Driving an automobile offers a lot of freedom in life, but even though it's incredibly convenient (and often necessary), it can also be perilous. Auto travel has many risks, such as human error-related crashes, weather or environmental dangers. Because of those risks, some auto insurance types are not only recommended but legally required. Whether you just bought your first car or want to get a better handle on the different types of car insurance out there, we will summarize insurance types available so that you can select the right coverage for you and your situation, as well as better understand how to select the right insurer.
Types of Auto Insurance
Auto insurance is intended to provide financial protection should any physical damage or bodily injury occur due to collisions or other vehicle-related incidents. Who and what is covered depends on the type of insurance purchased; coverage may or may not include financial protection for the driver and their passengers, the vehicle, and another driver involved in the incident and their vehicle.
So, what does auto insurance cover? The best way to fully understand the coverage is to understand the different types of auto insurance available. There are six primary categories that a typical insurance policy may include:
- Personal Injury Protection
- Uninsured/Underinsured Motorist
- Medical Payments
Some of these coverage types are mandatory depending on where you live, while others are optional. For example, some state laws may require certain types of insurance to be in place to operate a vehicle, and some drivers may be required to have more coverage in place if they lease or take out a loan to buy their vehicle. Let's get into the details of each, including the pros and cons, requirements, and other important information.
Liability coverage is mandatory in most states because, at the very least, it helps cover financial liabilities of third parties incurred because of the driver’s fault. Drivers must purchase the minimum amount of liability coverage as set by their state’s law. Auto liability coverage essentially has two components:
- Bodily injury liability: covers the costs of bodily injury to another if the driver is determined to be at fault
- Property damage liability: covers the costs of property damage to another if the driver is determined to be at fault
So, in other words, auto liability insurance provides the driver with coverage for the costs of major bills if the accident is determined to be their fault, and they are legally responsible for the resulting damages. It can cover the medical bills of someone injured in an accident and/or the damage to someone else's car.
Aside from bodily injury and property damage liability coverages, which are usually mandatory, you may also have some limits or caps on the amount of liability coverage depending on the policy purchase. You can look for:
- Property damage liability limit: the maximum amount your insurer will pay to repair the damage you cause to another party's property
- Bodily injury liability limit per person: the maximum amount your insurer will pay for each person injured in an accident (determined to be your fault)
- Bodily injury liability limit per accident: the maximum amount your insurer will pay for all medical expenses resulting from a single accident (determined to be your fault)
The higher coverage limits will also drive up the premiums (cost) of your insurance policy. Note that liability insurance doesn't cover any damage to you or your car—only the liability you have to other party (or parties) involved.
Unlike liability insurance coverage, collision insurance typically does protect you financially as the driver and your vehicle. It helps pay for repairs or replacement of your vehicle if it's damaged in a crash or accident with another object, even if it is your fault. An "object" could be another car, but it could also be another object, like a fence or other obstacle.
Collision coverage isn’t required in most states. Even if state law doesn’t require the coverage, lenders almost always require you to pay for collision insurance to help protect your investment. So, if you are leasing or borrowing money to pay for your car, expect the lender to require collision coverage.
It's important to note that collision coverage will typically pay for the costs to repair or replace your vehicle only up to the cash value of your vehicle, less your deductible. If the damage is caused by another driver, their liability insurance should cover most, if not all, of your damages. However, if it doesn't, you can file a claim under collision coverage.
Also, keep in mind that collision insurance only covers damages related to driving-related issues when the driver is in control of the event. For example, collision insurance may apply if the driver runs into a mailbox or is hit by another car. However, this type of insurance will not cover other causes, such as hail damage, vandalism, or theft.
While liability insurance covers the costs of damages caused to other drivers when you are determined to be at fault, and collision insurance covers damages to your vehicle if you are in control of the event, comprehensive coverage is there to cover damages due to events entirely outside of your control as a driver. For example, weather events like hail or fire would be covered, as would theft and vandalism. These types of events are sometimes referred to as "acts of nature or God," where the driver and their vehicle are acted upon out of their control.
Sometimes it can be hard to distinguish between comprehensive and collision, but it comes down to the actions of the driver. If a deer jumps out in front of a vehicle and the driver hits it, it would result in a claim covered under comprehensive insurance since the driver can't control an animal. But, if the driver swerves to miss the deer and hits a fence instead, that could result in a claim covered by collision insurance. Having both collision and comprehensive insurance coverages is often referred to as having "full coverage."
Comprehensive coverage is usually optional coverage and will help pay for the costs to repair or replace your vehicle up to the vehicle's cash value. Just like collision insurance, comprehensive coverage has a deductible that must be met before your insurer will reimburse you for the costs of your claim.
Medical Payments Coverage
Comprehensive and collision insurance provides coverage for your vehicle, but you'll need medical payments coverage if you want help with medical expenses after an accident. If you or other passengers in the insured vehicle are injured in an accident, medical payments coverage can help cover the medical costs of injuries, including tests, x-rays, surgeries, and more.
Liability insurance will help pay for another driver's medical bills if the accident is your fault. If the accident is someone else's fault, their liability coverage should contribute to pay your medical bills for injuries from the accident. However, if the accident is your fault, you need your own medical coverage for yourself or your passengers. This type of coverage is required in some states and optional in others, so it all depends on your location.
Personal Injury Protection (PIP)
Similar to medical payments coverage discussed above, personal injury protection (or “PIP”) coverage can help pay for medical expenses resulting from an accident. In addition to covering medical bills after an auto accident, PIP coverage may also cover other expenses that are incurred because of the injury, such as childcare or lost income. Note, though, that PIP is only available in some states, so it's important to fully understand your policy and examine what is available where you live.
Uninsured and Underinsured Motorist Coverage
There is, of course, a chance that you are hit by a driver or motorist who does not have insurance and, therefore, cannot contribute to the costs of your medical bills using their liability insurance. In those cases, uninsured motorist coverage may help to cover the costs of medical expenses and, in some states, vehicle repairs.
You may also be involved in an accident with an underinsured driver, meaning they have insurance, but their liability limits don't provide enough coverage to pay for the extent of your vehicle repairs or medical bills from injuries resulting from the accident. This is the case when underinsured motorist coverage may apply, depending on the state in which you live. Both of these types of coverage may or may not be required in your state.
Additional Types of Auto Insurance
Outside of the six main types of coverage, there are other niche coverage types that you may benefit from and therefore should consider. Some common types of coverage include:
- Full glass coverage: coverage that helps pay for expenses related to your vehicle’s headlights, mirrors, and other window repairs, often with no deductible.
- Car repair insurance: car repair insurance (also called auto repair insurance or mechanical breakdown insurance) provides coverage for possible mechanical issues or other repairs not related to collisions, theft, fires, or any of the risks addressed by traditional auto insurance.
- Vehicle towing coverage: an add-on that includes coverage for towing, tire changes, jump starts, lockout assistance, and gas or oil delivery.
- Personal umbrella insurance: coverage that applies in addition to auto-related incidents too. It typically applies as broad-based additional liability coverage above underlying insurance for homes, auto policies, and other assets.
- Gap insurance: insurance that helps drivers cover the amount owed on an auto loan after a total loss or theft.
- Rental car reimbursement coverage: insurance that helps pay for transportation expenses while your vehicle is being repaired in connection with an insurance claim.
- Rental car insurance: liability coverage while renting a car for leisure (i.e., non-commercial purposes).
How to Identify the Right Insurance Types for You
While you'll need liability insurance and likely collision insurance if you're using any form of lending or financing to purchase your vehicle, there are a lot of additional coverage types that you may want to protect your finances, your vehicle, the people you care about, and your own well-being. In the unfortunate instance of an accident, it can be greatly reassuring to have more in-depth coverage outside of the mandatory coverage.
However, understanding the kind of coverage you need, let alone the coverage available to you, can be an overwhelming research project. Cut out the stress and confusion with Acrisure. Not only can our powerful AI tools help pair you with the right coverage for you, your lifestyle, and your location, but you may also find better, more customizable coverage with our brokers.
Contact us today to learn more about auto insurance types, what you should look for in a policy, and how to find the right coverage for you. Or get started now by requesting an online quote.