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Car insurance can be confusing, and it can be hard to know which coverage option is best and how much you need. You can purchase a few types of car insurance coverage and add optional coverages to your policy, depending on what the insurer offers.
To know which type of insurance is best for you, it’s important to understand what each type of car insurance covers. How much coverage you need will depend on your location, the type of car you drive, your personal situation, and your risk tolerance.
Liability-only coverage and full coverage are the two main types of car insurance.
You can purchase add-ons to enhance your coverage, like roadside assistance and uninsured/underinsured motorist coverage.
If you’re a rideshare driver or drive a classic car, you’ll likely need additional coverage.
Main types of car insurance coverage
Liability-only coverage and full-coverage insurance are the two main types of car insurance coverage. While liability-only coverage is typically cheaper than full coverage, it doesn’t provide as much financial protection. You can also purchase add-ons — also known as optional coverages or riders — to get extra protection in various situations.
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Liability-only car insurance is a car insurance option that covers injury to another person and damage to their car if you cause an accident. However, it doesn’t cover your car’s damage or medical bills when you’re at fault. Because of that, you’ll have to pay for your own healthcare and repairs, unless the other driver caused the accident and has liability coverage to cover you.
Liability car insurance is typically cheaper than full-coverage car insurance. It costs $170 per month on average compared to $253 per month on average for full-coverage car insurance across the U.S. However, with that affordability comes the risk that you might not have enough coverage to pay for your damages and injuries if you cause an accident.
Liability auto insurance can include bodily injury, property damage, personal injury protection (PIP), uninsured/underinsured motorist, and medical payments (MedPay) coverages.
Bodily injury liability
If you cause an accident and injure someone else, bodily injury coverage pays for their medical care. Most states require this type of coverage, although each state has its own minimum requirements of coverage.
Bodily injury coverage typically compensates the other driver for the following: loss of income, legal fees, medical expenses, pain and suffering, and funeral costs.
Property damage liability
If you damage someone’s property with your car, whether it’s another car, someone’s fence, or the city’s utility pole, you’re responsible for paying for those repairs. Property damage liability is the part of your insurance that pays for that. Without it, you could be on the hook for very expensive repairs.
What PIP covers varies by insurance company, but it typically covers medical expenses, lost wages, and funeral expenses for the policyholder and their passengers, regardless of who’s at fault in an accident.
Uninsured/underinsured motorist coverage
Even though you must buy car insurance if you own a vehicle, more than 12% of U.S. drivers don't have insurance, according to the Insurance Research Council. That means you may get into a car accident with someone who doesn’t have insurance. When that happens, uninsured motorist coverage provides payment for your car repairs and medical bills. Underinsured motorist coverage protects you if the person who causes an accident has insurance but with low policy limits that can’t cover all your medical or repair bills. It provides additional reimbursement, up to the policy limits, to cover the remainder. UI/UIM coverage can also pay for damage from a hit-and-run accident.
Not all states require uninsured/underinsured motorist coverage, and it’s an add-on coverage with many insurance companies. It’s important to check whether your state requires this coverage, whether it’s included in your policy, and whether it’s something you need to add on.
Medical payments (MedPay)
MedPay is an optional insurance add-on that helps pay for hospital visits, surgeries, funeral expenses, and more for you and your passengers if you’re injured in an accident. This applies even if you’re the at-fault driver in an accident.
Full-coverage car insurance is a collection of different coverages. It typically includes liability insurance, collision coverage, and comprehensive coverage. On average, full-coverage car insurance costs $253 per month in the United States.
Most drivers choose full-coverage insurance over liability insurance. In fact, 79% of insured drivers purchase comprehensive coverage in addition to liability insurance, and 75% buy collision coverage, according to the Insurance Information Institute’s analysis of 2019 data from the National Association of Insurance Commissioners (NAIC).
Collision insurance pays for your car damages in an accident, even if you’re the one who caused it. This is different from liability insurance, which pays for the other driver’s expenses if you cause an accident.
Collision insurance also covers you if your car rolls over, hits a pole, or gets damaged in other events where you collide with other cars or objects.
Collision insurance doesn’t cover weather-related damages or damages animals cause. For those instances, you need comprehensive coverage.
State laws don’t require collision insurance, but some lenders or leasing companies might require it as part of the loan or lease agreement.
For example, if weather-related events damage your car or someone steals or vandalizes it, comprehensive coverage will help you repair or replace your vehicle. It won’t cover you in an accident where you collide with another car or object (that’s where collision insurance comes in).
It’s helpful to have comprehensive insurance if you live in an area prone to severe weather events or vehicle theft. Most people only consider collisions when deciding on the type of insurance they need, but comprehensive insurance covers you when other unexpected events happen.
If you finance or lease your car, your lender or lessor may require collision and comprehensive coverages.
Additional coverage options
Depending on your personal circumstances, you might want to consider additional coverage options above and beyond traditional liability-only or full-coverage insurance. Here are some examples.
If you’re worried about being stranded on the side of the road with a dead battery or a flat tire, adding roadside assistance coverage to your policy can help ease your mind. You can add this coverage to your standard policy. What it covers varies by insurer, but it typically covers towing, jump starts, flat-tire changes, and more.
Rental reimbursement is a useful add-on coverage to your car insurance policy. This helps cover the cost of a rental car up to a daily limit while your car is in the shop for repairs after an accident or damages.
Many car insurance companies have agreements with rental car companies that make the process seamless, with direct billing, where the insurer pays the rental company directly for you.
If you get into a car accident while you have insurance coverage, your insurance company will pay a certain amount of money toward repairs, medical bills, and more. But sometimes, your insurance company will declare your car a total loss and send it to a salvage yard.
Guaranteed asset protection (GAP) insurance covers the difference between your outstanding auto loan balance and what insurance pays you for your totaled car. Gap coverage is ideal for people who are still paying off an auto loan, but you can typically drop it once the loan is done. Some major insurance companies don't offer gap coverage, including GEICO and Farmers.
Classic car insurance
If you have a classic or antique car, your car insurance policy for it might look different from a typical policy. Whether a car is “classic” depends on how the insurance company designates classic vehicles. Additionally, an insurance company might mandate you can only drive it a certain amount of miles per year or that you have to securely store it while not in use. Usually, classic car insurance is for cars you only drive occasionally, not your primary vehicle.
Custom parts and equipment value
Many people spend money modifying their cars with aftermarket enhancements, like rims or stereo equipment. A typical car insurance policy might not cover these, so drivers might want to purchase customized equipment insurance. You might see it listed under different names, like “modified insurance,” “customized equipment,” or “custom parts and equipment value (CPE) coverage.”
Rideshare drivers can purchase rideshare insurance to provide additional coverage while they’re working. Rideshare insurance provides coverage when the app is turned on while you’re waiting to accept a ride. When you accept a ride or have picked up a passenger, the rideshare company’s insurance policy provides coverage. You can purchase additional coverage from Lyft’s and Uber’s third-party partners for when the app is on but you haven’t accepted a ride, but you can also find your own coverage from an insurance company.
Accident forgiveness coverage
Some auto insurers offer accident forgiveness coverage as an add-on to your standard policy. Accident forgiveness can prevent your car insurance premium from increasing after an accident. Typically, you'll need to be a good driver with a clean record, and at least three years of accident-free driving to qualify for accident forgiveness.
How to choose the right car insurance coverage types
Car insurance is intended to protect you financially when the unexpected happens. A serious car accident can lead to medical issues, property damage, and more. It’s important for your insurance to be adequate enough to cover you in a worst-case scenario.
When deciding on the right car insurance coverage for you, consider a few factors:
Where you live
How much of a deductible you can afford
Your healthcare insurance and deductible
The value of your car
You might live in an area prone to natural disasters, where you’d benefit from having coverage that protects you if your car sustains weather-related damage. You might have a high net worth or significant assets you want to protect in the event of a lawsuit. Additionally, you might or might not have the funds to cover a large deductible.
Speak with an insurance agent or your insurance company representative to determine what the best coverage might be for your particular personal situation. No one wants to think about a worst-case scenario, but if it happens, you’ll be glad you had adequate insurance to handle the unexpected.
Collision and comprehensive insurance cover damage to your car. Collision is typically for accidents, and comprehensive is for damage outside of an accident, including vandalism, hitting animals, falling objects, and more.
What type of insurance covers weather damage?
If you want your car insurance to cover you for weather-related damages, purchase comprehensive insurance. Comprehensive car insurance provides coverage when a flood, snowstorm, a tornado, high winds, lightning, and other unexpected weather events damage your car.
What type of car insurance is required by law?
Forty-nine states and Washington, D.C. have a minimum car insurance requirement by law. Each state’s laws determine the minimum amount of bodily injury coverage and property damage coverage. Because each state requires different amounts of liability coverage, it’s important to look up minimum requirements where you live.
What type of car insurance should you choose?
At a minimum, you should have the car insurance policies your state requires. “We encourage our clients to purchase at least 100/300/100 in order to avoid any future liability suit against them,” says Eyal Ron, Iron City Insurance founder. That means $100,000 per person for bodily injury liability, $300,000 per accident for bodily injury liability, and $100,000 per accident for property damage liability.
How much auto insurance coverage do you need?
You'll need to buy at least enough liability insurance to meet your state's minimum requirements. And, if you lease or finance your vehicle, your leasing company or lender will likely require you to have full coverage. It's also a good idea to buy as much auto insurance as you need to feel comfortable that you have protection against a lawsuit stemming from an accident. In general, make sure to get enough insurance to protect your assets if someone sues you.
Catherine Collins is a freelance financial writer and author based in Detroit. She's the co-founder of MillennialHomeowner.com and MomsGotMoney.com, and author of the book Mom’s Got Money: A millennial mom’s guide to managing money like a boss. She has written for US News, Huffington Post, Money, Business Insider, Investopedia, Entrepreneur, Go Banking Rates, and many other publications. She currently resides in Detroit, Michigan with her boy-girl twins and a rescue dog named Julep.