Every driver must have car insurance to be legal behind the wheel. But there are many different types of car insurance. And drivers have the freedom to pick and choose the types of coverage they want to carry. Some will prefer to go with less coverage and count on their ability to avoid accidents. Others will prefer to be covered against any risk on the road even if it means paying higher premiums.
This guide is intended to be a comprehensive overview of different types of car insurance. Drivers can rely on this information to find the right types of insurance for their needs and wants. Once armed with that knowledge, drivers can then seek out policies and rates that better fit their requirements. If you have a question about types of car insurance, look below for the answer.
What Are The Different Types of Basic Auto Insurance?
If you do not currently have car insurance you will want to consider one of these basic types of car insurance coverage options
Except for drivers in a few states, everyone on the road is required to have liability coverage. Every state sets its own limits for the mandatory minimum amounts of coverage. If you cause an accident, liability coverage pays the other driver and the passengers for any damage to their personal property or to their body up to the limits of the coverage. Liability coverage does not pay for any of your own medical or repair bills.
If you are involved in an accident that causes damage to your vehicle, this type of car insurance kicks in to help you pay for repairs. Coverage applies whether the damage is caused by another driver, an object like a fire hydrant, or another factor like slick roads in a storm. A driver who does not have collision coverage and is involved in an accident must pay for any repairs out of pocket, which is often a major expense. Be aware, however, that if the collision coverage limits do not cover the entire cost of the repair the difference must also be paid out of pocket. Be sure to align your coverage limits with the value of your vehicle.
This type of coverage is designed to pay for damage to your vehicle caused by factors other than an auto accident. For instance, it your vehicle is stolen or a tree falls on top of it. Drivers are not legally required to carry comprehensive coverage, but some lenders require it when you buy a new car to protect their investment. Many drivers pair collision coverage and comprehensive coverage to protect against the largest number of unexpected incidents.
Car accidents often lead to bodily injury, and in the worst, instances those injuries can be severe. Personal injury protection steps in to pay for your medical bills up to the coverage limits regardless of whether you are at fault for the accident. Any other drivers listed on your policy, member of your household, or passengers at the time of the accident are also covered. In addition to medical bills, this coverage pays for lost wages, child care, or funeral expenses. Most states do not require you to carry PIP coverage, but the cost of more auto insurance is often less than the cost of major medical bills.
Auto Medical Payments (MedPay)
This type of coverage is like PIP but only covers medical expenses. Coverage is intended to supplement injured persons who have health insurance and protect injured persons who do not. Insurers will also pay for supplemental expenses like the deductible on a health insurance or PIP policy.
There are many drivers on the road who do not carry the liability coverage required by the state. Others have coverage but with low limits. If one of these drivers involves you in an accident, uninsured/underinsured coverage kicks in to cover the cost of medical bills and auto repairs not paid for by the other driver’s inadequate insurance. This type of coverage is mandatory to carry in roughly half of the states.
Specialized Types of Car Insurance
Most drivers are not required to have the following specialized types of car insurance. But by making these inexpensive additions to an existing auto policy, drivers enjoy a greater level of protection:
Some drivers are considered “high-risk” because of their driving history, their age, their credit score, or the vehicle they drive. Since the insurance company has deemed these drivers to be more likely to be in an accident, they must purchase a different type of coverage. Typically, the monthly premiums for these policies are higher, but since definitions of “high-risk” vary, drivers may be able to get a standard policy from a different insurer.
With this type of coverage it is faster and easier to get payment from your insurer following an accident. Drivers receive compensation for any of their own medical bills up to the limits of the policy. And they receive this compensation regardless of whether they caused the accident or not. This type of coverage is often paired with Personal Injury Protection (PIP), but the laws governing when and how no fault insurance is applied vary by state.
Personal Umbrella Policy (PUP)
Assets like cars and homes often come into dispute during class action settlements. A PUP is not strictly a form of auto insurance, but it does protect assets including your vehicle if you are involved in litigation. Typically, the coverage does not kick in unless totals rise above $1 million, but that figure includes property values.
Your car begins to depreciate the minute you drive it off the lot. And depending on when, where, and how you drive, your vehicle may be worth less than what you still must pay on the auto loan. Gap insurance is designed to make up the difference. So, if your vehicle is valued at only $5,000 but you owe $8,000, your insurance company would pay out the additional $3,000.
Car Insurance Payout GAP Payout You Owe $5,000 $3,000 $8,000
This is not technically a type of insurance but rather just a certificate than an insurer sends to your state DMV verifying that you have certain minimum amounts of coverage. Drivers who have shown themselves to be a risk on the road are often required to meet this obligation, but a few states have no requirement in place. The insurance offered to drivers needing an SR-22 certificate tends to be more expensive since these drivers have a history of risky behavior.
Car Insurance Terms
Car insurance policies are filled with industry jargon and terms you may not be familiar with. Use this glossary to make sense of your policy:
Body Injury Liability
The amount your liability policy will pay to cover the medical expenses of a driver or passengers involved in an accident that is your fault. Every state sets minimum limits for coverage that drivers are legally required to carry.
The amount you pay out of pocket for medical bills or property damage. Insurance coverage applies after that amount is paid. Most policies offer lower premiums in exchange for higher deductibles.
Rate reductions offered to drivers based on their good driving history, their demographics, their bundling of policies, or their membership in professional organizations. Every insurer sets their own terms and rates for discounts.
There is no technical definition of “full coverage”. This term is typically applied to policies that include more than liability coverage, but it should not be assumed that they include all types of car insurance.
The place where you primarily park your vehicle, probably your home residence. Most policies ask you to identify this location so that rates can be adjusted based on traffic and crime patterns.
The amount in dollars that a policy will pay to resolve medical bills, property damage, or anything else under coverage.
Coverage that pays for the cost of service and parts to repair your vehicle. Selective services may or may not be covered, and some policies require you to use specific mechanics.
Some people without a car choose to carry liability insurance, and this coverage may be a precondition for getting a suspended license reinstated.
Typically drivers pay premiums either monthly or yearly. This type of policy bases rates/payments on when, where, and how you drive. For some motorists that may mean a discount, but not all insurers offer this type of policy.
Personal Injury Liability
The amount your liability policy will pay to cover property damaged in an accident that is your fault. Each state sets minimum limits separate from body injury liability.
The length of time that a policy provides coverage for. As soon as the expiration date is reached coverage is suspended.
The amount you pay each month for your auto insurance policies separately and in total.
Coverage that pays for the expense of a rental car when yours is being repaired or replaced. There is typically a cap on the coverage.
Coverage for on-the road assistance like towing, flat tire repair, and jump starts when your car battery is dead. Different policies cover different services and set limits.
An accident that damages a vehicle so much it is not considered driveable again.
What Type of Car Insurance is Right for You?
It takes careful research and consideration to find the right policy and the right mix of policies to satisfy your auto insurance needs. Below is quick overview of what types of car insurance are good for what types of drivers:
Every driver must have at least the state minimum for liability. It is not required to purchase more than that, but since the expense of an accident falls entirely on the driver, lack of additional coverage could create a lot of financial stress.
Drivers with a lease or financing offer may be required to carry this coverage. And any driver who could not cover the cost of losing and replacing a vehicle should consider it. If you own your vehicle outright and it has little value, the cost of collision insurance may outweigh the cost of replacement.
If you live in an area with high crime or frequent severe weather events there is a stronger incentive to get this coverage. But if you are willing to gamble that the unexpected will not impact your vehicle than the cost may be unnecessary.
Personal Injury Protection
Some states set minimum requirements for coverage, and considering the high cost of medical care this type of insurance can be an asset. Since it also covers passengers and family members it extends coverage to people who may not have the same level of health insurance as you.
It is considered a sound strategy to match your levels of uninsured/underinsured coverage to the limits of coverage you have above liability coverage. That way you are backed by insurance no matter who causes the accident.
This type of insurance is smart for people who have a new vehicle or an especially expensive model. Conversely, it you drive something older or not particularly valuable the financial cost of a total-loss accident is less of a worry.
Personal Umbrella Insurance
Typically only individuals with a high net-worth carry this type of insurance since they stand to lose more in a civil action. Drivers should consider the worth of all their assets before deciding whether to seek coverage.
Rental Reimbursement/Roadside Assistance
These types of coverage are nice to have when you need them, and they spare you from having to pay anything out of pocket. But the cost of paying for these services independently may be less than what you pay for coverage over time.