Auto insurance guide

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Auto insurance protects you financially by paying the other driver’s car repair and medical bills if you cause an accident. Depending on the kind of coverage you have, it can also pay to repair or replace your car if it’s damaged or stolen.

Texas has a Consumer Bill of Rights for auto insurance. Your insurance company will give you a copy of the bill of rights when you get or renew a policy.

Is auto insurance required?

Texas law requires drivers to show proof they can pay for the accidents they cause. Most drivers do this by buying auto liability insurance. Liability insurance pays to repair or replace the other driver’s car, or other damaged property, and pays other people’s medical expenses when you’re at fault in an accident.

If you still owe money on your car, your lender will require you to have collision and comprehensive coverage.

Learn more: 10 steps to find the right auto insurance | Watch: What kind of auto insurance do you need?

In this guide:

Types of auto coverages

There are eight basic auto insurance coverages. You can choose whether to buy the others.

Think about buying more liability coverage. The minimum liability limits might be too low if you cause a multi-vehicle accident or the other driver’s car is totaled. If you don’t 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. The other driver could sue you.

Learn more: Do you need extra uninsured motorist coverage? | Watch: What are the different types of car insurance coverages?

Who’s covered?

Most policies cover you, your family, and people driving your car with your permission. Ask your agent or read your policy to know who your policy covers and if anyone is excluded from coverage.

What does my policy cover?

Coverages vary by policy and depend on the types of coverages you choose. This table shows some of the things most policies do and don’t cover. Read your policy or talk to your agent to be sure of your exact coverages.

What happens if I buy a new car? Is it covered?

If you get a new car, your current insurance will automatically cover it for about 20 days. The type of coverage depends on whether the car is an additional or replacement car.

Tell your company about a new car as soon as you can to avoid a lapse in coverage.

Am I covered if I’m driving someone else’s car?

Rental cars. Rental agencies offer damage waivers and liability policies. The damage waiver isn’t insurance. It’s an agreement that the rental agency won’t charge you for damage to a car you rent.

You might not need the rental agency’s liability policy. Your own auto policy will usually cover you while you’re driving a rental car for personal use. Ask your agent if your policy covers you if you’re driving the rental car for work.

Before you rent a car, ask your agent whether you need the rental agency’s liability policy and damage waiver.

Learn more: Do I need to buy insurance when I rent a car?

Borrowed cars. If you cause an accident while driving a borrowed car, the car owner’s insurance pays the claim. If the owner doesn’t have insurance - or doesn’t have enough to pay for the damages and injuries you caused - your insurance will pay.

If you don’t own a car, but borrow a car often, you can buy a nonowner liability policy that pays for damages and injuries you cause to other people while driving a borrowed car. It doesn’t pay for your injuries or damage to the car you’re driving.

If you borrow a car from a repair shop, your liability insurance will pay for damages to the car. It will also pay for other people’s injuries and damages if you're at fault in an accident. Check your liability limits to make sure they're enough to pay for the damages.

I’m driving into Mexico, am I covered?

Mexico doesn’t recognize American auto policies. Some companies offer endorsements for short trips into Mexico, but the coverage might not meet Mexico’s legal requirements. If you’re driving into Mexico, you should buy a Mexican liability insurance policy. Some Texas agents sell them. Your agent might be able to help you find an agent who does.

Deductibles and dollar limits

You must pay a deductible for collision, comprehensive, and uninsured/underinsured motorist claims. A deductible is the amount of a claim that you must pay yourself. For instance, if you have a $1,500 collision claim and your policy has a $500 collision deductible, the insurance company will deduct $500 from your claim amount and pay you $1,000. You don’t have to pay a deductible for claims against another driver’s insurance company.

Learn more: What to know about deductibles

Liability, personal injury protection, uninsured/underinsured motorist, towing and labor, and rental coverages have dollar limits. This is the most the company will pay, even if the cost is higher. If you don’t have enough coverage, you’ll have to pay the difference yourself. Collision and comprehensive coverages don’t have dollar limits.

The first page of your policy is the declaration page. It has a summary of your policy, including your coverages, dollar limits, and deductibles.

Learn more: Shopping for auto insurance worksheet

Auto insurance for young drivers

You have two options for covering your young drivers. You can add them to your policy, or you can buy a separate policy for them. Adding them to your policy is usually cheaper.

Some companies require you to put everyone who lives with you and is of driving age on your policy. Tell your company when someone in your family starts to drive or turns 16. If you don’t tell the company, and the company learns about them later, the company will bill you for the extra premium you should have paid. The company also might deny any claims you have or choose to not renew your policy.

If a teenager is the main driver of a car, the company will base the premium on that car. Otherwise, the company will base the teen’s premium on the car in the family with the highest rate.

Watch: Teen driving safety

Children away at school or not living with you

Some companies require you to keep young drivers on your policy, even if they’re away at school. Tell your insurance company if you have a child living in another city for school. If your child has a car, the company might charge you differently because rates are based on where a car is usually located. If your child doesn’t have a car, you might be able to get a discount on your premium. If your child is going to school in another state, check the laws in that state to make sure you have enough liability coverage.

Understanding premiums

Texas law requires insurance companies to charge rates that are fair, reasonable, and adequate for the risks they cover. We don’t approve rates in advance, but if we find that an insurance company’s rates are too high, we can require it to pay refunds to the people it overcharged. Insurance companies may appeal our decisions.

How do companies decide what to charge me?

Insurance companies use a process called underwriting to decide whether to sell you a policy and how much to charge you. The amount you pay for insurance is called a premium.

Most companies consider these things when deciding your auto insurance premium:

Learn more: Know how auto and homeowners insurance costs are calculated | How your credit score can affect your insurance rates

Most companies use the Comprehensive Loss Underwriting Exchange (CLUE) to learn your claims history. A company can charge you more or refuse to sell you a policy based on the information in your CLUE report. You can get a free copy of your report each year. Call LexisNexis at 866-312-8076.

Learn more: How to get a CLUE about your claims history

Your rights

An insurance company may not:

Saving money on your insurance 

Discounts help lower your premium. Each company decides what discounts to offer and the amount of the discount. You might be able to get a discount if you have:

Learn more: How you drive could save you money on car insurance | Watch: How to compare car insurance rates

Losing your insurance

If you ask, a company must tell you in writing why it turned you down, canceled, or didn’t renew your policy. You may complain to us if you think a company improperly denied, canceled, or nonrenewed your policy.

What happens if a company cancels my policy or doesn’t renew it?

Cancellation means either you or the insurance company stops coverage before your policy’s end date. A company must give you 10 days’ notice before it cancels your policy. A company may cancel your policy in the first 60 days for any reason, unless the cancellation violates a law.

An insurance company may cancel your policy at any time if:

If either you or the company cancels your policy, the company must refund any unearned premium to you within 15 days after the date of the cancellation. Unearned premium is the amount you paid in advance that didn’t go toward coverage. For instance, say your premium is $100 a month and you paid for six months in advance. If you cancel your policy after one month, the company would owe you $500 in unearned premium.

Nonrenewal means a company refuses to renew your policy when it expires.

A company must tell you in writing why it isn’t renewing your policy. It must give you 60 days’ notice of a nonrenewal if you bought or renewed your policy in 2024. If you bought or renewed your policy in 2023 or earlier, it must give you 30 days’ notice.

A company can nonrenew your policy only after it’s been in effect for 12 months. This means that if you bought a six-month policy, the company can’t refuse to renew it when the first six months ends. It must renew it to give you a full 12 months of coverage.

A company can’t refuse to renew your policy because of your age. It also can’t nonrenew your policy because you had claims for:

If you get a nonrenewal or cancellation notice, start shopping for new insurance right away. Make sure you get a new policy before your old policy ends so you won’t have a lapse in your liability coverage.

If you still owe money on your car, your lender will require you to have collision and comprehensive coverages. If you cancel or lose these coverages, your lender will buy single-interest coverage and add the cost to your loan payment. This coverage is expensive and protects only the lender.

What if I can’t find a company that will sell me a policy?

If you can’t find a company willing to sell you a policy, you can get basic coverage through the Texas Automobile Insurance Plan Association (TAIPA). You can get TAIPA coverage if two insurance companies have turned you down.

TAIPA sells liability, personal injury protection, and uninsured/underinsured motorist coverages. It doesn’t sell collision or comprehensive coverage or higher liability limits than state law requires.

TAIPA coverage is more expensive than coverage from other insurance companies. TAIPA also charges more if you’ve had tickets or accidents than other companies.

If you have TAIPA coverage and haven’t had any tickets or accidents for a year, your rates might go down. If you don’t have any tickets or accidents for three years, your insurance company must offer you a cheaper policy outside of TAIPA.

To get TAIPA coverage, talk to your agent.

Auto claims

To help make the claim process go smoothly, follow these tips:

Learn more: Will my premium go up if I file a claim? | Watch: 5 Tips To Avoid Scams After A Wreck

After I file my claim, what happens?

Texas law sets deadlines for insurance companies to act after you file a claim. A company must:

The prompt payment law doesn’t apply if another driver’s insurance company is paying the claim. But the company must act in good faith and try to settle your claim quickly and fairly.

Learn more: Working with an insurance adjuster  | Watch: Protect yourself from becoming a victim after the accident

Settling claims

Repair claims

Insurance companies will pay for repairs or replacement of your car only up to its actual cash value. Actual cash value is the cost to replace your car, minus depreciation. Depreciation is a decrease in value because of wear and tear or age.

Some companies might give you a list of preferred repair shops, but they can’t require you to use a shop on its list.

The insurance company is only required to pay for parts of like kind and quality to those that were damaged. It doesn’t have to pay for original parts from the manufacturer.

Learn more: Were you in a wreck? Tips for auto insurance claims

What if the other driver’s insurance company refuses to pay my claim?

If you believe the other driver was at fault, but his or her insurance company won’t pay your claim, file a claim with your own insurance company. You must have collision coverage to do this. Your insurance company will probably try to collect from the other driver’s company.

Be aware that if you file a claim with your own company, you’ll have to pay a deductible.

Learn more: Accident not your fault? Here's how to deal with the other driver's insurance.

What if the other driver’s limits aren’t high enough to pay my bills?

If the other driver’s policy limits aren’t high enough to pay for all your car repairs, file a claim with your insurance company. Your collision or uninsured/underinsured motorist coverage should pay the difference. If you file a claim with your insurance company, you’ll have to pay a deductible.

If the other driver’s limits aren’t enough to cover all your medical bills, file a claim with your auto insurance company or your health insurance company. Your auto insurance company will use either your PIP coverage, medical payments coverage, or your uninsured/underinsured motorist coverage to pay the difference. You might have to pay a deductible.

What if the insurance company totals my car?

If the cost to repair your car is close to its current value, the company might decide to total it. This means the company will pay you to replace your car rather than fix it.

If the company totals your car, it will pay your car’s value minus depreciation. Depreciation is a decrease in value because of wear and tear or age. For instance, if your car is 10 years old, the company will pay you the value of a 10-year-old used car. It won’t pay to replace your car with a new car that’s the same make and model as your totaled car.

Be prepared to negotiate with the company to get what you think is a fair deal. A company might raise its offer if you can show that your car would sell for a higher price. Get written price quotes for a similar car from used car dealers. You can also look in the classified section of your local newspaper for used car prices.

If you still owe money on your car, the amount the company will pay you if it totals your car might not be enough to pay off your loan. This will happen if the market value of your car is less than what you owe. Auto dealers and lenders usually offer guaranteed auto protection, or gap, insurance for this.

Learn more: Do I need gap insurance for my new car?

If you want to keep your car, the insurance company will subtract its salvage value from the settlement amount. If your car is issued a nonrepairable title, it can’t be retitled or registered.

Learn more: My car was totaled! Now what? | Watch: What happens if your car is totaled?

Will the insurance company pay for a rental car?

If your accident was caused by another driver, the other driver’s insurance company will pay for you to rent a car. You can keep the rental car for the time the company believes is reasonable for your car to be repaired. The company will base the amount of time on the estimated number of hours of labor. Be sure to let the adjuster know about any delays in getting your car fixed. The company might extend the rental if there are delays because the repair shop had to order parts or found more damage.

If the company totals your car, it might stop paying for the rental a few days after telling you.

Your insurance company will pay for a rental car if:

Your insurance company will pay for a rental car only for the time it believes is reasonable to repair or replace your car. It will pay a set amount each day and only up to your policy’s rental coverage dollar limits.

Medical claims

If you were injured in an accident caused by another driver, the other driver’s insurance company will offer you a settlement to cover your medical bills related to the accident. The company will also ask you to sign a release promising that you won’t file more claims for the accident. Before you sign the release, talk to your doctor about any future medical treatment you might need. Consider this information to decide whether the company’s settlement offer is fair.

Resolving problems

If you disagree with the adjuster’s estimate or the amount the company is offering to pay you, tell the insurance company why. You might be able to work things out by talking with the company or the adjuster. If that doesn’t resolve the issue, here are your options:

Learn more: What if my insurance isn't paying enough?

Questions? Call us at 800-252-3439.