Car insurance is a legal requirement in almost every state, which means that, as a driver, you are almost certainly required to carry a policy with at least the minimum amount of coverage. That said, choosing between the car insurance coverage options and limits can feel overwhelming, especially if you’ve never purchased a car insurance policy before. But whether you’re new to purchasing car insurance or are simply trying to find the best car insurance, you may need some guidance on the types of car insurance coverage available to you.
Fortunately, there are common types of car insurance coverages that are relatively standard across most providers. There are also certain types of optional coverage options that can be used to enhance your policy or provide you more financial protection in case of accidents and other related incidents. Understanding the types of coverage that’s available, and knowing what you may need the most, may be an important step before finalizing your policy. After all, drivers in the U.S. spend, on average, about 2.57% of their annual income on auto insurance, which means choosing the right coverage may be key to getting your money’s worth from your policy.
The most common types of car insurance
Auto insurers typically offer several basic coverage types, as well as optional endorsements that can enhance your protection. The most common types of standard and optional coverages are:
- Bodily injury liability
- Property damage liability
- Uninsured and underinsured motorist coverage
- Uninsured motorist property damage (UMPD)
- Medical payments coverage (MPC)
- Personal injury protection (PIP)
- Gap insurance
- New car replacement
- Roadside assistance coverage
- Rental car coverage
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 standard auto insurance policies: bodily injury and property damage.
Bodily injury liability
If you are at fault in an accident, your bodily injury liability coverage will cover injuries to the other party, including their medical expenses, lost wages and pain and suffering. The coverage extends to anyone driving your vehicle, as long as they have permission. For example, if you rear-end another vehicle and the driver suffers a broken leg, your bodily injury liability coverage would pay for x-rays, surgery and other medical care, and time spent out of work. Most states have a minimum requirement for the amount of bodily injury liability you must carry.
Property damage liability
Property damage liability is designed to cover any damage that you might cause to another person’s property as the result of an auto accident. Property damage typically refers to a vehicle that you hit, but property damage liability 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 be used to pay for those damages.
Property damage liability does not cover damage to your property. To cover your damage to your own vehicle, you will need to carry optional comprehensive and collision coverages. To cover personal property that you may have inside your vehicle, like a laptop or household contents, you will usually need a homeowners, renters or condo owners policy, although some auto insurers may offer a small limit of personal property coverage for items in your vehicle. Most states also mandate a minimum level of property damage liability coverage that you must purchase.
Uninsured and underinsured motorist coverage
This coverage applies to your medical expenses if another driver hits you but does not include any liability coverage or does not have enough liability coverage to pay for your injuries. If you, another covered driver on your policy or someone you have allowed to borrow your vehicle gets hit by an underinsured or uninsured motorist, this type of insurance pays for damages. You can think of uninsured and underinsured motorist coverage as buying a liability policy to protect yourself against drivers who drive uninsured. It functions like liability coverage but is designed to pay for your own vehicle’s damages.
Uninsured and underinsured motorist coverage can also cover you while you are a pedestrian or if you are the victim of a hit-and-run where the at-fault driver leaves the scene and is unidentifiable. Uninsured and underinsured motorist coverage may be optional or mandatory, depending on the regulations in your state.
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 it is newer or more valuable. These coverages are not mandated by law, but if you have a loan or lease on your vehicle, your lender will likely require them. Talking to an agent and obtaining a quote for collision and comprehensive coverage may help you decide if the extra protection is worth the cost to you.
When your vehicle gets damaged in a collision, this is the coverage that pays for fixing the car. Collision coverage can provide coverage for damage to your vehicle after you hit another vehicle, a pole, a tree or even a pothole. However, if you were not at fault for an accident that caused damage to your car, the at-fault driver’s property damage liability coverage should pay for your repairs. However, collision coverage only applies to your vehicle — it does not cover damage to the other driver’s car.
Additionally, collision coverage does not cover you for mechanical failure or the normal aging of your vehicle. If, for example, your transmission dies, you could not use your collision insurance to get it fixed. Unless you have a loan or lease on your car, this coverage is likely optional. However, you may want to consider adding this relatively inexpensive coverage to provide you with financial protection for repairing or replacing your vehicle in the event of an accident.
Comprehensive coverage is sometimes called “other than collision coverage” and pays for numerous types of losses not related to a collision. For example, it can cover damage resulting from fires, earthquakes, floods, vandalism, theft, hitting a deer, falling trees and other objects, explosions and windshield breakage. So if your vehicle unexpectedly catches fire on the road or you left it outside during a hail storm, your comprehensive coverage may pay for the damages.
Comprehensive coverage is usually optional, although your lender will likely require you to carry this type of coverage if you have purchased your car with a loan. Just like with collision coverage, if you have a loan or lease on your vehicle, you will likely be required to carry comprehensive coverage by your financial institution. Additionally, if your vehicle is newer or more expensive, you may want to consider adding comprehensive to your policy for financial peace of mind.
Uninsured motorist property damage (UMPD)
Uninsured motorist property damage (UMPD) coverage is designed to pay for your property damage if you are hit by someone who does not have insurance coverage. Typically, this will cover the damage to your vehicle, but it could also cover damage to property inside your vehicle, like a car seat that is damaged in an accident with an uninsured motorist. Many states require that insurance companies offer uninsured motorist coverage, both for bodily injury and property damage, but you can often decline it in writing. However, UMPD is not available in all states, and even if you have the coverage, there may be a small deductible, usually between $100 and $300. If you cannot purchase UMPD, talk to your insurance agent or auto insurer about how an uninsured motorist property damage claim would be handled. Many companies have the ability to take care of your damage by using your collision coverage.
Medical payments coverage (MPC)
Medical payments coverage (MPC) is for the treatment of injuries for you and any passengers in your vehicle at the time of an accident. MPC strictly pays for medical bills resulting from auto accidents; it does not typically pay for things like lost wages. Medical payments coverage may also cover you if you are a pedestrian hit by a motor vehicle.
Your medical payments coverage has a limit, which is the highest amount of money the insurance company will pay you for medical costs. This limit is generally a per-person limit. So if you have $5,000 in MPC, that means you have $5,000 in coverage per person in the vehicle. If you are unsure how much medical payments coverage you need, seek advice from a licensed insurance agent.
Personal injury protection (PIP)
Personal injury protection (PIP) covers you and anyone riding in your car for injuries, no matter who caused the accident. If you live in a no-fault state, you may 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 and funeral expenses. PIP may also cover work loss benefits or other non-medical expenses like childcare or household services if you cannot complete the tasks due to injuries sustained in an accident.
Vehicles, especially new ones, often begin to decrease in value the moment you take them off the lot after you purchase or lease them. Due to this depreciation, your loan amount can be higher than the market value of your vehicle. In simple terms, gap insurance covers the difference between your vehicle’s depreciated value and your loan amount.
Gap insurance is often available from your lender, but can sometimes be purchased from your insurance company as an endorsement on your auto insurance policy. However, your insurance company may limit how old a vehicle can be to qualify for gap insurance. For example, gap coverage may be offered for a brand new vehicle or up to two model years old. The Triple-I warns that gap insurance offered by lenders is typically much more expensive than purchasing it from your auto insurer.
New car replacement
If you have a vehicle that is one model year or newer, your auto insurer may offer you new car replacement coverage. New vehicles depreciate quickly, and without this coverage, you may not get enough from a claim settlement to replace your vehicle with another new model if it is totaled. The new car replacement endorsement is designed to pay the difference between the vehicle’s worth and what it would cost to buy a similar new car.
Roadside assistance coverage
Towing coverage is offered by most auto insurers and is almost always optional. Roadside assistance coverage, sometimes called towing coverage or emergency roadside service, pays for tows and service calls. If your vehicle dies on the side of the road, or if you need to have a tire changed or gas brought to you, this coverage may pay the bill up to the coverage limit, which is usually a dollar amount but can be classified by the number of miles a service technician would have to drive to reach you.
Rental car coverage
Contrary to popular belief, this coverage does not automatically cover your rental car if you are on a vacation (although if you have full coverage — comprehensive and collision — your vacation rental vehicle may be covered; check with your provider). Rental car coverage pays for the cost of a rental vehicle while your vehicle is not driveable due to a covered loss. The coverage is usually represented by two numbers separated with a slash. The first number is the daily payment limit and the second is the total limit. So if you see a 30/900 limit, that means your company will pay $30 per day, up to $900 total, for a rental car. Most companies offer a variety of coverage limits so that you can choose the appropriate limit for your needs. For example, suppose you need a vehicle with seating for six people. In that case, you may want to increase your car rental limit so that if your vehicle is not driveable, your insurance coverage will be enough to reimburse you for a larger rental vehicle.
It is important to note that many companies have a daily limit on the number of days they will cover the expenses of your rental car to encourage you to purchase a replacement vehicle within a reasonable timeframe if your vehicle is totaled.
How to find the best coverage for me
Most states have specific minimum required amounts of liability coverage that they require drivers to carry. These minimums are indicated by three numbers, such as 25/50/10, which refers to liability insurance. 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 – $50,000 in this example. The third covers property damage maximum payments – $10,000 in this example.
While state minimum coverage may help to keep your premiums low, it can also leave you exposed to financial stress in the event of an at-fault accident. If you cause an accident and the damages are greater than your insurance limits, you must pay the difference out of pocket. Additionally, state minimum coverage does not include any coverage for damage to your own vehicle and may not include medical payments or PIP coverage. You may want to consider buying higher liability limits or full coverage, in addition to adding some optional coverages, to round out your policy.
One of the best ways to find the right policy for you is to shop around and compare different coverage types and the rates you could get with each provider. You can talk with a licensed agent or customer service representative to discuss your coverage needs and get quotes for various levels of coverage.