Christian Genco

How Car Insurance Works

This article is a draft.

For my entire life I've driven cars that cost under $5,000. The type of insurance I'd get on these cars was the lowest amount I was required by law to have. Through Geico this insurance cost me a few hundred dollars every six months.

I recently found myself in a comfortable enough financial position to buy my dream car—a Tesla Model 3—for $42,000.

This purchase prompted me to re-evaluate my insurance strategy. Here are my notes on understanding car insurance.

Liability #

Liability insurance pays for damage you do to someone else.

This is the only type of coverage that's legally required in Texas:

Texas law requires you to have at least $30,000 of coverage for injuries per person, up to a total of $60,000 per accident, and $25,000 of coverage for property damage. This is called 30/60/25 coverage.

Even then, you don't need car insurance in Texas if you can prove you have at least $55,000.

This is the cheapest type of insurance and your potential liability is unbounded so it makes sense to upgrade it.

Uninsured/underinsured motorist coverage #

If someone does damage to you and they don't have insurance, this coverage will pay you for damage done to you.

Collison coverage #

Collision coverage pays to repair or replace your car after an accident.

Comprehensive (other than collision) #

Comprehensive coverage pays if your car is stolen or damaged by fire, flood, vandalism or something other than a collision.

Medical payments coverage pays your and your passengers’ medical bills. It also pays if you’re hurt while riding in someone else’s car or while walking or biking. Personal injury protection (PIP) coverage is similar to medical payments coverage. It pays your and your passengers’ medical bills. But it also pays for things like lost wages and other nonmedical costs. All auto policies in Texas include PIP coverage. If you don’t want it, you must tell the company in writing. Uninsured/underinsured motorist coverage pays if you’re hit by someone who didn’t have insurance or didn’t have enough to pay your medical and car repair bills. It also pays if you’re in a hit-and-run accident. Insurance companies must offer you this coverage. If you don’t want it, you must tell the company in writing. Towing and labor coverage pays to tow your car if it can’t be driven. It also pays for labor to change a flat tire or jump-start your battery. Rental reimbursement coverage pays for you to rent a car if yours is stolen or being repaired after an accident. Some policies also pay for taxis or ride-hailing services.

Sources #