Car insurance can be confusing if you're new to America. Here's an overview of the coverages and what's required vs optional.
Car insurance policies in the US are broken up into coverages, which vary based on whose injuries and damages they'll pay for and what caused the damage.
We'll talk about third-party coverages first, which cover other people or their property if you're responsible for a crash. Then we'll move on to uninsured motorist coverage, which covers you if you're hit by an uninsured driver and medical coverages, which cover you regardless of who is at fault. Finally, we'll move on to first-party coverages, which protect you and your car.
Third-party liability coverages: bodily injury and property damage
Third-party coverages are liability coverages because they cover your legal responsibilities for a crash. You must have liability coverage when you drive in the US, whether it's on your own or someone else's policy (like your employer's).
Every state has minimum legally required limits, and you can leave it to your insurance agent to make sure you have at least the minimum. The requirements are often quite low, though, perhaps $25,000 of coverage. We usually recommend quite a bit more, which often isn't expensive to add.
There are a couple of types of liability coverage, which are priced and listed separately on your policy, but always sold together:
Bodily injury liability coverage
BI covers the medical bills for anyone you injure in an accident. You're likely aware that medical care in the US is incredibly expensive. Bills from an accident that requires hospitalization could easily cost tens or even hundreds of thousands of dollars.
The driver at fault in an accident is ultimately responsible for those bills, not the hospital, not the government, and not the injured person's health insurance. You'll want to make sure you have plenty of bodily injury liability since it will both pay those bills and pay for your insurance company's lawyers to defend you if you're sued for someone else's injuries.
Don't put yourself in harm's way.
Property damage liability coverage
PD covers property you damage in a crash. This is most commonly other people's cars, but it could also include personal possessions, fences, or buildings.
Harm to property is far more common than injuries after an accident, but it also tends to cost less. As a result, you may find that you're offered physical damage limits that are equal to or lower than the bodily injury limits in your insurance quote. Ultimately, you'll need to balance what you are willing to pay with how protected you feel by the coverage you are buying.
Uninsured and underinsured motorist coverage
Uninsured (UM) and underinsured (UIM) motorist coverage pays for your injuries or damages to your car or property if another driver is responsible for a crash and they aren't insured, don't have enough insurance, or can't be identified, like in a hit and run.
Each state structures these coverages a little differently. Sometimes uninsured and underinsured motorist coverages are together, and sometimes they are separate. You'll also see UM and UIM broken out into separate bodily injury and physical damage coverages in some states.
The important thing to remember is that each state only has one flavor, so you won't need to choose from all the options.
Many states require at least a minimum amount of UM and UIM coverage, though you can often buy up to your bodily injury liability limits. UM and UIM are usually inexpensive, so it's often worth it to make sure your medical bills would be covered, especially if you're unsure of how robust your health insurance is in the US.
Medical payments or personal injury protection
Medpay and PIP are similar. Both will pay for medical care for you and your household members or passengers after a crash. PIP is a bit broader because it can cover lost wages and non-hospital charges, like if you need help at home while you recover.
Most states require either medpay or PIP, though confusingly, some mandate both. It's best to talk through your specific situation with your insurance agent to make sure you understand your choices.
Neither medpay nor PIP coverage varies based on who is at fault in an accident - if you're hurt, they pay out. However, in most states (but not all), the amount of coverage available is fairly low (in the few thousands of dollars). So, while either coverage will help out in a crash, they do not replace making sure you have health insurance when you visit the US.
Physical damage coverage covers damage to your car. It's totally optional if you own your own car outright, though it's a good idea to buy it. If you have a loan on your car, or you're leasing, physical damage coverage will almost certainly be required.
There are two main coverages for physical damage, and there's usually no good reason not to buy both:
Collision pays if your car is damaged in a collision with another car, a building, or a tree, regardless of who is at fault. If the other driver is at fault, your insurance company will pay for the repairs for your car, and then they'll go after the other driver's insurance.
Comprehensive pays for damage caused by weather, like hail or a flood, a tree or other object falling on your car, or an animal strike.
Collision and comprehensive coverages both typically have a deductible that you pay first before your insurance company pays. $500-$1000 is typical, and the higher the deductible the cheaper the coverage. If you have a lease or a loan, there may be requirements for what level of deductible you need to have on your policy.
Car insurance: optional coverages
There are also some totally optional coverages you can buy with your insurance policy. Different insurance companies have different options. Here are a few common choices:
Substitute transportation coverage
If your car is damaged by a covered collision or comprehensive incident, this will pay for a rental car while your car is being fixed. This is really helpful if you need a car to commute to work or school.
If you break down with a flat tire, or your car won't start, a roadside assistance vendor will send someone out to you to change the tire or jump-start a battery. Failing that, this coverage will usually cover towing to the nearest garage that can fix your car.
Loan gap coverage
If you have a long car loan, you could end up still owing money on your loan even if the car is totaled. This coverage pays the difference.
Car insurance in the US can be confusing, especially if you're used to a different structure at home. You'll want to find an insurance agent who deals with expats and other foreign drivers frequently. They'll have access to insurance companies that will insure drivers who may need insurance before they get a US driving license.
If you'd like to read further, here's an overview of buying car insurance in the US as a foreign national, and how to save money if you have a foreign driving license.