Common types of car insurance coverages
Almost all drivers in the United States are required by law to have auto insurance. Following an accident, car insurance can protect you from financial ruin, pay for vehicle repairs, and cover medical expenses.
Understanding the basic types of coverage can be beneficial if you have never purchased car insurance before. A single car insurance policy includes several types of coverage, all of which must be understood. Fortunately, car insurance is not as complicated as it may appear.
When you buy a policy, you will choose the coverages you want and the amount of coverage you want for each type. However, your state will almost certainly have legal requirements for the minimum amount of coverage you must have, which means you will be unable to purchase any amount less than the minimum required coverage limits.
The insurance editorial team at StrongInsurance is here to help you understand the most common types of auto insurance coverage. Following our discussion of coverage types, we will assist you in determining how to find the best car insurance coverage for your specific needs.
The most common types of car insurance
Car insurance companies typically provide a variety of basic coverage options, as well as optional endorsements that can increase your protection. The following are the most common types of standard and optional coverages:
- Bodily injury liability
- Property damage liability
- Uninsured and underinsured motorist coverage
- Collision
- Comprehensive
- Uninsured motorist property damage (UMPD)
- Medical payments coverage (MPC)
- Personal injury protection (PIP)
- Gap insurance
- New car replacement
- Roadside assistance coverage
- Rental car coverage
Liability insurance
To be liable means to be legally accountable for something. In the context of car insurance, liability refers to the damages and injuries you cause in the event of a car accident. On auto insurance policies, there are two types of liability coverage: bodily injury and property damage.
Bodily injury liability
If you are at fault in an accident, your bodily injury liability coverage will pay for the other party's injuries, including medical bills, lost wages, and pain and suffering. As long as they have permission, anyone driving your car is covered. For example, if you rear-end another vehicle and the driver suffers a broken leg, your bodily injury liability coverage would cover the cost of x-rays, surgery, and lost time from work. Most states have a minimum amount of bodily injury liability that you must carry.
Property damage liability
Property damage liability is intended to cover any damage to another person's property as a result of an accident. Property damage typically refers to a vehicle that you hit, but it can also refer to fences, buildings, mailboxes, or lamp posts. This is the coverage that would be used to pay for damages if you accidentally hit a pole or ran into your neighbor's mailbox.
Damage to your property is not covered by property damage liability. To cover your own vehicle, you'll need comprehensive and collision coverage, and to cover personal property inside your vehicle, such as a laptop or household contents, you'll need a homeowners, renters, or condo owners policy, though some insurers may offer a small limit of personal property coverage for items in your car. Most states also require you to purchase a certain amount of property damage liability coverage.
Uninsured and underinsured motorist coverage
This coverage pays for your medical expenses if another driver hits you but does not have liability insurance or does not have enough liability insurance to cover your injuries. This type of insurance pays for damages if you, another covered driver on your policy, or someone you have allowed to borrow your car is hit by an underinsured or uninsured motorist. Uninsured and underinsured motorist coverage is analogous to purchasing a liability policy to protect yourself against uninsured drivers. It functions similarly to liability coverage, but it is intended to pay for your own damages.
Uninsured and underinsured motorist coverage can also protect you if you are a pedestrian or a victim of a hit-and-run in which the at-fault driver flees the scene and cannot be identified. Depending on where you live, uninsured and underinsured motorist coverage may be optional or required.
Vehicle coverage
In addition to the required liability insurance, you may want to think about additional coverage types for your vehicle, particularly if it is newer or more valuable. Although not required by law, if you have a loan or lease on your vehicle, your lender will most likely require it. Speaking with an agent and obtaining a quote for collision and comprehensive coverage may assist you in determining whether the additional coverage is worth the cost to you.
Collision
When your car is damaged in a collision, this is the coverage that pays for the repairs. Collision coverage will pay for damage to your vehicle if you collide with another vehicle, a pole, a tree, or even a pothole. However, if you were not at fault for an accident that resulted in car damage, the at-fault driver's property damage liability coverage should cover your repairs. Collision coverage, on the other hand, only applies to your vehicle and does not cover damage to the other driver's vehicle.
Furthermore, collision coverage does not cover mechanical failure or the natural ageing of your vehicle. If, for example, your transmission fails, you will be unable to use your collision insurance to repair it. This coverage is likely optional unless you have a loan or lease on your vehicle. However, you should consider whether you have the funds to repair or replace your vehicle in the event of an accident. If you don't, you should consider purchasing collision insurance.
Comprehensive
Comprehensive coverage, also known as "other than collision coverage," pays for certain types of damage that are unrelated to a collision. It can, for example, cover damage caused by fires, earthquakes, floods, vandalism, colliding with a deer, falling objects or explosions, and glass breakage. So, if your car unexpectedly catches fire on the road or if you leave it outside in a hailstorm, your comprehensive coverage may cover the costs.
In most cases, comprehensive coverage is an option. If you have a loan or lease on your vehicle, you will almost certainly be required to carry comprehensive coverage by your financial institution, just as you are with collision coverage. Furthermore, if your vehicle is newer or more expensive, you may want to consider adding comprehensive coverage to your policy for peace of mind.
Uninsured motorist property damage (UMPD)
Uninsured motorist property damage coverage pays for your property damage if you are hit by someone who does not have insurance. This will typically cover damage to your vehicle, but it may also cover damage to property inside your vehicle, such as a car seat damaged in an accident with an uninsured motorist. Many states require insurance companies to provide uninsured motorist coverage, both for bodily injury and property damage, but you can usually decline it in writing. However, UMPD is not available in all states, and even if you do have coverage, you may be subject to a small deductible, typically between $100 and $300. If you are unable to obtain UMPD, speak with your insurance provider about how an uninsured motorist property damage claim would be handled. Many companies can take care of your damage by utilizing your collision coverage.
Other coverage
Medical payments coverage (MPC)
Medical payments coverage (MPC) pays for the treatment of injuries sustained by you and any passengers in your vehicle in the event of an accident. Medical payments coverage only pays for medical bills incurred as a result of auto accidents; it does not typically cover things like lost wages. If you are a pedestrian who is hit by a car, your medical payments coverage may also cover you.
Your medical payments coverage has a cap, which is the most money your insurance company will pay you for medical expenses. This is typically a per-person limit. So, if you have $5,000 in medical payments coverage, you have $5,000 in coverage for each person in the vehicle. If you are unsure about how much medical payments coverage you require, consult with a licensed insurance agent.
Personal injury protection (PIP)
Personal injury protection, or PIP, protects you and anyone in your car from injuries, regardless of who caused the accident. You may be required to carry this type of insurance if you live in a no-fault state. You are not legally required to have PIP if you live in an at-fault state, but you may be able to purchase it for added protection. PIP, like medical payments coverage, may cover medical and rehabilitation expenses as well as funeral costs. If you are unable to complete tasks due to injuries sustained in an accident, PIP may cover work loss benefits or other non-medical expenses such as childcare or household services.
Gap insurance
Vehicles, especially new ones, frequently lose value the moment you drive them off the lot after you buy or lease them. Because of this depreciation, your loan amount may exceed the market value of your vehicle. In layman's terms, gap insurance covers the difference between your car's depreciated value and the amount owed on your loan.
Gap insurance is frequently provided by your lender, but it can also be obtained from your insurance company as an endorsement to your auto insurance policy. However, your insurance company may set a limit on the age of a vehicle that can qualify for gap insurance. Gap coverage, for example, may be available for a brand new vehicle or one that is up to two model years old.
New car replacement
Your insurance company may offer you new car replacement coverage if you have a vehicle that is one model year or newer. New vehicles depreciate quickly, and if you do not have this coverage, you may not be able to replace your vehicle with another new model if it is totaled. The new car replacement endorsement is intended to pay the difference between the vehicle's value and the cost of purchasing a comparable new car.
Roadside assistance coverage
Most insurance companies provide towing coverage, which is almost always optional. Tows and service calls are covered by roadside assistance coverage, also known as towing coverage or emergency roadside service. If your car breaks down on the side of the road, or if you need a tire changed or gas delivered to you, this coverage may pay the bill up to the coverage limit, which is usually a dollar amount but can be classified by the number of miles a service technician must travel to reach you.
Rental car coverage
Contrary to popular belief, this coverage does not automatically cover your vacation rental car (though if you have full coverage — comprehensive and collision — your vacation rental car may be covered; consult your provider). Rental car coverage pays for the cost of a rental car while your vehicle is unable to be driven due to a covered loss. Two numbers separated by a slash are commonly used to represent coverage. The first number represents the daily payment limit, and the second represents the total payment limit. So, if you see a 30/900 limit, it means your company will pay $30 per day for a rental car, up to a total of $900. Most companies provide a range of coverage limits, allowing you to select the one that best suits your needs. Assume you require a vehicle with seating for six people. In that case, you may want to increase your car rental limit so that if your vehicle is rendered undriveable, your insurance coverage will cover the cost of a larger rental car.
It is important to note that many companies impose a daily limit on the number of days they will pay for your rental car expenses in order to encourage you to purchase a replacement vehicle within a reasonable timeframe if your vehicle is totaled.
How do I find the best insurance for me?
Most states have minimum required amounts of liability coverage that drivers must carry. These minimums are represented by three numbers, such as 25/50/10 for liability insurance. The 25 in this case denotes the maximum amount that can be paid for one person's bodily injury per accident. The second figure is the maximum payout per accident. The third covers maximum property damage payments.
While state minimum coverage may help to keep your premiums low, it may also expose you to financial hardship in the event of an at-fault accident. If you are at fault in an accident and the damages exceed your insurance limits, you must pay the difference out of pocket. Furthermore, state minimum coverage excludes coverage for damage to your own vehicle and may exclude medical payments or PIP coverage. To round out your policy, you may want to consider purchasing higher liability limits or full coverage, as well as some optional coverages.
One of the best ways to find the right policy for you is to shop around and compare different coverage types and rates from different providers. You can speak with a licensed agent or customer service representative about your coverage needs and receive quotes for various levels of coverage.
Frequently asked questions
What is the best car insurance company?
For each driver, the best car insurance company will be different. Some drivers prefer a wide range of available discounts, while others prefer specific coverage options and the lowest possible premium. Knowing what factors are most important to you is frequently the first step in locating an insurance policy that meets your requirements. Once you've identified these factors, you can shop around for several different quotes from providers to find the coverage and options you want at a price that fits your budget.
Should I change my coverage when I add a teen driver?
If you have a teen who has recently obtained their driver's license, you should add them to your policy as a driver. If you have purchased a vehicle for your teen, make sure to include it. Teens are more expensive to insure due to their lack of driving experience. It may be tempting to reduce your coverage to save money when adding a teen, but insurance agents generally advise against it. Teens are more likely to be involved in accidents because they have less experience. Other options for saving money on insurance when adding a teen driver include taking advantage of discounts.
How do I determine how much coverage I require?
Knowing how much coverage to purchase is a critical step in purchasing car insurance. First and foremost, do you have a loan or lease on your vehicle? If you do, you will almost certainly need full coverage. Most insurance professionals recommend that you purchase liability limits higher than the state minimum levels to protect yourself from financial strain in the event of an at-fault accident. You can have a licensed agent quote you several levels of coverage to find the one that works best for you.