Car insurance isn’t one-size-fits-all. Insurance includes many different types of coverage, and you may not need all of them depending on your situation. In almost every state, drivers are required to carry liability coverage, which helps pay for injuries and property damage if you cause an accident. You can also choose optional coverage types, such as comprehensive and collision insurance, which covers damage to your vehicle due to collision, theft, vandalism, or inclement weather. Understanding the differences between the different types of auto insurance can help you pinpoint the coverage you need and avoid paying for coverage you don’t need.
Common types of car insurance
The most common types of car insurance can be divided into two broad categories: mandatory coverage and optional coverage.
In nearly every state, the coverage you need starts with liability insurance, which includes bodily injury and property damage liability. In addition to liability insurance, some states require drivers to carry first-party medical insurance, such as personal injury or medical payments (MedPay) coverage and/or uninsured/underinsured motorist coverage.
Voluntary auto insurance coverage focuses on the policyholder’s insured vehicle. Collision and comprehensive coverage are both optional, but may be required by your lender for financed or leased vehicles. According to the Insurance Information Institute (III), approximately 80% of drivers in the U.S. are involved in a collision or comprehensive accident.
Essential car insurance: Liability coverage
The basis of a car insurance contract is liability insurance. This is a type of coverage that transfers some of the legal and financial responsibility for damages and injuries caused by an accident to the insurance company. Liability coverage is divided into two types: personal injury liability and property damage liability. There is also a form of coverage known as uninsured and underinsured motorist coverage that takes over the responsibility of another driver if your liability coverage is insufficient.
Insurance liability coverage does not have a deductible, but it can help cover litigation costs, such as legal defense and damages ordered to be paid up to the policy limit.
Personal Injury Liability (BI)
If you injure another person in a car accident and it is determined that you were at fault, personal liability coverage allows you to pay the other party’s medical expenses up to the insurance limit. Personal injury liability coverage is usually listed in installment limits. This means that your insurance will cover a separate amount for injuries caused by a single accident to one person. For example, $25,000/$50,000 personal injury insurance covers up to $25,000 in medical expenses for one person and a total of $50,000 in medical expenses for the entire accident.
Property Damage Liability (PD)
Property damage liability coverage pays to repair damage caused to someone else’s property instead of your own in an accident caused by your negligence. Your insurance company will likely write this as a single limit. For example, let’s say your auto insurance policy lists $25,000 in property damage coverage. This means you have $25,000 worth of coverage to repair anything you collide with, such as other cars, utility poles, houses, or other fixed objects.
Uninsured or Underinsured Motorist Injury Coverage (UM/UIM)
Uninsured motorist (UM) coverage and underinsured motorist (UIM) coverage are two different auto insurance coverage types, but they are often listed together on auto insurance policies.
Uninsured motorist coverage will pay your medical bills if another driver hits you, but they do not have personal injury liability to cover your medical bills. This coverage may also apply if you are the victim of a hit and run. Underinsured motorist coverage, on the other hand, pays for medical bills that exceed the at-fault driver’s personal injury liability limits. These coverage options may or may not be mandatory depending on your state.
This may cover damage to your vehicle, depending on your insurance policy and if you don’t have collision coverage.
Uninsured Motorist Property Damage (UMPD)
Uninsured motorist property damage coverage pays to repair damage to your car if you are uninsured and someone hits you. Some states require coverage for uninsured property damage. It may not be available or may be optional. UMPD can have maximum payment limits and mandatory or limited deduction options. In addition, many states require the identity of the driver of an uninsured vehicle to be verified for coverage, and hit-and-run accidents are often not covered.
In states that don’t offer UMPD, UM will cover damage to your vehicle.
Personal Injury Protection (PIP)
Personal Injury Protection (PIP) is first-party insurance that pays for medical expenses for you, your family, or your passengers, regardless of who is at fault in the accident. It can also cover lost wages and necessary expenses such as childcare and household services. This coverage is not available everywhere, but if you live in a no-fault state, PIP coverage is a must.
Optional car insurance: property damage coverage
Collision and comprehensive insurance, which are important components of a full coverage auto insurance policy, are the two main types of property damage coverage. There is no state law that requires drivers to carry these types of coverages, but when you lease or finance a car, lenders typically make these coverages a contractual requirement.
Unlike most required coverages, comprehensive and collision insurance come with deductibles. Your auto insurance deductible is the amount you agree to pay out-of-pocket if a covered claim is paid, essentially sharing the majority of the financial risk covered by your insurance policy. Deductibles reduce the overall cost of auto insurance by allowing your insurance company to avoid small claims and save you money over the long term.
Collision (COLL)
Collision coverage pays for damage to your vehicle, regardless of whether you were at fault for the accident. Damages caused by falls and potholes are also covered.
Unlike the liability coverage option, collision has no written limitations. Instead, it covers you up to the depreciated value of your vehicle, also known as its actual cash value or ACV.
Comprehensive (COMP or OTC)
Comprehensive coverage, also known as “non-collision” (OTC) coverage, covers damage to your car caused by natural disasters (hail, wind, flood, etc.), fire, theft, vandalism, falling objects, and collisions with animals. Comprehensive coverage also covers cracks in the windshield. As with collisions, comprehensive insurance also has a deductible. However, in some states, policyholders have the option of setting a separate glass deductible for windshield replacement. Glass deductibles are lower than comprehensive deductibles and can be as low as $0.
Other car insurance coverage details
Most auto insurance companies offer the types of auto insurance coverage outlined above in their standard policies, but your coverage options extend beyond comprehensive coverage and collision coverage. Depending on your location and carrier, you may be able to add additional medical insurance, coverage for your newly purchased vehicle, and various forms of roadside assistance.
Medical Payment Coverage (MPC or MedPay)
Medical payments coverage is not offered in every state, but it is usually available as optional coverage that will pay for your and your passengers’ medical bills, regardless of who is at fault for the accident. Unlike PIP, which is required in no-fault states, MedPay is only required by law in Maine and New Hampshire. Also, unlike PIP, MedPay does not cover lost wages or replacement services. This coverage is individualized and coverage limits typically range from $1,000 to $10,000. Additionally, medical expense coverage may apply if you are a pedestrian and are struck by a vehicle.
gap insurance
Gap insurance is optional coverage that you can purchase when financing or leasing a new car. As cars get older, their value tends to decrease. Because of this depreciation, you may end up paying more than the car is worth. In this case, your new car may be covered for the full loss, or if it is stolen and cannot be recovered, Gap Insurance may step in and pay the difference. This coverage type typically only applies to vehicles that are less than three years old.
New car replacement compensation
New car replacement coverage is optional and will pay for a new car if your car is retired within a few years or has less than a certain mileage.
Road service coverage
Roadside assistance is not available with all carriers, but many carriers offer it as an add-on. This typically covers towing, flat tires, battery jump starts, and locksmith services for vehicles with comprehensive or collision coverage. Adding roadside assistance to your auto insurance can be more affordable than paying for a separate roadside assistance membership, but response times and quality of customer service may be lower than a professional roadside assistance company.
Rental car coverage
Rental car coverage (also known as rental reimbursement) covers all or part of the cost of a rental car if your car is needed while your vehicle is being repaired due to a covered loss. Available for a set number of days and/or amount.
How to find the best car insurance coverage
Every driver has different insurance needs. Determining the balance between your coverage needs, your insurance budget, and other priorities like customer experience and availability of discounts is the key to finding the coverage that’s right for you.
The minimum your insurance must include is liability and other coverages required by state law. Minimum coverage insurance is the cheapest option, but it may not provide enough financial protection for most drivers. With the rising cost of car repairs and the rise in dangerous driving, a single accident can cost you tens of thousands of dollars in financial liability, and most states’ minimum liability limits only cover up to $50,000 or less.
Most insurance experts recommend raising your liability limits above your state’s requirements and adding comprehensive collision coverage to your policy, unless you own a car of little value or can’t afford to replace it without insurance. However, beyond these basic coverage options, your needs and budget may vary.
If you’re not sure how much car insurance you need, it’s a good idea to talk to an insurance professional. Once you’ve found your ideal coverage level, compare rates from multiple companies for their coverage limits to find the best price for your profile.