6 types of car insurance and how to choose

In general, car insurance can help protect your finances when your car suffers an accident, a crime or a breakdown. Think of it as a seat belt for your money.

Most motorists in the U.S. must carry some car insurance. In nearly every state, motorists must purchase liability insurance. But requirements for other types of car insurance differ from state to state.

Ride along to learn about the six common types of car insurance and how to choose which ones are right for you.

Key takeaways

  • Nearly every state requires a car owner to carry liability coverage.
  • Collision and comprehensive coverage may be mandatory if you have an auto loan or auto lease.
  • Some states require personal injury protection (PIP) and medical payments (MedPay) coverage.
  • Various kinds of optional coverage are available, such as towing and rental car reimbursement coverage.

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1. Liability coverage

Liability covers costs arising from injuries to someone else or damage to someone else’s property when you cause an accident. Coverage kicks in when you’ve hurt someone else or you’ve damaged someone else’s property in an accident that’s your fault. This coverage doesn’t apply to drivers or their own property, though.

Two kinds of liability coverage are available. Bodily injury liability covers medical bills. Property damage liability covers the cost of repairing or replacing property.

If you come across the phrase “full coverage car insurance,” this doesn’t mean you’re fully covered for every auto-related incident.

Bodily injury liability 

Bodily injury liability covers expenses connected to injuries or death that you cause to someone else when you’re behind the wheel of your car.

States typically require a minimum amount of bodily injury liability coverage. In New York, for instance, a driver must carry at least:

  • $25,000 in coverage for bodily injury and $50,000 for the death of one person in an accident
  • $50,000 in coverage for bodily injury and $100,000 for the death for two or more people in an accident

Property damage liability 

Property damage liability pays for damage that you cause to someone else’s property while driving your car. This could include damage to another car or to someone else’s property, like a building or fence.

States typically require a minimum amount of property damage liability coverage. In Texas, for instance, a driver must carry at least $25,000 in coverage for property damage per accident. 

2. Collision coverage

Collision coverage reimburses you for the cost (minus the deductible) of fixing your car when you’ve been in a collision that you caused. If you’ve paid for your car outright, it’s optional. But if you have an auto loan or auto lease, the lender might require it. Either way, most drivers have it. With collision coverage, here’s what might happen:

When you're in a car accident

Collision coverage pays for damage to your car when it’s been involved in an accident that’s your fault.

When you hit a stationaty object

Collision coverage pays for damage to your car when you run into a stationary object like a guardrail or telephone pole. It also covers damage to your car when you hit a pothole.

When the repair costs are greater than the value of the vehicle

Your auto insurance company might declare your car a total loss. When this happens, your insurer is supposed to pay you the actual cash value of your car. Actual cash value is calculated by subtracting the depreciated value of the car at the time of the accident from the replacement cost of your car.

3. Comprehensive coverage

Comprehensive coverage is for damage to your car from things other than collisions. As with collision coverage, comprehensive coverage is optional unless you have an auto loan or auto lease.

Comprehensive coverage could, for example, pay to fix damage resulting from:

  • A run-in with a deer or another animal
  • A natural disaster such as an earthquake, a flood, a hurricane or a tornado
  • A fire
  • Rioting
  • Vandalism and theft
  • Fallen objects like tree branches, trees and ice

Comprehensive coverage also kicks in when your car or parts from your car have been stolen.

4. Personal injury protection coverage (PIP)

Personal injury protection (PIP) pays medical bills and related expenses tied to a car accident, whether the accident was your fault or someone else’s. PIP, also known as no-fault insurance, usually applies to you and passengers who are relatives and live with you. In most states PIP is optional, but some states require it.

PIP can be especially helpful if you or your injured passengers don’t have health insurance. Aside from medical bills, PIP might cover:

  • Funeral services
  • Lost wages
  • Medical supplies
  • Nursing care
  • Prescriptions

5. Uninsured and underinsured motorist protection

Uninsured and underinsured motorist protection coverages are typically bundled together. Some states require one or both types of coverage.

They take effect when you, the policyholder, are involved in an accident with an at-fault driver who has insufficient or no car insurance. It covers injuries suffered by you and your passengers, as well as damage to your car. It also covers injuries or damage related to an accident caused by a hit-and-run driver, as well as injuries caused when you’re struck by a car when you’re a pedestrian.

6. Medical payments

Medical payments coverage, also called MedPay, can pay all or part of the medical expenses for you and your passengers arising from being in a car accident. This coverage applies no matter who caused the accident. MedPay also covers medical expenses if you’re struck by a car when you’re a pedestrian.

Some states require MedPay coverage.

Additional types of auto insurance

Other types of car insurance are available as optional add-ons, including:

Towing coverage

When your car breaks down—say, if your car’s engine dies—towing coverage can reimburse you for the cost of towing your car to the nearest repair shop.

Towing coverage is often part of a roadside assistance package that includes things like battery jump-starts, tire changes, fuel delivery and locksmith services.

Rental reimbursement 

Rental reimbursement coverage can pay for a car rental when your car is being repaired in connection with an insured claim. The coverage typically is capped at a certain dollar amount for a certain number of days.

Some credit cards offer rental car insurance. So before you buy this coverage from the rental company, it’s worth looking into your credit card terms.

New car replacement

If your car has been totaled or stolen, new car replacement coverage could pay for a new car that’s the same make and model as your current car.

Gap coverage

Gap coverage could pay the difference between the value of your damaged or totaled car and how much you still owe on that car.

How to choose the coverage you need

When you’re deciding on coverage, here are some questions you can ask to help determine the types of car insurance you need:

  • Does your state require liability coverage? If so, how much coverage do you need?
  • Is comprehensive or collision coverage required as part of your auto loan or auto lease? 
  • Could you pick up the tab to fix your car if you don’t have comprehensive or collision coverage?
  • Does your state require PIP coverage, uninsured/underinsured motorist protection or MedPay coverage?
  • Could you afford to cover medical bills from a car accident if you don’t have PIP or MedPay?
  • Could you handle the financial responsibility for damage or injuries caused by an uninsured or underinsured motorist?

Once you’ve answered these questions, it’s a good idea to obtain quotes from several insurance companies and compare each company’s coverage and costs.

Car insurance in a nutshell

At a minimum, drivers in nearly every state must carry liability insurance. You can look into whether you’re also required to purchase collision, comprehensive, PIP or MedPay coverage. Even if such coverage isn’t mandatory, buying it might save you from significant out-of-pocket expenses.

And before you make a decision, you can compare car insurance to ensure you’re getting the best deal for the best coverage.

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