Almost every driver in the United States is required by law to carry car insurance. After an accident, car insurance protects you from liabilities, pays to repair your vehicle and covers your medical expenses.
If you’ve never purchased car insurance before, knowing what is and isn’t covered can be confusing. A single car insurance policy actually includes multiple types of coverage and it’s important to understand each one.
When you purchase a policy, you’ll need to select the coverages you want, and a certain amount of coverage for each type. Additionally, your state has legal requirements for the minimum amount of coverage you need to have.
We put together a guide to help you understand the most common types of car insurance. We’ll also help you determine how you can find the best car insurance coverage for your needs.
The most common types of car insurance
There are six main types of car insurance that are available when you purchase a policy, which include:
- Bodily injury liability
- Medical payments or personal injury protection (PIP)
- Property damage liability
- Uninsured and underinsured motorist coverage
“Liability” means that you are legally responsible for something. In the case of car insurance, that refers to a car accident that is your fault as determined by law. There are two types of liability in any car accident: bodily damage and damage to property.
Bodily injury liability
If you’re at fault in an accident, bodily injury liability will cover injuries to the other party, including their medical expenses, lost wages and pain and suffering. The coverage also extends to anyone else who is driving your car. For example, if you hit another driver and they broke their leg, your bodily injury liability coverage would pay for x-rays, surgery and time spent out of work. Every state has a minimum requirement for the amount of bodily injury liability you must carry to cover a single accident, and for each person in an accident.
Property damage liability
This covers any damage that you might cause to another person’s property as the result of a collision. It typically covers cars, but it can cover other items like fences, buildings, mailboxes or lamp posts. If you accidentally hit a pole or run into your neighbor’s mailbox, this is the coverage that would apply. Property damage liability does not cover damage to your property. In that case, you’d want to add collision coverage, which is not mandated by the state, to help cover those costs. Minimum property damage liability coverage is generally from $10-25K per accident; your insurance agent can tell you the minimum in your state.
Uninsured and underinsured motorist coverage
This coverage applies to your vehicle’s damages and your medical expenses if another driver hits you but doesn’t have the liability coverage that they are supposed to have to pay for expenses related to an accident. If you, your designated driver or a member of your family gets hit by an underinsured or uninsured motorist, this type of insurance pays for damages. Uninsured and underinsured motorist coverage policies can also cover the policyholder while they are a pedestrian and hit-and-run accidents. This insurance may pay for both your medical costs and your property damage, or you might have to purchase separate coverage for each of those. Uninsured and underinsured motorist coverage may be optional or mandatory, depending on where you live.
In addition to the required liability insurance, you may want to consider optional coverage types for your vehicle, especially if it is newer or more valuable. This coverage is not mandated by law. It’s up to you and your agent to determine how much you want to spend and the amount of coverage you’d like to get.
When your vehicle gets damaged in a collision, this is the coverage that pays for fixing the car. It can even cover damage from potholes. Collision coverage most commonly applies after a typical accident with one or more drivers. However, collision coverage only applies to your vehicle—it doesn’t cover the other driver’s car. Additionally, collision coverage does not cover you for mechanical failure or the normal aging of your car. If, for example, your transmission blows out, you could not use your collision insurance to get it fixed. If your car is older and not worth much, you may want to skip this cost to save money.
Comprehensive coverage is for any type of damage not related to a collision. For instance, it can cover damage resulting from fires, missiles, earthquakes, floods, vandalism, hitting a deer, falling objects or explosions and glass breakage. So if your car unexpectedly catches fire on the road, your comprehensive coverage would pay for the damages. Comprehensive coverage is usually optional. But if your car is newer, more expensive or leased, you may want to consider adding comprehensive, along with collision, to your policy to ensure that you’re not left with empty pockets if something goes wrong.
Other optional coverage
Medical payments coverage (MPC)
This is coverage for the treatment of injuries for you or passengers in your vehicle at the time of an accident. It can cover medical payments, lost wages and funeral costs. In some cases, medical payments coverage may also cover you if you are a pedestrian hit by a car. Your medical payments coverage has a limit, which is the highest amount of money the insurance company will pay you for medical costs. Before you sign up for this type of coverage, check your health insurance policy to be sure it’s not covered there. Otherwise, you could end up paying for duplicate coverage.
Personal injury protection (PIP)
Personal injury protection, or PIP, covers you, your family and anyone riding in your car for injuries, no matter who caused the accident. If you live in a no-fault state, you’ll be required to carry this type of insurance. If you live in an at-fault state, you are not legally required to have PIP, but you may be able to purchase it for added protection. Similar to medical payments coverage, PIP may cover medical and rehabilitation expenses, work loss benefits and funeral expenses.
Excess medical payments
Excess medical payments coverage also covers medical expenses after an accident. As the name suggests, excess medical payments insurance has a higher limit than basic medical payments or PIP coverage offers. If you want the highest level of protection, you can purchase excess medical payments coverage for an added fee. However, keep in mind that not every insurance provider offers this type of coverage. Instead, you can simply increase your policy limits for regular medical payments or PIP coverage.
Residual bodily injury liability coverage
This is another type of coverage frequently found in no-fault states. It protects you, your family and others in your car if you are sued because of injuries or death caused to others. Typically, residual bodily injury liability coverage would apply if a passenger in your car got injured in an accident and sued you for negligence as the driver. No-fault states often allow such lawsuits if the injuries are serious enough. Keep in mind that this type of coverage may not be available in at-fault states.
The III defines gap insurance as, “In the event of an accident in which you’ve badly damaged or totaled your car, gap insurance covers the difference between what a vehicle is currently worth (which your standard insurance will pay) and the amount you actually owe on it.”
Vehicles decrease in value the second you take them off the lot after you purchase or lease them. If you put down a small deposit on the car, it’s possible for the loan amount to be more than the market value of the vehicle. In simple terms, gap insurance covers the difference between a car’s reduced worth and the amount of the loan.
The III states that you may want to get gap insurance if: you made less than a 20 percent down payment, you financed the car for 60 months or more, you leased the vehicle, you bought a car that depreciates faster than other vehicles on average or you carried over negative equity from an old car loan to the new car loan.
For more information, visit the Insurance Information Institute’s (III) guide to the major types of car insurance.
How to find the best coverage for me
Each state has a specific set minimum amount of car insurance that they require people to carry. You can refer to the chart laid out by the NAIC to find more about your state’s minimum coverage amounts.
Those minimums are indicated by three numbers, 25/50/10, which refers to liability insurance. These are maximums relating to how much gets paid out. The 25 in this case means that $25,000 is the maximum that may be paid for one person’s bodily injury per accident. The second number relates to the maximum payout per accident. The third covers property damage maximum payments.
Your insurance doesn’t have to match the state minimum. If you want to feel more protected, you can buy more expensive policy types that pay out more in the event of damage. For instance, if you have an expensive car, you may need more coverage than the minimum to cover full damages.
Shop around to compare different coverage types and the rates you could get with each provider. All agents will know the most current minimum auto insurance coverage types you need for your state. Also, you can discuss with agents how much coverage you might need on top of the minimums. You can choose additional coverage and insurance types based on your lifestyle, the value of your possessions, local health care costs and your peace of mind.