What each car insurance coverage actually pays for after a crash

After one crash the money arrives from several places at once, and it arrives to several different people. Some of it goes to the other driver. Some goes to a hospital, some to a lender you have never spoken to, some straight to the body shop without touching your account. And some of the loss is paid by nobody at all — the part that never comes up when the policy is sold.

What is sold is a list of coverages with names. The names describe an event — a collision, a theft, a driver with no insurance — and say almost nothing about who ends up holding the cheque. So put all of them on the same page and ask each one the same questions, in the order they matter on the day.

Whose loss does it pay?

Liability is the only part of the policy written for somebody other than you. The Texas Department of Insurance describes it as paying to repair the other driver’s car when you caused the accident, and paying that driver’s and the passengers’ medical bills. California splits it in two and keeps the grammar honest in both halves: bodily injury liability pays for bodily injury you cause someone else, property damage liability for property damage you cause someone else.

There is a second beneficiary, and it is easy to miss. The NAIC’s consumer guide adds, in the same breath as the definition, that liability insurance will also pay the cost of an attorney to protect you if you are sued — so the coverage written for the other side also pays for your defence.

Spain’s insurance contract law puts it as a definition: liability cover obliges the insurer to cover the risk that the insured incurs an obligation to indemnify a third party, within the limits set by law and by the contract. The same law then goes further than a United States policy does, giving the injured party and their heirs a direct action against the insurer to demand performance of that obligation, without prejudice to the insurer’s right to recover from its insured. The third party is not merely the person the money reaches; they can go and get it.

Collision and comprehensive answer the question the other way. Both pay your loss on your car. California defines collision as damage from physical contact with another vehicle or an object such as a tree, a guardrail or a building, and comprehensive as damage from something other than a collision — fire, theft, vandalism, windstorm, flood, a falling object. The NAIC adds a pothole and flipping the car over to the first, hail and hitting an animal to the second.

Medical payments and personal injury protection pay for your body and your passengers’ bodies. Texas draws the line between them better than most: medical payments covers your and your passengers’ medical bills and follows you into someone else’s car; personal injury protection does the same and also pays for things like lost wages. Washington State’s insurance commissioner itemises its version as medical and hospital costs, income continuation, funeral expenses and loss of services.

Gap cover is the odd one, because the loss it pays is not really yours. Washington describes it as paying, on a total loss, the difference between the car’s current market value and the amount still owed to the lender — a shortfall that is the lender’s problem until the moment it becomes yours.

Rental reimbursement and towing pay you for the use of a thing you no longer have. Texas describes towing and labour cover as paying to tow a car that cannot be driven and to change a flat or jump-start a battery. Washington calls the rental line car rental expense and attaches a warning rather than a limit: check your policy for any limitations. For a business the edge is sharper, because the loss is not the vehicle but the work it was doing, and a hire car replaces only the first.

Does a deductible come off?

Here the regulators stop agreeing, and the disagreement is worth more than a tidy answer. California says flatly that only comprehensive and collision coverage have deductibles. Texas says you must pay a deductible for collision, comprehensive and uninsured or underinsured motorist claims. The NAIC puts the deductible for uninsured and underinsured motorist coverage on its list of questions to ask before buying — a question with no purpose if the answer were always none.

They are describing different markets rather than contradicting each other, and the conclusion is structural: a deductible is not a property of a coverage type you can look up. It is a line on your own policy, and whether one comes off the claim you are most likely to make is a fact about your document rather than about the category.

What a deductible is does not vary. The NAIC calls it the amount you pay out of pocket on a claim before the policy pays the loss; California, more austerely, the amount of loss which the insured is responsible to pay. Liability carries none, because you are not the person being paid. And the NAIC draws the consequence: if a repair costs little more than the deductible, paying it yourself instead of claiming is a live option.

California also describes a coverage whose entire job is to pay a deductible: its collision deductible waiver pays your collision deductible when your insured vehicle is damaged by an uninsured driver who was at fault. The ordinary arithmetic — your cover pays, minus your money — is indefensible when the reason you are using your own cover is that somebody else had none.

Who chose the ceiling — you, or a legislature?

Every coverage stops somewhere, and the stops come from different places.

Some you chose. Liability limits, the medical payments limit, the daily rental amount and the days it runs were numbers on a form you signed. They are ceilings and not estimates, and both departments say so without softening it. California: the insurance company will not pay any costs above the limits. Texas finishes the sentence properly — if you do not have enough liability coverage to pay for the damages and injuries you cause, you might have to pay the rest out of your own pocket.

Some were chosen for you. The minimum liability limits for your jurisdiction are in the data below, and they are the one ceiling on this page set by people who have never met you or your car. California’s guide shows what that looks like inside a single coverage: its uninsured motorist property damage line is printed with the limit already filled in, a figure in the guide rather than a choice on a menu.

And one ceiling is chosen by neither of you. Collision and comprehensive, California says, provide compensation based on the market value of your car. The United Kingdom’s Financial Ombudsman Service states the same rule from the complaints end — a written-off vehicle is usually paid out at its market value, the amount it would have been worth just before it was stolen or damaged — and names the narrow exception, the agreed-value policy used for valuable or classic vehicles.

Spain’s contract law gives that practice a reason instead of a procedure. Insurance cannot be a source of unjust enrichment for the insured, it says, and the damage is measured by the value of the insured interest in the moment immediately before the loss. The sum insured, the next article adds, is the maximum indemnity payable in each loss. That is the whole architecture: not what the thing cost you, not what replacing it costs today, but what it was worth the second before, capped.

Does it survive the other driver having nothing?

This is the question that separates coverages which look interchangeable on a quote. Liability does not survive it, because liability was never for you. It is the other driver’s liability cover that fails, and the NAIC names the ways it does: the driver has no insurance, the driver does not have enough to pay for your loss, or the driver leaves. Uninsured motorist cover reimburses you when an uninsured or hit-and-run driver hits you; underinsured motorist cover pays when an at-fault driver does not have enough insurance to fully pay for your loss.

Whether uninsured motorist cover is compulsory where you live, or merely something an insurer must offer before you can decline it, is in the data below. Texas describes the version it enforces: companies must offer the coverage, and a customer who does not want it has to say so in writing.

Collision survives the same event from a different direction, and this is the part worth knowing before you need it. It pays for damage to your car with no clause about who caused it, which makes it the line that still works when the other driver is unidentified. Medical payments works the same way; California says it can pay for immediate medical care no matter who is at fault. But the NAIC records the asymmetry that catches people out even where their own insurer handles injuries regardless of fault: the damage to the vehicle is still claimed from the at-fault driver’s insurer.

Where the money does not reach

Put the answers side by side and the spaces between them are easier to see than any coverage is.

The first space is the excess above a limit — not a defect, but the policy working exactly as the sum insured describes it. Spanish law calls that sum the maximum indemnity per loss; Texas says where the rest goes, which is your own pocket.

The second the NAIC states in a sentence that ought to be printed on every loan agreement: auto insurance does not cover paying off your loan if your car is damaged and its market value is less than what you owe. Two industries measure the same car on different days by different rules, and the difference belongs to whoever signed for the money.

The third is time. Repairs take as long as the parts take, and nothing on the page pays for the day a shop spends waiting for a panel; rental reimbursement runs for the days the policy says and stops. Near it sits the ordinary property nobody thinks about until it is in pieces — the NAIC notes that most auto policies do not cover equipment that is not permanently installed in the car, and puts cell phones and navigation systems among the examples.

Every one of those spaces is visible before the crash, on a document you already own, in a font nobody reads. Afterwards they are not spaces any more. They are the argument.