6 Types of Car Insurance (and Why You Only Need One)

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Your auto insurance policy doesn’t just provide a single type of coverage; in reality, it’s a bundle of car insurance coverages all wrapped up in a single plan. 

Each of these different types of coverage protects you from a different potential hazard to your vehicle (or your wallet). Most car insurance policies include some combination of the six basic types of car insurance, plus perhaps a few of the less crucial types of coverage.

Insurify lets you compare real quotes from top national and regional insurance providers, whether you’re just looking for state minimum liability coverage or a plan with all the bells and whistles. Take five minutes to compare, switch, and save on your car insurance today – it’s free! 

Liability coverage

If you were on a deserted island and could only have one type of car insurance, liability coverage would be a smart choice. Not coincidentally, vehicle liability coverage is required by law in nearly every state—which means not carrying it puts you at more than one kind of risk.

Liability coverage kicks in if you’re in an auto accident and you’re at fault; it helps pay the costs to repair damage to the other driver’s vehicle and person. If the other vehicle had passengers, their injuries will also be covered by your liability insurance. Most liability coverage is divided into bodily injury liability, which pays for medical bills, and property damage liability, which pays for repairs to someone else’s vehicle or other property. For example, if you run your vehicle into a telephone pole, property damage liability would help pay for the repairs to the pole.

Personal injury protection coverage

While liability coverage pays for medical bills accrued by someone else, personal injury protection covers your medical bills and those of your passengers. It’s sometimes called “no-fault insurance” because PIP will cover you regardless of who’s at fault in the accident. PIP insurance may also cover other expenses related to being injured in an accident, such as lost wages due to missing work and even funeral expenses. Check your policy to see just what your PIP coverage includes.

Personal injury protection coverage is not as mandatory as liability coverage; only 15 states require it, and it generally isn’t available in states that don’t require it. If you live in a state where PIP is not offered, you have the option of a similar but less comprehensive medical coverage known as….

Medical payments coverage

Also known as MedPay, medical payments coverage is a slightly more stripped-down version of PIP. It covers medical expenses for yourself, your passengers, and your household. For example, if your teenaged son is driving your vehicle and gets into an accident, he’d be covered by MedPay. This coverage also extends to your medical expenses if you’re not in a vehicle but are hit by a car.

If you don’t have health insurance, you’ll want medical payments coverage. If you do have a health insurance policy, it will likely provide the same type of coverage, making MedPay unnecessary. The exception would be a health insurance policy with a very high deductible. In that case, you might want to pick up some MedPay coverage to help you out with medical expenses that you incur before hitting your health insurance deductible. Check your health insurance policy to verify your coverage details before deciding whether to sign up for medical payments insurance.

Collision coverage

If your vehicle collides with another object and suffers damage, you’ll be glad to have collision coverage. Collision insurance pays for repairs to your vehicle after you’ve been in an accident. If you have a car loan, the finance company will probably require you to get collision insurance with no more than a $500 deductible. But if you own your vehicle free and clear, collision insurance is usually optional (a few states require it; check with your local DMV or call your insurance agent to find out what the rules are in your state).

If you buy collision coverage, your auto insurance company will usually also require you to have…

Comprehensive coverage

While collision insurance covers repair bills that come about due to a collision, comprehensive insurance covers repair bills incurred by other sources. For example, if your vehicle is stolen, vandalized, or damaged by something like falling hail, that’s when comprehensive insurance would kick in. Like collision insurance, comprehensive insurance is generally optional unless your vehicle is financed, in which case you’ll probably need to get comprehensive coverage with a $500 deductible or less.

The more valuable your vehicle is, the more important it is to have comprehensive and collision coverage (because that means the repair bills could get very high without causing your insurance company to “total out” the vehicle, meaning it’s declared a total loss). If you don’t owe money on your vehicle and are trying to keep insurance costs low, one option is to get collision and comprehensive coverage with a high deductible. Doing so will lower your insurance premiums, yet give you protection in case something catastrophic happens to your vehicle.

Uninsured motorist coverage

You may be a law-abiding citizen with all the required auto insurance coverage, but if you’re in an accident with a driver who hasn’t been so law-abiding, it could all be for nothing. If the other driver is found at fault in such an accident, your insurance generally won’t cover the resulting bills. So if the at-fault driver has little or no insurance coverage, you could be forced to pay those bills yourself.

Uninsured motorist coverage kicks in in that situation and helps pay for both medical expenses and vehicle repairs for you and your passengers. Like liability coverage, uninsured motorist insurance is split between bodily injury coverage and property damage coverage. There’s also a variation called underinsured motorist coverage which can protect you if the other driver has some auto insurance, but not enough. At present, 22 states require some form of uninsured or underinsured motorist coverage; even if your state doesn’t require such coverage, it’s wise to consider tacking some coverage on to your auto insurance policy given the possible consequences of not carrying it.

Other types of car insurance

The “big six” types of coverage listed above are the most important, but some auto insurance policies will include other types of car insurance coverage that can help out when something goes wrong. These optional coverages include:

  • Emergency roadside assistance: If your vehicle breaks down, gets a flat tire, or runs out of gas, emergency roadside assistance lets you summon help to get your vehicle moving again. Some vehicle manufacturers will provide roadside assistance for you when you buy a vehicle from them, in which case you won’t need to add it to your auto insurance policy.
  • Rental car reimbursement: Major repairs generally take time, leaving you without a vehicle. Rental reimbursement covers some of the cost of renting a vehicle during that time, though this coverage generally provides only a small amount per day (often not enough to fully cover the cost of renting a replacement vehicle).
  • Gap insurance: All vehicles lose value over time, especially if you bought the vehicle new. If you financed the vehicle and end up totaling it, you may end up owing more on your auto loan than your insurance company will pay for the vehicle’s loss. Gap insurance will pay the difference between what you owe on the vehicle and what your auto insurance policy provides.
  • Mechanical breakdown insurance: If you have major repair bills that aren’t related to an accident or certain very specific types of damage, standard auto insurance policies generally won’t help. Mechanical breakdown insurance may be available to help cover the cost of such repairs.
  • Ridesharing coverage: Driving for ridesharing companies has become a popular way to make a little extra money on the side. However, the typical auto insurance policy won’t cover your vehicle during the times that you’re using it for ridesharing, because this is considered business use rather than personal use. Ridesharing insurance will protect your vehicle in case you’re in an accident while driving for Uber, Lyft, or a similar company.

Choosing your types of car insurance coverage

When you’re shopping around for car insurance, it’s important to consider each of the above types of car insurance coverage. For each type of insurance, you’ll have three important decisions to make:

Once you’ve decided on the types and amounts of coverage you want to add to your auto insurance policy, you can then log onto Insurify and get a selection of quotes for insurance premiums on your desired policy.

 

If those quotes are higher than you expected, you can then tweak your desired policy to get some more affordable numbers. For example, you might shift a few of your deductibles a bit higher or lower the coverage amounts on some less-crucial types of car insurance coverage. By approaching your auto insurance policy in this way, you can ensure that you’re getting the best possible policy at the lowest available price.

Wendy Connick is the founder and owner of Connick Financial Solutions, a provider of tax and bookkeeping services and a QuickBooks Online Certified ProAdvisor. A long-time freelance writer, she specializes in business and finance articles on subjects including taxes, investing, and retirement. Wendy is an Enrolled Agent (EA), the only federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS. She is a member of the National Association of Enrolled Agents and a certified volunteer for VITA (Volunteer Income Tax Assistance), an IRS-sponsored program to provide free tax help for low-income individuals and families.