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Types of Car Insurance Coverage Explained

Types of Car Insurance Coverage Explained

Shopping around for a different car insurance provider may not sound like a fun way to spend your day, but it's important that you weigh your options carefully so you choose the right package for your needs.

Last Updated Feb 07, 2024
5 min read
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Of course, finding the right auto insurance can be more complicated than it sounds, but this guide will help you learn about the different types of auto insurance coverage to make a more informed decision about which ones you might need and possibly save you money on car insurance.

Types of Car Insurance Coverage:

Liability Coverage

Liability coverage is one of the most important car insurance types. It covers you if you cause injury to a person or damage to property during an accident. Almost all states require some liability coverage, although Florida only requires property damage liability and personal injury protection (PIP) coverage. PIP coverage will only cover the medical bills for you and anyone in your vehicle, regardless of who is at fault in an accident [1]. (See more about PIP coverage below.)

When purchasing liability coverage, make sure that you know your state's minimum coverage requirements. There are two types of liability insurance to consider: bodily injury liability and property damage liability.

Bodily Injury Liability (BI)

If you're at fault in a car accident, and the other party is injured, your BI insurance will cover their medical bills.

When purchasing insurance, you'll find that your insurance company lists two different BI coverage limits. The limits are usually presented in this format: 25,000/50,000, meaning your insurance will pay up to $25,000 in medical expenses per injured person and up to $50,000 per accident.

Property Damage Liability (PD)

If you're at fault and cause damage to another person's property — a car, house, telephone pole, etc. — your PD coverage will pay to repair or replace the damaged object. This coverage will not pay to repair your car.

Most types of PD insurance come with a single limit. For example, if your coverage limit is $50,000, your auto insurance will pay up to $50,000 in damages.

Collision Insurance

Collision coverage is optional, but one caveat: if you have a car loan, your lender will likely require it. (Even if they don't require it, it's generally a good idea to get it!) Collision coverage will cover up to your vehicle's actual cash value (ACV) in the event of an accident, regardless of who is at fault.

Collision insurance will pay to repair your car up to a certain amount. If the damages exceed the vehicle's value (or, in some cases, exceed a certain percentage of the vehicle's value), your insurance company will declare the car a total loss. Meaning your insurer will pay you the value of your car minus any deductible.

Comprehensive Insurance

If you want your car to be as protected as possible, choose comprehensive and collision coverage ("full coverage"). This optional coverage is like health insurance for your vehicle: it covers non-collision damages such as:

  • Vandalism
  • Fire damage
  • Damage from hail, wind, or other acts of nature
  • Theft
  • Falling objects
  • Hitting an animal

Competing insurers may cover different damages, so it's wise to carefully review policies before choosing. For example, if you live somewhere where wildfires are relatively common, finding a policy that covers fire damage is crucial.

Uninsured / Underinsured Motorist Insurance

Almost every state requires a minimum amount of auto insurance coverage for a reason. However, some drivers don't carry enough insurance or carry no insurance at all. For that reason, many states require (or at least offer) uninsured motorist coverage.

If an uninsured driver hits you, there is no insurance company for your insurer to bill. Your insurance company may be able to sue the motorist for damages, but many people don't have the funds to give you. However, if you have uninsured motorist insurance, your insurer can pay to fix any damages to your vehicle.

Some states may require underinsured motorist insurance as well. This type of insurance covers you if you are in an accident, and the at-fault driver's policy does not cover all your injuries and other damages.

There are four main types of uninsured and underinsured motorist coverage:

  • Uninsured Motorist Bodily Injury (UMBI): For medical expenses caused by uninsured drivers
  • Underinsured Motorist Bodily Injury (UIMBI): Only pays if the cost of injuries is more than the at-fault driver's limits
  • Uninsured Motorist Property Damage (UMPD): For repair expenses caused by uninsured drivers
  • Underinsured Motorist Property Damage (UIMPD): Pays for repairs that are more than the at-fault driver's limits

How much will your uninsured/underinsured motorist insurance pay in the event of an accident? That depends on your policy limit. Most states require you to carry uninsured motorist insurance equal to your liability coverage. So if you have $100,000/$250,000 liability coverage (up to $100,000 for injuries to one person and up to $250,000 per accident), your uninsured motorist coverage would also need to be $100,000/$250,000.

This might sound like a lot of extra coverage, but it often doesn't add much to your insurance payments.

Medical Payments Coverage

A few states require you to have this coverage. It's sometimes referred to as MedPay or MPC. Medical payments coverage will pay for medical bills for you and your passengers, even if you're at fault in a car accident. This coverage may only be available in some places, but it's worth looking into if it's available where you are.

MedPay coverage typically has a limit of between $1,000 and $10,000 per person [3]. Before purchasing a policy, look closely at the terms — some policies will also cover medical bills if another car hits you while you're on foot.

Personal Injury Protection Insurance (PIP)

PIP insurance differs from liability insurance, as it covers bodily injuries to you and anyone in your vehicle, regardless of whether you're at fault in an accident. PIP insurance will not cover medical expenses for the other party. Depending on your state, PIP insurance may or may not be required.

However, some states are "no-fault states," meaning that your insurance company will reimburse you for medical costs and other expenses regardless of whether you were at fault for an accident. If you live in a no-fault state, PIP coverage is required by state law.

PIP insurance generally costs about $50–$200 per month [4]. The cost for PIP insurance varies depending on state minimums, age, driving history, and other factors.

Man calling roadside assistance

Towing and Roadside Assistance

Car insurance companies typically provide two separate coverages for when your vehicle needs emergency services:

  1. Towing & Labor Insurance
  2. Roadside Assistance

Towing & Labor Insurance

Towing & Labor is an optional coverage for drivers who have comprehensive auto coverage. Similar to Roadside Assistance, this policy covers any towing & labor costs for when the insured vehicle is disabled. The insurance company typically reimburses the driver up to a certain dollar amount for when a tow and any associated labor costs are needed.

Roadside Assistance

Roadside Assistance is another optional coverage for when a vehicle is disabled. 

The difference between the two policies is that Roadside Assistance is more comprehensive in coverage. It can be applied to any vehicle the policyholder or their family is riding in, not just the vehicle on the policy. 

Depending on the company’s policies, roadside assistance often covers towing, dead batteries, lockouts, no fuel, flat tire assistance, and more.

It's important to consider that some other companies (like AAA) also offer roadside assistance services. 

It's worth comparing the price of a towing and labor insurance policy to the cost of a membership with AAA or a similar organization.

Personal Umbrella Insurance

Many people believe that "umbrella insurance" is a stand-alone policy with greater liability limits and other coverage than most car insurance policies.

However, you can't purchase a personal umbrella policy (PUP) alone. Instead, it's an add-on policy. Personal umbrella insurance comes into play when the limits of your other policies have been reached.

For example, let's say that you injure someone in a car accident. Your policy's limit is $25,000, but the injured person's medical bills exceed that amount. You will likely pay that amount out of pocket without additional coverage.

However, you're covered if your umbrella insurance covers up to $250,000. Once your baseline policy's limits have been exhausted, your umbrella policy can pay the rest of the medical bills.

In many cases, you won't need to use umbrella insurance, but if you're faced with a high-dollar lawsuit or claim, it can be essential to avoid financial ruin.

Gap Insurance

Having gap coverage can save you from a hefty bill if your vehicle is totaled and you owe more than it's worth.

For example, let's say you're financing a new car. You currently owe $15,000 on the loan, but your car's value has depreciated over time, and its actual cash value is $13,000.

If you were to total the car, your insurance company would only pay you the car's actual cash value. You would still owe $2,000 on your loan. However, if you have gap insurance, this coverage will pay that additional $2,000, so you don't have to pay it out of pocket.

Car Rental Reimbursement Insurance

If your car requires repairs after an accident, the repairs can take some time. While waiting for the repairs, you still need a car to get around.

That's where rental reimbursement insurance comes in. If you have this coverage, your insurance company will reimburse you for rental car expenses up to a certain dollar amount per day. Car rentals can be expensive (especially if your car repairs take longer than usual), so rental car reimbursement insurance can save you a fair amount of money.

Classic Car Insurance

If you want to insure a classic car, car insurance works differently. Unlike most cars, classic cars (as long as they're in good condition) tend to appreciate value. Regular car insurance limits are only sometimes enough to cover the total value of a classic car.

However, most insurers have relatively stringent requirements for classic car insurance. Here are some standard requirements:

  • You Can't Use the Classic Car as a Daily Driver: Everyone in your household needs to have a separate vehicle for daily use, and you also need to have a regular auto insurance policy for each daily-use vehicle.
  • The Car Needs to Be Safely Stored: You can't just park it in your driveway — the car must be in a garage, barn, or storage unit.
  • You Must Be a Safe Driver: If you have a reckless driving or alcohol-related infraction from the last three years, you probably can't get classic car insurance.

There's a lot of variation in classic car insurance regarding requirements and coverage, so it's worth talking to multiple insurance agents and getting a few quotes before committing to a given policy.

Which Type of Insurance Coverage Is Required by Law?

What is the minimum insurance coverage by law? The answer to this question depends on where you live. Most states require liability coverage at a minimum. Collision, comprehensive, and other types of coverage are generally optional.

However, New Hampshire does not require any insurance, but the state has a way to ensure damages can be paid in the event of an accident. If you choose not to buy auto insurance, you must demonstrate to the state that you have the financial means to pay for damages if you cause an accident [5].

Virginia also has somewhat unusual laws when it comes to car insurance. Insurance is required unless you opt out. If you choose to opt-out, you must pay an annual uninsured motorist fee of $500 [6]. This fee doesn't give you any coverage — if you cause damages, you're still responsible for paying.

As mentioned earlier, Florida's car insurance laws also have slightly different requirements. Instead of bodily injury insurance, you need to carry personal injury protection insurance and property damage liability insurance.

Before purchasing a policy, make sure that it at least meets your state's minimum requirements. A quick online search can show you what your state requires, but it doesn't hurt to double-check with an insurance agent.

Should I Choose a High or Low Deductible?

Choosing between a high or low deductible usually comes down to a question of personal preference.

If you choose a high deductible policy, you'll need to pay more out of pocket in the event of an accident. This may be inconvenient or even financially stressful, depending on your financial situation. However, there is an advantage — because you pay more if you file a claim, you'll have a lower monthly premium.

On the other hand, low-deductible plans mean you pay much less in the event of a claim — but because you pay less, your monthly premium will be higher.

RELATED: How Increasing Your Deductible Can Save You Money on Car Insurance

How Much Insurance Coverage Is Right for Me?

Deciding on your deductible is an important part of selecting a car insurance policy, but so is deciding on the coverage you need. Here are some tips to help you make an informed decision:

  • Be Mindful of State Minimums: Make sure you get at least the minimum — in many cases, it's wise to purchase more than this to protect you against major claims.
  • Take Car Loans Into Account: If you're financing your car, your lender will likely require collision and comprehensive insurance. 
  • Consider Different Scenarios: Can you afford to pay the deductible upfront if you get into an accident with a high-deductible plan?
  • Take Risk Tolerance Into Account: High-deductible policies are higher risk, as you benefit from a lower premium but run the risk of a significant out-of-pocket payment in case of a claim or accident.
  • Consider Your Driving Record: If you have gotten into multiple accidents and think you may get into more, a low-deductible plan is wise, as it will cover more in the event of a claim.
  • Do the Math: Compare how much you'd save with lower premiums to the deductible you would pay if you get into an accident.
  • Consider the Value of Your Car: If your car is very valuable, more coverage is wise. Regarding comprehensive vs. liability insurance, many people choose comprehensive coverage for high-value vehicles and liability-only coverage for low-value cars [7].

Weighing these factors can take some time and thought, so giving yourself some space is essential. If possible, don't rush into buying insurance. Start looking before you have to purchase a policy.

Find the Right Car Insurance for You

As you can see, there's no easy answer when deciding what type(s) of car insurance you need. A careful look at your safe driving habits, your risk tolerance, and your car's value can be an excellent place to start.

Understanding car insurance can be challenging, but you don't have to make this decision alone. A car insurance agent will be able to go over your options with you and help you decide what amount of coverage best suits your needs. You can also find answers to many questions you may have on the websites of leading insurers. When you choose the best insurance for your situation, you'll enjoy peace of mind for a fair price.

Disclaimer:

SteadyDrive is not an insurer or an insurance agent or broker. SteadyDrive does not provide you with an insurance policy, so make sure that you have insurance coverage while you drive. Please contact your insurer or an insurance agent or broker (if applicable) directly regarding questions you may have pertaining to auto insurance coverage. For more details, see SteadyDrive’s Terms of Service.

Sources:

[1] Car insurance requirements by state. Progressive.

[2] What Is Uninsured Motorist Coverage. Forbes.

[3] Common types of car insurance coverage. Bankrate.

[4] . What Is the Difference Between PIP and Liability Coverage. Experian.

[5] 2022 Automobile Insurance Consumer. New Hampshire Insurance Department.

[6] Insurance Requirements. Virginia DMV.

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