Key takeaways

  • Most states require drivers to carry liability coverage, including bodily injury liability and property damage liability.
  • Collision and comprehensive coverage are optional, but if you finance or lease your vehicle, you may be required to carry them.
  • Depending on the carrier, other optional coverage types may include roadside assistance, rental car reimbursement, new car replacement and gap insurance.

Just like fingerprints are unique, so are drivers and their insurance policy needs. Once drivers meet their state’s minimum insurance and bank loan or leasing requirements, there are more car insurance coverage types and limits to consider. Vehicle type, budgetary restrictions and risk tolerance level vary from person to person, and car insurance can be tailored to accommodate your financial needs. Bankrate’s insurance editorial team created this guide to help drivers better understand what options may work best.

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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, including bodily injury and property damage, is almost always mandatory. Depending on your state’s minimum requirements, you may also have to carry personal injury protection (PIP) and uninsured or underinsured motorist coverage. Personal vehicle coverage — like collision and comprehensive coverage — is optional, but you may be required to carry it if you finance or lease your vehicle.

Required car insurance: liability coverage

To be liable means that you are legally or financially responsible for something. In the case of car insurance, liability refers to damage and injuries that you cause with your vehicle. There are two types of liability offered on most standard car insurance policies: bodily injury and property damage. You may also have the option to purchase uninsured and underinsured motorist coverage.

Bodily injury liability (BI)

Bodily injury liability coverage may pay for the other party’s medical bills if you’re deemed at fault in an 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.

  • 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)

Property damage liability coverage pays to repair the damage you cause to others’ 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 another stationary object.

  • 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)

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.

  • 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.

Optional car insurance: vehicle coverage

In addition to the liability insurance that may be required by your state, 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. The following coverage types are not mandated by law, but if you have a loan or lease on your vehicle, your lender will likely require them.

These coverage types also have a deductible, which is the amount you agree to pay out of pocket in the event of a covered claim. Insurance would kick in to help pay the rest. The higher the deductible, the lower your premium for that particular coverage (and vice versa). Depending on your state’s insurance laws and the particular coverage type, deductibles can be as low as $0 or as much as $2,500 — or more. Some lending institutions may put restrictions on how high of a deductible a policyholder can carry for as long as the vehicle has a lease or lending agreement.

Collision (COLL)

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.

  • 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)

Comprehensive coverage pays for the damage 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 carries a deductible. However, in some states, policyholders have the option to have a separate glass deductible for windshield replacement. Glass deductibles may be lower than the comprehensive deductible and could be as low as $0.

  • 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 toward the repairs and you would be responsible for the $500 deductible.

Uninsured motorist property damage (UMPD)

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 or is optional. UMPD can have a maximum payout limit and a mandated or limited deductible option. Also, many states require the driver of the uninsured vehicle to be identified for the coverage to apply, meaning it is often not an option for hit-and-run accidents.

  • 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.

Other types of car insurance coverage

On top of these common coverage types offered by most car insurance companies, many insurance providers also offer more miscellaneous auto insurance coverage types. Some of the coverage options listed below may only be available if you’ve already purchased comprehensive and collision insurance. Your state’s insurance laws may also limit the availability of these auto insurance coverage types. That said, these types of car insurance coverage tend to be fairly affordable add-ons and may help to round out your policy.

Medical payments coverage (MPC or MedPay)

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 coverage limit usually ranges from $1,000 to $10,000. Additionally, medical payments coverage may apply if a vehicle hits you as a pedestrian.

  • 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 may pay your medical bill in full.

Personal injury protection (PIP)

Personal injury protection (PIP) 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, PIP coverage could be mandatory if you live in a no-fault state.

  • 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.

Gap insurance

Gap insurance is an optional coverage that you may be able to purchase when financing or leasing a new vehicle. As a vehicle ages, it tends to depreciate 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. This coverage type is typically only available for vehicles less than three years old.

  • 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 coverage

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.

  • 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

Every company’s version of roadside assistance coverage is different, but it typically covers towing, flat tires and locksmith services.

  • 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

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.

  • 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.

How to find the best car insurance coverage

The types of auto coverage you choose to carry depend 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, you may want to speak to an insurance professional and request a policy review.

Frequently asked questions

    • The best car insurance company will vary for each driver as insurance rates, coverage requirements and comfort with risk 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. For example, if you need your car insurance rate to fit within a specific budget, you may find that the best auto insurer is one with low rates and multiple discount opportunities. Alternatively, you may value customer service and therefore benefit from looking into third-party ratings and customer reviews. Once you’ve determined the factors that are important to you, you can shop around and get car insurance quotes from companies that meet your needs.
    • With so many potential coverage options, it may be difficult to know how much insurance to purchase. Speaking with a licensed insurance agent may help you determine what coverage you legally need to carry and what optional coverage types may be beneficial to you. 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 car insurance do you need?

    • Yes, you can cancel your coverage at any time if you decide to do so. Keep in mind, however, that your state will most likely have minimum legal coverage requirements that must be met to operate your vehicle legally. It is inadvisable to cancel your insurance unless you have purchased another car insurance policy that will go into effect the same day or if you have already canceled your registration with your state’s department of motor vehicles.
    • Accident forgiveness coverage may not be offered by every insurance provider or be available in every state. Some carriers allow any eligible policyholder to purchase accident forgiveness coverage, while others may require that you go a certain number of years without an accident to qualify for this coverage. If you do purchase accident forgiveness coverage, your carrier will typically waive any premium increases following your first at-fault accident.