Car Insurance Coverage Types

Carrying a form of car insurance or verification of financial responsibility is a requirement of all drivers. Because the exact amount and categories of coverage required varies by state, it is important to understand the different types of car insurance that are available, and what each type covers. This can help you to determine what types of insurance you’ll want to carry based on your circumstances and needs. This article explores the different types of car insurance and who they are generally appropriate for. 

Common types of car insurance

There are six primary types of car insurance available from most car insurance providers. Each type of insurance covers a different segment of possible losses or claims that can occur. They are commonly listed as follows: 

  • Liability insurance coverage
  • Collision insurance coverage
  • Comprehensive insurance coverage
  • Uninsured driver insurance coverage
  • Personal injury protection insurance coverage
  • Medical payments insurance coverage

Liability insurance coverage

This basic form of insurance covers you if your actions are determined to be the cause of an accident; it pays for the damages that you are personally liable for. Liability insurance covers the cost of repairing or replacing any property that was damaged as a result of the accident, up to policy limits. It also covers the cost of medical care expenses associated with any injuries that were sustained as a result of the accident. 

The majority of states require drivers to carry at least a certain amount of liability coverage so that there will be at least some money available to any injured party from an accident. But most financial planners and insurance agents advise you to carry much more than the minimum amount of liability coverage. If you injure someone else in an accident, the cost of their medical bills can add up very quickly in a short period of time. You don’t want to risk putting yourself in a position where you’ll be personally liable for someone else’s medical expenses. 

Physical car insurance coverages

Your car can be damaged by a variety of unpredictable circumstances. Hail storms, accidents, theft, vandalism and your own driving mistakes can all result in physical damage to your car. If you crash into another car, your liability coverage may take care of the other driver’s expenses, but it will not pay for repairs to your car. That’s what physical damage coverages effectively address. Physical damage insurance falls under two primary categories of coverage: collision coverage and comprehensive coverage. In many cases, these are purchased together. 

Collision insurance coverage

Collision coverage will cover repairs to your car if you hit an object with it or sustain damage for another reason, such as flipping the car over on a tight turn. Most collision insurance clauses require the owner to meet a deductible before paying for repairs. The deductible will typically range from a few hundred to several thousand dollars, depending upon how much coverage you are willing to pay up front in a claim. Collision coverage is optional coverage for most insurers, but lenders will usually require this form of coverage until the loan on the car is repaid in full. 

Comprehensive insurance coverage

This type of coverage covers damage caused by factors other than accidents. Comprehensive insurance covers losses sustained from theft, vandalism or a natural disaster. Lenders that require their borrowers to carry collision insurance also often require them to carry comprehensive insurance. There are usually two separate deductibles for each type of insurance coverage. 

Other optional types of car insurance coverage

In addition to the basic forms of car insurance coverage described above, there are a few optional forms of coverage that can enhance the amount of protection that you carry on your car. 

Personal injury protection (PIP) insurance coverage

This type of insurance pays for any medical expenses that you incur as a result of an accident regardless of who was at fault. For this reason, it is frequently referred to as “no-fault insurance.” PIP insurance covers you, any other drivers listed on your policy, your family members and all passengers in the car. PIP coverage can pay for expenses such as lost income, child care or — if worse comes to worst — a funeral, up to policy limits. PIP coverage is currently required by 15 states in the U.S. Everywhere else is optional, but PIP is also not available in all states. 

Medical payments coverage

This optional form of coverage is similar in nature to PIP insurance, but this type of coverage is strictly limited to medical bills incurred by you, other drivers on your policy, your family members or passengers in an accident. This coverage can be used to pay for the copays and deductibles on your health insurance, or PIP coverage, and is a viable and affordable substitute for PIP. 

Uninsured/Underinsured motorist insurance coverage

This type of coverage will cover you if you get into an accident with a driver who is uninsured or who has inadequate insurance coverage. It can pay for both medical bills and property damage. Roughly half of all states in the U.S. require this form of coverage, but it’s a good idea to carry this type of coverage regardless of your state’s requirements. 

Guaranteed auto protection (GAP)

This type of coverage will pay you the difference between your car’s actual market value and the amount that you still owe on it if your car is totaled. This protects you against the cost of depreciation. 

Rental reimbursements

If your car has to go into the shop for repairs due to a covered claim, then this rider can pay for the cost of a rental car while your car is being fixed. 

How to find the best coverage for me

There are several factors to consider when it comes to shopping for car insurance. The first thing you have to determine is how much coverage you want. Factors to consider regarding coverage include the value of your car and what level of financial risk you’re willing to take on. 

Your personal budget will determine the amount of coverage that you can afford. It’s recommended to only buy a car that you can afford to properly insure; you can sustain a big loss if something were to happen to it and you don’t have adequate coverage. To get a lower rate, it might be a better idea to carry a higher deductible on your car insurance and then establish an emergency fund that is at least equal to the deductible amount. Then, if you don’t have a claim, you will have saved yourself a lot of money with no risk. 

Some insurers may pull a hard credit report on you in order to give you an accurate quote, so be sure to ask about this before requesting a quote. Either way, you should get at least three different quotes before selecting a provider, so you can be reasonably assured you’re getting the best deal. 

The takeaway

  • All drivers are required to carry at least a minimal amount of car insurance.
  • Collision and comprehensive insurance are often purchased together.
  • Medical payments insurance can be a good substitute for PIP coverage.
  • The amount of car insurance you should carry will depend on your car and your budget.
  • Some insurers will pull your credit in a hard credit check in order to give you a quote. 

Car insurance is a necessary expense for most of us, but it helps to understand the different types of coverage and how they contribute to protecting the financial wellbeing of you and other drivers. You should at least have a healthy liability policy to cover any damage that you may cause in most cases. Consult with your insurance agent or financial advisor for advice if you can’t decide how much coverage you need.