, and—most commonly—hitting a deer.
- ➢ Glass: Often covers windshield cracks (sometimes with $0 deductible depending on state).
3. Protecting People: MedPay, PIP & UM
Your health insurance covers you generally, but auto accidents are complicated. These coverages fill the gaps and provide immediate cash flow.
| Coverage | What It Does | Why You Need It |
|---|---|---|
| Uninsured Motorist (UM/UIM) | Pays YOUR bills if an uninsured driver hits you. | Essential. 1 in 8 drivers have zero insurance. |
| PIP (Personal Injury Protection) | Pays medical + lost wages regardless of fault. | Required in "No-Fault" states. Covers rehab & childcare. |
| MedPay | Pays medical deductibles/copays. | Great for covering your high health insurance deductible. |
4. The "Extras": GAP, Rental & Roadside
These endorsements are cheap additions that save massive headaches.
- GAP Insurance Vital for new cars. If your car is totaled, insurance pays the "market value," which is often less than your loan balance. GAP pays the difference so you don't owe money on a crushed car.
- Rental Reimbursement Pays ~$30-50/day for a rental car while yours is in the shop after a claim. Without this, you're walking.
Deep Dive: Why State Minimums Fail in 2026
Many states (like California or Pennsylvania) have "State Minimum" liability limits as low as $15,000 or $5,000 for property damage.
The Reality Check: The average new car price in 2026 is over $48,000. If you have a $5,000 property damage limit and you rear-end a Tesla, your insurance pays $5,000. You are personally sued for the remaining $43,000.
Our Recommendation
Ignore the state minimums. Carry at least 100/300/100 liability limits ($100k property damage) to protect yourself from garnishment and bankruptcy. The price difference is often less than $10/month.
5. The "Who Pays?" Cheat Sheet
Use this quick reference next time you review your Declarations Page.
