Auto insurance, explained

Last Updated: 7/21/26

Auto insurance is one of those things that feels complicated until someone actually breaks it down. So let's do that. Whether you're getting coverage for the first time or just want to make sure you understand what you're paying for, here's what you need to know.

What is auto insurance?

Auto insurance is a contract between you and your insurer. In exchange for your premium, your insurer agrees to help cover financial losses from accidents, theft, weather damage, and other covered events—up to the limits you've chosen.

Most states require at least some form of auto liability coverage. Beyond the legal minimum, the right amount of coverage depends on your situation, your finances, and how much risk you're comfortable carrying.

What's actually in an auto insurance policy?

Auto insurance is made up of a few distinct coverage types. Here's a plain-language breakdown of each.

Liability

Liability coverage has two components: bodily injury (BI) and property damage (PD). Both apply when you're found at fault in an accident.

Bodily injury liability helps cover medical and legal costs if someone else is injured. Property damage liability helps cover repair or replacement costs if you damage someone else's vehicle or property.

Liability coverage is required in nearly every state, and it's one of the most important protections you can carry.

Uninsured/underinsured motorist (UM/UIM)

If you're in an accident caused by a driver who has no insurance—or not enough—UM/UIM coverage steps in for you. It's a meaningful distinction from liability: liability protects others when you're at fault; UM/UIM protects you when someone else is.

Personal injury protection (PIP)

Personal injury protection helps cover medical costs for you and your passengers after an accident, regardless of who was at fault. Depending on the policy and state, it can also help with lost wages and other related expenses.

PIP isn't available in every state. If you live in a state without it, ask your insurer about medical payments (MedPay) coverage as an alternative.

Physical damage: collision and comprehensive

These two coverages work together to protect your vehicle itself.

Collision covers damage to your car when it's involved in an accident—whether you hit another vehicle, a barrier, or anything else your car had an active role in.

Comprehensive covers damage that happens when your car is just sitting there—hail, falling trees, theft, vandalism, and similar events outside your control. If something damages your car and it wasn't a collision, it's likely a comprehensive claim.

A note on how coverages can overlap

In a real accident, it's common for more than one type of coverage to come into play at once. Say you're in a collision and both you and the other driver are injured, your car is damaged, and so is the other person's property. Depending on fault and your policy, you could be drawing on liability, collision, and PIP coverage—sometimes simultaneously. That's worth understanding before you're in the middle of a claim.

Who is covered by your policy?

Generally, your auto policy covers you, your spouse, and any resident relative who drives your vehicle with your permission. In most cases, you'll also have coverage when driving someone else's car with their permission. Review your policy to understand exactly who's covered and under what circumstances.

How do deductibles work?

Your deductible is the amount you agree to pay out of pocket before your insurance kicks in on a claim. Higher deductibles typically mean lower premiums—and vice versa.

Choosing the right deductible is about honest self-assessment. Think about how much you could realistically pay out of pocket in the event of a claim, and set your deductible accordingly. If a $1,000 deductible would be a real hardship, a lower one might be worth the slightly higher premium.

Do you actually need auto insurance?

In almost every case, yes. Nearly all states require it by law. The two states that don't mandate traditional auto insurance—Virginia and New Hampshire—still hold drivers fully financially responsible for any damages or injuries they cause. Without coverage, you'd be paying out of pocket for repairs, medical bills, and potential legal costs.

If you're leasing a vehicle, your lease agreement will likely require specific coverage types and limits. You generally have the freedom to choose your insurer, but the coverage minimums are set by the lender.

How to choose the right coverage

There's no universal answer here. The right policy depends on your vehicle, your driving habits, your financial situation, and your risk tolerance.

A few things worth thinking through:

• How long and busy is your commute?
• What kind of weather do you drive in?
• Could you comfortably cover a large out-of-pocket expense if something happened?
• Have your needs changed recently—new car, added driver, teen behind the wheel?

If you're not sure where to start, we can help. At Branch, we can get your quote going with just a name and address.

Not available in every state. Coverage and discounts may vary. Subject to eligibility requirements. Insurance is underwritten by the Branch Insurance Exchange or an unaffiliated insurance carrier through Branch Financial, Inc., a licensed insurance agency. See branch.com for more details.