Types Of Car Insurance And How To Choose The Right Coverage

When you buy a car insurance policy, you have many options. Understanding the different types of car insurance, especially your state’s minimum coverage laws, is essential. Most states require liability coverage at the very least.

Let’s delve into the various types of car insurance coverage, key facts about them and how to choose the best types of coverage for you. Please contact a licensed insurance professional to discuss your unique situation and ensure you have the right coverage.

1. Liability Coverage

• What does it cover?: If you cause an accident, liability insurance covers bills for the other drivers involved up to your policy’s limits.                                                                 
  
  There are two types of liability coverage. Property damage liability covers repair costs for vehicles and other property damaged in the accident. Bodily injury liability covers medical expenses related to the accident.
• Is it required?: All U.S. states, except New Hampshire, South Carolina and Virginia, legally require liability coverage. The minimum coverage you need varies by state.
• Why is it Important?: In certain states, you can face fines and license suspension if your car doesn’t have liability coverage. It’s also required to have a valid driver’s license and to register your vehicle, regardless of the state where you live.                                                                             
  
  Without liability coverage, you’re on the hook for paying other parties’ bills. If someone involved in the accident presses charges, liability coverage could even help you cover legal costs.

2. Collision Coverage

• What does it cover?: Whether you get into a car accident or hit an object, collision insurance covers costs to repair your car, up to your policy’s maximum amount.
• Is it required?: No states currently require collision coverage by law. However, some auto lenders and leasing companies require it. That means you may need it if you bought your car with a loan or lease your car.
• Why is it important?: If you damage your car without collision coverage, you’re responsible for all repair costs.                                                                                               
  
  It It also helps if repair costs exceed your car’s market value. In this case, your insurer declares a total loss and gives you a check equal to your car’s value (minus your deductible). You can put these funds toward buying a car to replace the totaled one. Collision insurance can be worth the additional

3. Comprehensive Coverage

• What does it cover?: Comprehensive insurance covers repair costs for damages caused by hitting animals, severe weather, fires, vandalism, car theft and windshield damage.
• Is it required?: Like collision coverage, comprehensive coverage is typically optional unless you finance your car and your lender or leaser requires it.
• Why is it important?: Comprehensive coverage is similar to collision coverage in that if your car is totaled or stolen and not recovered, your insurer will pay you the value of your car, minus your deductible. If you don’t have comprehensive coverage, you’ll have to pay to repair damages or, in extreme cases, replace your car.

4. Uninsured Motorist (UM) And Underinsured Motorist (UIM) Coverage

• What does it cover?: If your car is hit by an uninsured or hit-and-run driver, UM insurance covers car repairs and medical bills for you and your passengers. UIM coverage pays for these expenses if you’re hit by an at-fault driver whose liability coverage limit doesn’t cover your bills.
• Is it required?: You legally need UM coverage in 20 states. Fourteen states require UIM coverage. Some states require insurance companies to offer both.
• Why is it important?: Aside from being mandatory by law in some states, UM coverage and UIM coverage are valuable for a few reasons. Over 12% of drivers don’t have insurance according to the Insurance Information Institute, and a hit-and-run happens every 43 seconds in the U.S. according to data provided in 2016 by the AAA Foundation for Traffic Safety. While you can’t eliminate these risks, UM coverage can lower the cost you’ll need to pay for car repairs or injury treatments.                                                                                                   
  
  With different state laws and numerous coverage options, the amount of liability coverage other drivers have is impossible to know. UIM helps bridge the gap between others’ coverage limits and your expenses.

5. Medical Payment (MedPay) Coverage

• What does it cover?: MedPay insurance pays for your medical bills and funeral costs, regardless of who caused the accident.
• Is it required?: MedPay coverage is only required in New Hampshire and Maine. Insurance companies in some but not all other states offer it as optional coverage.
• Why is it important?: If you live in one of the two states requiring MedPay coverage, you may need it to avoid legal repercussions. Unlike bodily injury liability coverage, MedPay insurance covers medical costs whether or not you caused the accident.

6. Personal Injury Protection (PIP) Coverage

• What does it cover?: PIP – sometimes called no-fault insurance – offers similar coverage to MedPay but with a few additional costs covered. PIP insurance pays for expenses, like childcare costs, that arise due to injury. If you’re unable to work, PIP insurance also covers your lost income.
• Is it required?: Fifteen states require PIP coverage. It’s optional in a few states, and others don’t offer PIP coverage.
• Why is it important?: If you live in a state where PIP insurance isn’t required, you may want to look into whether your state offers it. It may help cover costs that your health insurance policy doesn’t, regardless of who’s at fault in the accident.                                                                             
  
  If your state offers MedPay and PIP coverage, PIP may be the better option.

Auto Insurance Coverage Add-ons

If you’re looking for ways to protect for your car – and yourself – beyond the policies discussed above, a few optional coverage options include:

• Classic-car insurance: Classic or vintage car owners can add this coverage to their vehicle, as long as the car meets their insurance company’s requirements.
• GAP insurance coverage: If your car is totaled before you pay off your loan or lease, GAP coverage pays the difference between the car’s actual cash value and your remaining balance.
• Full glass coverage: Glass coverage pays the cost – without a deductible – to repair or replace your windows, mirrors or headlights if they chip or crack.
• New car replacement coverage: To get new car replacement coverage, you need to be the original owner of the car and buy this coverage within a year of purchasing the vehicle. If your car is totaled, your insurer covers the cost of a new car.
• Rental car reimbursement/transportation expense coverage: If your car is repaired for covered damage and you need to rent a car, this pays for the rental car. Most insurers have limits on the amount and number of days they’ll cover.
• Ride-sharing coverage: This covers your car while you drive for a ride-sharing app. Insurers won’t cover this, and ride-sharing companies’ insurance tends to offer limited coverage for drivers transporting passengers.
• Roadside assistance: In the event of an emergency like a flat tire or locking your keys in your car, roadside assistance covers towing and other labor fees.
• Sound system coverage: If you invested your time and money into installing a custom speaker system, this extra coverage provides funds in the event of stolen or damaged equipment.
• Full coverage: Sometimes confused for liability coverage, full coverage is actually a combination of a few policies. A full coverage policy includes liability, collision and comprehensive coverage.

How To Choose The Best Car Insurance Coverage For You

Be sure to keep your state’s requirements in mind as you look over car insurance policies. Once you fulfill your legal obligations, you can choose any optional coverage to add.

Consider your budget as you explore extra coverage options. If you can afford it, a high liability limit may be better if you have valuable assets. If your priority is to save money on car insurance rates each month, consider choosing a policy with a higher deductible.

Consult an insurance agent for advice on the coverage type most suitable for your financial situation.

FAQs: Types Of Car Insurance Coverage

Check out our answers to some common questions people ask about types of auto insurance coverage.

What is no-fault insurance?

No-fault insurance is another common name for PIP insurance. Regardless of who was at fault in an accident, it covers your injury-related costs.

Is car insurance required?

State laws require different types and levels of coverage. Check your state’s laws to find out the type of auto insurance policy you need.

Liability coverage is required to register a car in every state except New Hampshire, South Carolina and Virginia. Qualifications to register an uninsured vehicle vary by state.

What car insurance coverage do I need?

The type of car insurance coverage you need depends on a number of personal factors. Where you live, the type of car you drive, your car’s age and how much you drive will all play into the type and level of coverage your car should have.

Talk with an insurance agent for help deciding on the coverage options that meet your state’s requirements and best suit your needs.

How much is car insurance a month?

Your state’s minimum coverage requirements, any optional coverage you add and the insurance company you choose will affect how much you pay for car insurance.

On average, full coverage monthly payments are around $179, while state minimum liability coverage costs about $39 a month, according to Forbes.

Shop around and get car insurance quotes from multiple providers to find the best rate available.

The Bottom Line: Find The Right Car Insurance For You

As you decide which type of car insurance coverage to sign up for, be sure to meet your state’s legal requirements. In most states, this means at least property damage and injury liability coverage.

For help tracking your monthly car insurance payments and finding ways to save on your bills, create an account on the Rocket Money^SM app today.