Most Common Types of Car Insurance and What They Cover

Car Insurance policy with keys

So it’s time to purchase car insurance or change your policy, and you aren’t sure where to start. You first need to understand the types of car insurance available and what coverage each insurance offers. It is essential to carry enough insurance so you and your vehicle are protected but overinsuring yourself can add extra expenses that are not necessary.

Most states require car insurance to drive legally, and each state has its own rules on the legal minimum coverage. You can find out your state’s laws by contacting your local Department of Motor Vehicles for current regulations. You can find your specific state’s Department of Motor vehicles site here.

The Types of Car Insurance 

There are 6 types of auto insurance available, and each one has a specific purpose. While most states require you to carry a minimum amount of liability insurance, you can purchase additional insurance policies for extra protection. Comprehensive car insurance and collision insurance are suitable investments if you own an expensive vehicle, have a loan on your car, or you’re frequently on the road. 

Here is what each type of car insurance covers. Let’s get started:

Liability Insurance (BI/PD)

Liability coverage is a standard component of most auto insurance policies, and most states require a minimum of liability coverage. Liability insurance protects you in two ways. If you cause an accident that injures another person, auto bodily injury liability coverage may help pay for their medical bills. Liability also covers auto property damage by helping to pay for repairs to another person’s property if you damage it with your car.

Liability pay for damages and injuries you cause to others, including:

  • Damage to other cars
  • Damage to property (mailbox, house, street sign, guardrail, etc.)
  • Injuries to other drivers/passengers/pedestrians
  • Lawsuits and attorney/court fees

Liability does not cover your vehicle at any time, regardless of fault:

  • won’t pay to repair your vehicle 
  • injuries that you sustained.

Collision Insurance

Unlike Liability insurance, Collision coverage helps pay for the cost of repairs to your vehicle if hit by another car. It may also help with the cost of repairs if you hit another vehicle or object. That means you can use it whether you’re at fault or not. Unlike some coverages, you don’t select a limit for collision. The most it will pay is based on the actual cash value of your vehicle.

Collision insurance helps pay to repair or replace your vehicle if damaged from:

  • A collision with another vehicle
  • A collision with an object, such as a fence or tree
  • A single-car accident that involves rolling or falling over

Collision insurance does not cover:

  • Damage to your vehicle not related to driving (examples: hail or theft)
  • Damage to another person’s vehicle
  • Medical bills (yours or another person)

Comprehensive Insurance

Comprehensive coverage helps cover the cost of damages to your vehicle when you’re involved in an accident, not caused by a collision. Comprehensive coverage covers losses like theft, vandalism, hail, and hitting an animal. For example, if you are driving and hit a deer, the damage is covered under comprehensive coverage. All that means is that it may cover damages to your vehicle that collision coverage doesn’t. This may include but is not limited to things like:

  • Theft
  • Glass breakage
  • Fire
  • Floods and hail
  • Hitting an animal

Comprehensive coverage does not cover damages caused by hitting another vehicle or object. Many people confuse collision and comprehensive insurance and what they each cover.

Comprehensive coverage applies when:

  • Your car hits a deer
  • Someone steals your vehicle
  • Your vehicle is damaged in a storm

Collision coverage applies when:

  • You swerve to miss a dog and hit a fence
  • Another vehicle hits your vehicle
  • You have a single-car loss with damage to the vehicle

Uninsured/Underinsured Motorist Insurance

Some states require uninsured/underinsured motorist coverage. Suppose you’re in an accident with another vehicle where you aren’t at fault. Once you’re able, you talk with the other car driver, only to find they don’t have liability insurance even though most states require all drivers to purchase it.

If you’re in an accident caused by a driver who doesn’t have liability insurance, uninsured motor vehicle coverage (also known as uninsured motor vehicle insurance) helps pay for:

  • Lost wages
  • Medical expenses
  • Pain and suffering
  • Related damages to your car (if applicable in your state)

Medical Payments Insurance (MedPay)

Medical payments coverage is part of an auto insurance policy. It may help pay your or your passengers’ medical expenses if you’re injured in a car accident, regardless of who caused the accident. This coverage is optional and not available in all states.

If you’re injured in a car accident, medical payments coverage may help pay the following expenses for you or your passengers:

  • Health insurance deductibles and co-pays
  • Doctor or hospital visits
  • Surgery, X-rays, or prostheses
  • Ambulance and emergency medical technician fees
  • Professional nursing services

Personal Injury Protection Insurance (PIP)

Personal injury protection, also known as PIP coverage or no-fault insurance, covers medical expenses regardless of who’s at fault. It can often include lost wages, too. Depending on the state where you live, PIP may be available insurance coverage or a required policy add-on. 

This coverage could help even if you’re not in your car. Say you’re injured by a car while walking or riding your bike, even riding in someone else’s car — depending on the state, there are three main differences between PIP and medical payments coverage:

  1. PIP is available in “no-fault” states. Medical payments coverage is offered in states that aren’t “no-fault.” (Medical payments coverage is only available in states that do not have PIP.)
  2. PIP is sometimes required and sometimes optional, depending on state law. Medical payments insurance is always an optional coverage.
  3. PIP helps cover expenses such as lost wages or child care if you perform certain activities after a car accident. Medical payments insurance does not cover essential services.

Car Insurance Add-ons

There are additional coverage options available that you can add to your policy for additional coverage. These benefits can save money depending on your policy and the coverage you choose. 

  • Rental reimbursement coverage helps you pay for transportation expenses, such as a rental car or public transportation fare, while your vehicle is repaired after a covered insurance claim. It does not apply if your car needs routine maintenance work or if you need to rent a car on vacation
  • Gap insurance is an optional coverage that helps pay off your auto loan if your car is totaled or stolen and you owe more than the car’s current value. Gap insurance may also be called loan/lease gap coverage. This type of coverage is only available if you’re the original loan or leaseholder on a new vehicle. Gap insurance helps pay the gap between the depreciated value of your car and what you still owe on the car.
  • New-Car Replacement Insurance is available on vehicles two years old or newer, and it will replace your car with a comparable new one. 
  • Towing and labor cost coverage is an optional coverage that you can add to your car insurance that typically protects you against some of the costs and hassles associated with common roadside breakdowns like dead batteries or flat tires.
  • Rideshare Insurance is added to your existing insurance policy. If you drive for a ridesharing company (sometimes called a transportation network company or TNC), the extra coverage offered by this endorsement may help fill gaps between the TNC’s commercial policy and your personal auto insurance policy.
  • Sound system insurance covers the cost of replacing stolen or damaged aftermarket parts, equipment, personal electronics, and audio or video equipment not installed by your auto manufacturer.
  • Personal umbrella insurance is meant to help protect you from large and potentially devastating liability claims or judgments. Personal umbrella coverage comes into play when your underlying liability limits (such as from a homeowners or auto insurance policy) are reached.

Conclusion

There are many options for insuring your vehicle, and you must carry the insurance that your state mandates. Uninsured drivers can face hefty fines, license suspension, and possible jail time if they repeatedly drive without insurance. Understanding what policy best suits your personal and financial situation is essential, so you carry enough insurance to cover your vehicle, but the policy has an affordable deductible and monthly payment.

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