Types of Car Insurance Coverage

Most people are aware that they need to carry car insurance in order to operate their vehicle, but they may not know how many types of car insurance coverage are available and what may be necessary for their specific situation.

If you don’t know how car insurance works, you may not buy enough coverage. Being underinsured may lead to lawsuits or repairs that cannot be completed, but being overinsured will lead to a driver paying unnecessarily high car insurance rates.

Use this guide to better understand what types of auto insurance coverage are available from companies near you and exactly what each coverage does so you can put together a car insurance policy that will suit your needs and budget.

Types of Car Insurance Coverage Explained

There are several types of auto insurance coverage. A policy is comprised of multiple coverages, so you will need to select the coverage that you need in order to build your vehicle’s insurance policy. Even if you ask for “full coverage,” it may not include what you think it will. It’s always best to ask your insurance company exactly what coverages you carry and how they will apply to your vehicle.

Liability Car Insurance Coverage

There are two types of liability coverage: property damage and bodily injury. Both pay for the damage or injuries that the insured driver is responsible for causing to another person. Liability insurance cannot be used to cover the injuries an insured driver sustains or damage to the insured vehicle. Liability does, however, protect an insured driver from lawsuits.

Liability insurance is purchased with limits. The insurance company will pay up to that limit, but anything over the policy limit is the insured’s responsibility to pay out of pocket. Different states have different limits of liability; for example, one state may require property damage liability limits of $10,000 per accident while another may require $50,000. It’s usually a good idea to carry more than the minimum requirements just to provide yourself with added protection against situations where substantial damage can occur, such as multiple-car accidents.

Personal Injury Protection (PIP) and Medical Payments (MedPay) Coverage

Depending on the state where you’re buying insurance, first-party injury coverage will either be called medical payments or personal injury protection coverage. There are some differences between them, and some people may be able to carry both.

Generally, personal injury protection has no deductible and a low limit, while medical payments coverage may have a deductible and a higher limit. Regardless, injury coverage pays for injuries sustained by the insured driver and passengers. This also covers an individual’s injuries when they’re involved in an accident as a passenger in another vehicle or even as a pedestrian.

Collision Car Insurance Coverage

In order to pay for damage to your vehicle caused by an accident, you will need to purchase collision coverage. This is usually sold with a deductible; common deductible amounts are $500 and $1,000, although other amounts are available as well. The deductible is the portion of the repairs that you are respected to pay out of pocket to fix your vehicle after an accident. Anything over the deductible amount will be paid by the insurance company.

Comprehensive Car Insurance Coverage

Any damage sustained to a vehicle that is not caused by a collision or regular wear and tear is generally covered under comprehensive coverage. Some common perils include fire, theft, vandalism, and hail. Comprehensive coverage is also sold with a deductible, although you can choose to purchase it with a $0 deductible if you wish. This coverage is usually cheaper to buy than collision.

Uninsured/Underinsured Motorist (UM/UIM) Coverage

This is not available in all states and it functions differently from one place to the next. Essentially, uninsured motorist coverage pays for damage caused to your vehicle by a person without insurance. It acts as a substitute for their liability insurance. In some cases, the coverage only applies if the at-fault driver is known and proven to be uninsured; other states allow uninsured motorist claims to be filed for hit-and-run accidents.

Optional Types of Car Insurance Coverage

Rental Reimbursement Coverage

Whenever your vehicle is in the shop following an accident, the insurance company can use rental reimbursement coverage to pay for a rental vehicle for you to use. Depending on the insurance company, this may be handled through direct billing with the rental company, or it may be paid through reimbursement only.

Towing and Roadside Assistance

Some insurance companies handle towing on a reimbursement-only basis, while others choose to offer a more comprehensive roadside assistance plan. Some insurers provide a hybrid of both or give the insured a choice between different coverage types.

Some additional coverages may be available, depending on the situation. For example, some insurance companies offer specialized coverage for sound systems. Nevertheless, the above are the most pervasive coverages that you will encounter when purchasing auto insurance.

How to Choose The Right Type of Car Insurance Coverage

Certain coverages are mandated by state law. Depending on your state, you may need to purchase liability, uninsured motorist, medical payments coverage, or all three. If you’re financing the vehicle, your lien holder might require you to carry full coverage insurance. Beyond that, there are also personal decisions that you must make based on your own needs. For example, if you only have one car, rental reimbursement insurance is probably more necessary than if you have several vehicles to choose from.

You can purchase coverages independently of each other. You can select limits and deductibles independently as well. In other words, you can select a $500 deductible for collision and $50 for comprehensive; you can carry liability insurance with limits of $100,000 and uninsured motorist limits of $300,000. Although there are certain guidelines and basic coverage packages that an insurance company will suggest, the choice of coverage is ultimately yours to make.

By learning what options are available and assessing your needs, you can customize your policy to fit your budget without sacrificing necessary coverage. If you have any questions about a specific policy, you can discuss it with your insurance agent or the customer service department of your insurance company; they will be able to walk over various options and provide quotes for policy changes.

Type of Car Insurance Coverage Case Studies: Exploring Real-World Scenarios

Case Study 1: Liability Insurance

A driver named John caused an accident that resulted in significant property damage to another vehicle and bodily injuries to the occupants. John’s liability insurance coverage protects him from lawsuits and pays for the damages and injuries he is responsible for. However, John’s policy limit is exceeded, and he is left with out-of-pocket expenses. This case study highlights the need to carry sufficient liability coverage to avoid potential financial burdens.

Case Study 2: Collision Coverage

Sarah owns a car and purchases collision coverage with a $500 deductible. Unfortunately, Sarah gets into an accident where her vehicle sustains substantial damage. With collision coverage, Sarah’s insurance company covers the repair costs minus the deductible. This case study demonstrates how collision coverage can help protect against repair expenses resulting from accidents.

Case Study 3: Comprehensive Coverage

Lisa parks her car on the street, and it gets vandalized, resulting in broken windows and damage to the body. Fortunately, Lisa has comprehensive coverage, which covers non-collision damages. Her insurance company pays for the repairs, and Lisa only needs to pay the deductible. This case study showcases the value of comprehensive coverage in protecting against various non-collision incidents.

Case Study 4: Uninsured Motorist Coverage

Mark is involved in an accident with an uninsured driver who is at fault. The uninsured driver cannot cover the damages to Mark’s vehicle. However, Mark has uninsured motorist coverage, which acts as a substitute for the at-fault driver’s liability insurance. Mark’s insurance company pays for the damages, ensuring he is not left financially responsible. This case study highlights the significance of uninsured motorist coverage in protecting against uninsured drivers.

Case Study 5: Rental Reimbursement Coverage

Emily’s car requires extensive repairs after an accident, leaving her without transportation. Luckily, Emily has rental reimbursement coverage, which allows her insurance company to provide a rental vehicle during the repair period. This case study demonstrates how rental reimbursement coverage can provide convenience and support when a vehicle is out of commission.