From deciphering your state’s insurance requirements to constructing your own car insurance policy, there are many reasons to familiarize yourself with the various types of auto coverage. In this guide, we’ll break down the main components of a car insurance policy to help you make an informed decision and drive with confidence.
Unpacking the Major Coverage Types
1. Liability Coverage
Liability coverage is designed to protect other people and their property in the case that you’re found at fault in an accident. Liability coverage limits are divided into bodily injury and property damage.
- Bodily Injury Liability: Covers medical expenses, lost wages, and pain and suffering for anyone injured in an accident you cause.
- Per person: The total dollar amount that will be covered per person who’s injured in an accident
- Per accident: The total dollar amount that will be covered for the entire accident if more than one person is injured
- Property Damage Liability: Pays for damages to another person’s vehicle or property (like a fence or building) that result from an accident you cause.
Required?: Yes, in most states (except New Hampshire)
2. Collision Coverage
While liability covers others, collision coverage helps repair or replace your vehicle if it’s damaged after colliding with a vehicle or other object (like a tree or a pole), regardless of who is at fault.
Required?: Not required by law, but may be enforced by lenders if you have a car loan or lease
3. Comprehensive Coverage
Comprehensive coverage protects your vehicle against pretty much everything except a collision. This coverage helps pay for damages to your vehicle caused by events outside of a crash. This includes things like:
- Theft
- Vandalism
- Fire
- Falling objects (like tree branches)
- Natural disasters (hail, floods, earthquakes)
- Animal impacts
Required?: Not required by law, but often mandated by lenders (similar to collision)
4. Uninsured/Underinsured Motorist (UM/UIM) Coverage
Uninsured/Underinsured Motorist coverage protects you and your vehicle’s passengers if you’re hit by a driver who doesn’t have sufficient coverage. In that situation, UM/UIM will kick in to pay the remaining costs. Depending on your state, UM and UIM may be combined or sold separately.
Required?: In some states. But with uninsured motorist rates reaching 14%, it’s highly recommended for all drivers.
5. Personal Injury Protection (PIP) / Medical Payments (MedPay)
Personal Injury Protection and Medical Payments help pay for medical expenses for you and your passengers, regardless of who is at fault for an accident. However, there are some differences in what they cover:
- Personal Injury Protection (PIP): More comprehensive, PIP can cover medical bills, lost wages, and even essential services if you’re unable to perform them due to an injury from an accident. PIP is commonly found in “no-fault” states.
- Medical Payments (MedPay): A more basic form of coverage, MedPay primarily covers medical bills resulting from an accident.
Required?: In no-fault states. However, they may be available in some tort states as well.
Optional Coverage Types
In addition to the main types of car insurance coverage, many carriers offer optional add-ons to fit specific needs and lifestyles. However, availability for these additional options varies based on insurer.
- GAP insurance: Covers the difference between your car’s actual cash value and what you owe on a loan/lease if your vehicle is declared a total loss.
- New car replacement: If your new car is totaled, this pays to replace it with a brand-new vehicle of the same make and model, not just its depreciated value.
- Rental car reimbursement: Also known as loss of use, this helps pay for the cost of a rental or courtesy vehicle while your own car is in the shop because of a covered claim.
- Roadside assistance: Provides services like towing, jump-starts, flat tire changes, and fuel delivery when you’re stranded.
- Custom parts and equipment (CPE) coverage: Protects the value of aftermarket parts, custom paint, or other modifications you’ve added to your vehicle.
- Rideshare insurance: Bridges the gap in coverage between your personal policy and the rideshare company’s coverage when you’re working.
Finding Your Perfect Policy
The best car insurance policy for you will depend on a variety of factors, including your budget, the value of your vehicle, your driving habits, and your state’s minimum requirements.
It’s always a good idea to take steps to figure out what policy best fits your lifestyle.
- Assess your needs: How much risk are you comfortable with? What’s the value of your car?
- Understand state laws: Know the minimum liability requirements in your state.
- Shop around: Get quotes from multiple insurance providers to compare coverage and prices.
- Ask questions: Don’t hesitate to ask insurance agents to clarify anything you don’t understand.
By familiarizing yourself with these common types of car insurance coverage, you’ll be well-equipped to navigate the options and choose a policy that provides the protection and peace of mind you need on the road.
