Does car insurance cover the car or the driver?

How car insurance typically works

Car insurance “covers the [vehicle] when the owner allows a licensed driver to borrow it,” explains Rob Bhatt, an insurance expert at LendingTree. Any accident in your car goes on your insurance record and could increase your premiums, even if you weren’t driving.

Include anyone who often borrows your car on your policy. Bhatt warns that insurers may refuse coverage if regular drivers aren't listed.

A typical car insurance policy includes liability, collision and comprehensive coverage. Liability insurance pays for damage you (or your permitted driver) cause to others but doesn’t cover your car. Bhatt pointed out that “collision and comprehensive combine to cover your car for damage and theft,” each with its own deductible.

When a friend crashes your car, your insurance covers damages to others up to your policy limits. Your collision coverage will pay for your vehicle repairs minus your deductible. But your insurer may later seek reimbursement from your friend’s policy, depending on state laws.

Types of coverage and their implications

Josh Damico, vice president of insurance operations at insurance comparison app Jerry, highlights six main car insurance coverage types:

1. Liability insurance protects other people and their property when you cause an accident. It doesn’t cover your medical bills or car repair expenses. Every U.S. state requires liability insurance except for New Hampshire.
2. Collision insurance covers your car in accidents regardless of who’s driving, provided they have permission. Lenders often require you to have collision insurance if you’re financing or leasing a car.
3. Comprehensive insurance pays for nonaccident car damage such as theft and weather events. Like collision insurance, lenders may ask you to carry comprehensive insurance if you’re financing or leasing a car.
4. Uninsured/underinsured motorist coverage protects you and your passengers when a driver with inadequate insurance hits you. Twenty states plus Washington, D.C., mandate uninsured coverage.
5. Personal injury protection (PIP) covers accident-related medical costs no matter who’s at fault. “[It] also covers lost wages and essential services you may need while recovering,” Bhatt noted. This coverage is mandatory if you live in a no-fault state.
6. Medical payments (MedPay) help pay for post-accident medical expenses such as hospital stays and ambulance costs, regardless of fault. It’s similar to PIP but doesn’t cover lost wages, physical or occupational therapy, or professional health services. Maine, New Hampshire and Pennsylvania are the only states that mandate MedPay.

Factors influencing coverage

Your insurance company expects you to list regular drivers. However, occasional borrowers with permission usually get coverage under your policy. Check your policy details before lending your car. It may also help to call your agent with specific questions to avoid coverage surprises.

“State laws are the main factor in determining whether insurance follows the car or the driver,” explains Bhatt. While most states consider the car owner’s insurance primary, regulations vary across state lines. Some may try to recoup costs from the borrower’s insurance policy if your state allows it and the borrower has their own coverage.

Bhatt illustrated this with a practical example: “(Suppose) you have a $25,000 bodily injury liability limit, and an accident victim had $35,000 in medical expenses. The policy for the person who borrowed your car would cover the $10,000 that exceeds your policy’s limit.”

Insurance companies assess risk based on several factors:

• Your age
• Your car type
• Your claims record
• Your credit score
• Your driving history

These all impact your premiums and coverage limitations. For example, high-risk drivers or specialty vehicles might face more restrictions and higher premiums.

Choosing the right coverage for your needs

“The first step is to figure out what kind of coverage you need and what makes sense for your situation,” advised Damico. For example, if you’re a parent of a teen driver, you might need higher liability limits.

When buying coverage, keep in mind that state minimums often don’t give enough protection for accidents today. Bhatt recommends choosing liability limits that match your net worth to protect your assets from large claims against you. Medical and vehicle repair costs have increased dramatically since minimum requirements were established decades ago.

Ted Spaulding, a personal injury attorney and founder of Spaulding Injury Law, emphasizes that drivers need as much coverage as they can afford. “Don’t just get minimum coverage unless you really cannot afford more,” he advised. This advice applies regardless of driving experience or age.

Consider these tips when selecting your insurance coverage:

• Assess your vehicle’s value: Bhatt recommends comprehensive and collision coverage for cars worth at least $5,000 — even if you don’t have a loan.
• Consider your health insurance: If your health plan has high deductibles, adding medical payments coverage can help with accident-related expenses. “PIP and MedPay payments usually kick in right away,” Bhatt pointed out.
• Protect against uninsured drivers: About one in eight drivers lacks insurance, according to the Insurance Research Council. Spaulding strongly recommends “plenty of uninsured motorist coverage, for both property damage and bodily injury.”
• Compare quotes at least once a year: Damico suggests shopping around, especially after major life changes such as moving or getting married. You might find a better deal than what you’re getting from your current provider.
• Balance cost and coverage: If your budget is tight, consider increasing your deductible. It’s better to pay a higher deductible when you need coverage than be uninsured in a serious accident.