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Car insurance is a multi-faceted, personalized product, but that doesn’t mean it has to be complicated. Understanding the common types of insurance coverage is essential — not only to ensure that you meet your state’s minimum insurance requirements, but also to protect your finances from a hefty out-of-pocket expense if you’re involved in an accident. Bankrate explains the various coverage options on a personal auto policy to help you better understand how your insurance works.
The most common types of car insurance
Although many of the best car insurance companies have different coverage packages to choose from, you may find it easier to understand your policy if you break it down into two types of coverage: required and optional.
Liability coverage, like bodily injury and property damage, are almost always mandatory. Depending on your state’s minimum requirements, you may also have to carry personal injury protection and uninsured motorist. Personal vehicle coverage, on the other hand, is optional (unless you’re financing or leasing).
To be liable means that you are legally responsible for something. In the case of car insurance, liability refers to damages and injuries that you cause during a car accident. There are two types of liability offered on most standard auto insurance policies: bodily injury and property damage.
Bodily injury liability (BI)
What it covers: Bodily injury liability coverage pays for the other party’s medical bills if you’re at fault in the accident. Most often, your insurance company will write bodily injury on a per person, per accident basis. For example, you may see $25,000/$50,000 listed under bodily injury on your auto policy. This means you have $25,000 of bodily injury coverage per person, with a maximum of $50,000 per accident.
Coverage example: You run a red light and hit another vehicle. The driver in the other vehicle suffers a broken leg, and his medical bills amount to $15,000. Your bodily injury coverage would kick in to pay for those bills, up to the limit of coverage you carry on your policy.
Property damage liability (PD)
What it covers: Property damage liability coverage pays to repair the damage you cause to other’s property — not your own — in an at-fault accident. Your insurance company will probably write this as a single limit. For instance, you might see $25,000 under your property damage coverage on your auto policy. This means you have $25,000 worth of coverage to repair something you hit, such as another car, a pole, a house or other stationary object.
Coverage example: You hit a patch of black ice and run into a light pole. The city assesses the damage to the pole and determines that it will cost $5,000 to repair it. If you carry $25,000 of property damage on your policy, you’d have more than enough coverage to pay for the repairs.
Uninsured and underinsured motorist bodily injury coverage (UM/UIM)
What it covers: Uninsured motorist coverage and underinsured motorist coverage are two different coverage options, but they are frequently listed together on your auto policy. Uninsured motorist coverage and underinsured motorist coverage pay for your medical bills and other damages if another driver hits you and they don’t have any or enough bodily injury liability to cover your medical expenses, respectively. This coverage may also apply if you are the victim of a hit-and-run. These coverage options may or may not be mandatory, depending on your state.
Coverage example: You’re in a not-at-fault accident, and the other driver was uninsured. You incur $25,000 worth of medical bills and carry $25,000/$50,000 in uninsured motorist coverage. Having this coverage would help you avoid out-of-pocket medical expenses.
In addition to the required liability insurance, you may want to consider other optional coverage types for your vehicle, such as collision and comprehensive, especially if your vehicle is newer or more valuable. These coverage types are not mandated by law, but if you have a loan or lease on your vehicle, your lender will likely require them.
What it covers: Collision coverage pays for the damage to your vehicle regardless of who is at fault in an accident. Unlike the liability coverage options, collision doesn’t have a written limit. Instead, it will cover up to your vehicle’s value after depreciation, also called the actual cash value or ACV. This coverage carries a deductible, which is the amount of money you’re responsible for.
Coverage example: In a moment of distraction, you forget to check your blind spot and sideswipe a vehicle while changing lanes. The total damage to your car is estimated to be $1,200. You carry collision coverage on your vehicle with a $500 deductible. Since the deductible is your responsibility, your insurance company would pay $700 towards the repairs.
Comprehensive (COMP or OTC)
What it covers: Comprehensive coverage pays for the damages to your car resulting from acts of nature (such as hail, wind and floods), fire, theft, vandalism, falling objects and hitting an animal. Comprehensive also covers your windshield. Like collision, comprehensive also carries a deductible.
Coverage example: A deer darts in front of you, and you hit it head-on. Your car has major front-end damage as a result, and the repair bill totals $7,000. You carry comprehensive insurance with a $500 deductible, so your insurance company would pay $6,500 towards the repairs, and you will be responsible for the remainder.
Uninsured motorist property damage (UMPD)
What it covers: Uninsured motorist property damage pays to repair the damage to your vehicle if someone hits you and they don’t have insurance. In some states, uninsured property damage is mandatory. In others, it’s not offered. If this coverage is available in your state, it will usually carry a small deductible of $100 to $300.
Coverage example: Someone hits your car in a parking lot and causes $700 in damage to your vehicle. The driver doesn’t have insurance. However, you have uninsured motorist property damage on your policy, so your insurance company could make a payout for your vehicle’s repairs minus your $100 deductible.
Medical payments coverage (MPC or MedPay)
What is covers: Medical payments coverage is typically offered as an optional coverage (although it is required in a few states, like Maine) that pays towards medical bills for you and your passengers, no matter who is at fault in the accident. This coverage is written on a per-person basis, and the limit usually ranges from $1,000 to $10,000. Additionally, medical payments coverage could cover you if a vehicle hits you as a pedestrian.
Coverage example: Someone rear-ends you, and as a result, you experience whiplash. Your medical bill is $3,000, and you carry medical payments coverage on your auto policy with a $5,000 limit. In this case, your medical payments coverage would pay your medical bill in full.
Personal injury protection (PIP)
What it covers: Personal injury protection is similar to medical payments coverage in that it pays for you and your passengers’ medical bills no matter who’s at fault in the accident. It can also cover necessary expenses that medical payments do not, such as child care or household services. Although this coverage isn’t available everywhere, personal injury protection could be mandatory if you live in a no-fault state.
Coverage example: A driver runs through a stop sign and hits you as you proceed through the intersection. Your passenger was hurt and requires $4,000 worth of chiropractic treatment, which your personal injury protection could pay for.
What it covers: Gap insurance is an optional coverage that some people carry when financing or leasing a new vehicle. As a vehicle ages, it depreciates in value. This depreciation can sometimes cause you to owe more money on your car than it’s worth. In this instance, gap insurance could step in to pay the difference if your new vehicle is totaled in a covered loss or stolen and unrecoverable.
Coverage example: The actual cash value of your financed vehicle is $15,000, but you owe $20,000 on your loan. You’re the driver in an at-fault accident, and the damages are severe enough that your insurance company declares your vehicle a total loss. After your $500 collision deductible, your claims check is $14,500. Your gap insurance could then cover the $5,500 balance between the actual cash value of your vehicle and the remaining balance on your loan.
New car replacement
What it covers: New car replacement coverage is optional, and it pays for a brand new car if your vehicle is totaled and no more than a couple years old or under a certain mileage.
Coverage example: You bought a brand new car six months ago, but you were just involved in an accident, and the vehicle was totaled. If you carry new car replacement coverage on your policy, your insurance company would pay for a brand new car rather than a six-month-old car (which would have been comparable to the vehicle that was totaled in the covered loss).
Roadside assistance coverage
What it covers: Roadside assistance coverage is usually optional when you carry comprehensive or collision. Every company’s version of roadside assistance is different, but it typically covers towing, flat tires and sometimes, a locksmith.
Coverage example: Your car breaks down while taking a road trip. You have roadside assistance coverage, so you call your car insurance company, and they send you a tow truck at no out-of-pocket expense.
Rental car coverage
What it covers: Rental car coverage, sometimes called rental reimbursement, will pay for your rental car if you need one while your vehicle is repaired due to a covered loss.
Coverage example: You run off the road and your vehicle needs significant repairs, which are taken care of by your collision coverage. Your vehicle needs to be in the shop for two weeks, but because you carry rental car coverage, your insurance company would pay for your rental up to a certain amount each day rather than it being an out-of-pocket expense.
How to find the best coverage for me
The types of auto coverage you choose to have on your policy depends on your individual needs. To comply with the law, you must carry the minimum limits required by your state. However, most insurance professionals recommend that you carry higher liability limits to better protect your finances. You could face thousands of dollars (or more) in out-of-pocket expenses if you’re involved in an at-fault accident and only carry minimum coverage.
Additionally, you’ll likely be required to carry comprehensive and collision coverage if you’re financing or leasing. Lenders usually have rules regarding how high you can set your deductible ($500 to $1,000 is standard). However, as long as you meet your state and lender requirements, the choice is yours regarding coverage options like emergency roadside assistance and gap insurance.
Whether you’re shopping for the best car insurance company or are concerned with the coverage on your current policy, it’s always a good idea to ask questions. Speak to an insurance professional and request a policy review.
Frequently asked questions
The best car insurance company will vary for each driver as rates, coverage requirements, and other factors will differ for each person. If you want to find the best car insurance company for your needs, it may be helpful to determine what’s most important to you when it comes to your car insurance. For example, if you need your car insurance rate to fit within a specific budget, you may find that the best car insurance company is the one offering you the cheapest rates for the best coverage. Or, you may prioritize finding a car insurance company with a track record of customer satisfaction and strong financial ratings, or one offering the most digital tools for policy management. Once you’ve determined the factors that are important to you, you can shop around and get car insurance quotes from the companies that may meet your needs.
If you have a teen driver in your home, you will likely need to add them as a driver to your policy. While this may help to ensure that you’re adequately covered, it’s important to know that adding a teen driver will almost certainly increase your car insurance premiums. Teens tend to be more expensive to insure due to their lack of experience behind the wheel, which results in a statistically higher risk of accidents or moving violations. As such, the higher cost may make it tempting to cut back on your own coverage to reduce the price of your policy, but there are other ways to save on your insurance when adding a teen driver. That could include taking advantage of teen driver discounts or other types of discounts.
Knowing how much coverage to buy can be an important step in understanding your auto insurance. However, when you work with a licensed agent, they will know how much coverage you need at minimum and you will not be able to purchase less than the state’s requirements. One question to consider when determining your coverage needs is whether you have a loan or lease on your vehicle? If you do, you will likely need to carry full coverage, which includes collision and comprehensive. For liability coverage, most insurance professionals advise that you purchase limits higher than state minimum levels to protect yourself against financial strain in the event of an at-fault accident. You can have a licensed agent quote several different levels of coverage for you to find the right amount of protection that works for you.
Learn more: How much is car insurance?