Types of Car Insurance: Understanding Your Coverage Options

November 9, 2023

Whether you're buying your first car or shopping for a new policy, understanding the different types of auto insurance is essential. With so many options to choose from, it can be easy to feel overwhelmed. However, taking the time to learn about each coverage type will help you select the ...

Whether you’re buying your first car or shopping for a new policy, understanding the different types of auto insurance is essential. With so many options to choose from, it can be easy to feel overwhelmed. However, taking the time to learn about each coverage type will help you select the right levels of protection for your needs and budget.

In this guide, we’ll break down the main categories of car insurance and what each one covers. By the end, you’ll have a solid grasp of the types of insurance available so you can make informed decisions about your policy. Let’s get started!

Liability Insurance

Liability insurance, also known as bodily injury and property damage liability coverage, is the most important type of car insurance to have. In most states, it’s legally required. Liability insurance covers costs associated with injuries or property damage you cause to other parties in an accident, regardless of who is at fault.

The two main components of liability insurance are:

Bodily Injury Liability: Covers medical expenses if you injure another person in an accident. Most policies have a minimum of $25,000 per person and $50,000 per accident.

Property Damage Liability: Covers repairs or replacement costs if you damage another vehicle or property in an accident. The minimum is usually $15,000 or $25,000, depending on your state.

Higher liability limits provide better protection if a serious accident occurs. You’ll generally want at least $50,000/$100,000 for bodily injury and $50,000 for property damage.

Collision Coverage

Collision insurance covers damage to your own vehicle from accidents like hitting another car, object, or flipping over. It does not cover damage from contact with animals, falling objects, fire, flooding, or other natural disasters.

When you file a collision claim, you’ll need to pay a deductible which is usually between $250-$1,000. The insurance company will then cover the remaining costs to repair or replace your vehicle. Collision coverage is not legally required but is a smart addition if you owe money on your car or it is new/expensive to replace.

Comprehensive Coverage

Comprehensive insurance, also known as “other than collision” coverage, protects your vehicle against a wide range of unpredictable incidents beyond your control like:

  • Falling objects (tree branches)
  • Animal collisions
  • Weather events (hail, floods)
  • Vandalism, riots, theft
  • Broken glass claims

Like collision coverage, you are responsible for paying a deductible which is usually the same as your collision deductible. Then your insurer will cover the remaining repair/replacement costs. Comprehensive insurance gives added peace of mind if problems arise from events out of your control.

Personal Injury Protection

Personal injury protection (PIP) insurance, sometimes called no-fault insurance, pays for your medical bills and lost wages after an accident, no matter who caused it. PIP is a mandatory coverage in some no-fault states like Michigan but optional in others.

Benefits usually include:

  • Medical bill payments up to a certain dollar limit per person
  • Lost wage reimbursement if you miss work
  • Replacement services if injured (childcare, housekeeping, etc.)
  • Funeral/burial costs if accident is fatal

While it may seem redundant with health insurance, PIP kicks in faster to cover accident-related costs. It’s a worthwhile addition in states where it’s optional.

Uninsured/Underinsured Motorist Coverage

Uninsured/underinsured motorist (UM/UIM) coverage pays for injuries and property damage you incur from accidents caused by drivers who either don’t have insurance or who are underinsured. Even if the other driver is at fault, their liability policy may not fully cover your costs. UM/UIM “fills the gaps.”

It covers things like:

  • Medical bills
  • Lost wages
  • Pain and suffering damages awarded in a lawsuit
  • Property damage to your vehicle

Without it, you risk being left uncompensated. While not required everywhere, experts recommend having enough UM/UIM limits to match your liability coverage.

Medical Payments Insurance

Medical payments insurance (also called MedPay) covers accident-related medical, chiropractic, and funeral bills for you, passengers in your vehicle, and any other injured parties – regardless of fault. It’s an extra layer of protection that kicks in faster than health or PIP coverage.

MedPay benefits typically include:

  • Medical bills up to the selected limit ($1,000-$5,000+)
  • Chiropractic, physical therapy, acupuncture payments
  • Funeral and burial expenses if fatality results
  • Coverage for injuries while outside the insured vehicle

Unlike health insurance, MedPay places no limits on services and pays regardless of other insurance. It’s a valuable addition for those with high deductibles or limited health coverage.

Additional Coverage Options

Beyond the standard policies, insurers offer several supplemental coverage types tailored for specific situations:

GAP Insurance

GAP coverage guards against depreciation if your vehicle is totaled before it’s paid off. It pays the difference between actual cash value from insurance and your car’s loan payoff amount. Especially important for new vehicles that depreciate rapidly.

Rental Reimbursement Coverage

Kicks in to pay costs of a rental car after an accident if your vehicle needs repairs. Standard coverage will pay for a rental once your insurance kicks in, but this reimburses faster without filing a claim.

Roadside Assistance

Provides help with problems away from home like towing, jump starts, tire changes, fuel delivery, lockout assistance, and more.

Rideshare Coverage

Specifically designed for Uber and Lyft drivers to cover gaps when transporting passengers for a fee. Ensures adequate liability protection.

Enhanced Coverage Options

Some insurers offer customizable coverages like increased liability limits, higher MedPay limits, expanded roadside assistance, and add-ons for specialty equipment on vehicles like boats or trailers. These provide extra peace of mind.

Choosing the Right Levels of Coverage

With so many options available, selecting the right types and limits of coverage can be challenging. Here are a few tips:

  • Always carry the minimum required liability in your state
  • Upgrade limits if you have substantial assets to protect
  • Consider your vehicle’s value when adding collision/comprehensive
  • Choose MedPay and PIP if you have high health insurance deductibles
  • Get enough UM/UIM to equal your liability limits
  • Consider GAP if you owe more than your vehicle is worth
  • Add rental reimbursement for quicker access to a rental
  • Enhance policies for work/business use or expensive equipment

Your insurance agent can help you assess your risks and budget to build a package tailored for your situation. And be sure to shop around each year, as rates and needs change over time. Proper coverage gives added protection when life throws you unexpected curves.