6 Common Types of Car Insurance Coverage Explained
March 10 2023
If you’re in the market for a new vehicle or looking for better auto insurance, you need to understand the different types of insurance coverage and how they can protect you in the event of an accident. With a variety of coverage options and industry-specific terminology, it can be difficult to understand what you must consider when choosing a policy.
This article will break down mandatory and optional auto insurance coverage and provide insights into understanding and selecting the right car insurance for your needs.
Types of Auto Insurance Coverage
There are six main types of insurance coverage, and each is designed to protect you in a different way.
Auto liability insurance is the most basic and mandatory type of insurance in most states. It covers the costs of damage you cause to others in an accident – both property damage (property damage liability) and injuries (bodily injury liability). Typically, you want to buy more than the state-required minimum amount of liability to avoid paying out of pocket if you’re ever in an accident.
Collision insurance pays for damage to your car resulting from an accident with another vehicle or object, regardless of who's at fault. This coverage can be particularly valuable if you own a newer or more expensive car. Collision coverage is usually optional, but your lender may require it.
Comprehensive is optional insurance that covers damage to your car resulting from events outside your control, such as theft, vandalism, natural disasters, falling objects, and encounters with animals. This insurance does come with a deductible, which can range from $100 to $2,000. Some lenders require comprehensive coverage if you’re leasing a vehicle.
Personal Injury Protection (PIP)
Personal injury protection, also known as "no-fault insurance," covers medical expenses for you and your passengers, regardless of who caused the accident. It can even cover expenses that you incurred as a result of being injured. For example, if you can’t work because of the accident, PIP can help cover those losses. PIP is not available in all states.
Medical Payments Coverage (MedPay)
MedPay is similar to PIP but has a more limited scope, specifically covering expenses such as hospital visits, surgery, and X-rays. These coverages can be beneficial, especially if you or your passengers don't have health insurance. However, MedPay is not a substitute for comprehensive health insurance.
Uninsured/Underinsured Motorist Coverage (UM/UIM)
Uninsured and underinsured motorist insurance protects you if you're involved in an accident with a driver who has no insurance or inadequate insurance. It covers your medical expenses, lost wages, and in some policies, property damage.
Additional Optional Coverage
There are also optional coverages available in most states, such as roadside assistance, rental reimbursement, and custom parts and equipment insurance. These can provide additional peace of mind, but you should always consider their cost and the likelihood you’ll actually use them before you add to add them to your policy.
Understanding the Basics of Car Insurance
Before you sign up for a new auto insurance policy, learn these basics to help you understand your policy’s limitations and costs.
Your premium is the amount you pay for your insurance policy, typically monthly or semi-annually. Various factors affect the cost, including your age, driving history, location, and car type.
A deductible is the amount you pay out of pocket before your insurance kicks in. A higher deductible usually means a lower premium, but it also equates to more out-of-pocket expenses in the event of a claim.
Every insurance policy has limits, which is the maximum amount your insurer will pay for a claim. If costs exceed these limits, you'll be responsible for paying the difference.
Review your policy regularly, particularly after major life changes such as buying a different car, moving, or adding a new driver to your policy. You might find that your coverage needs have changed.
The best auto insurance companies offer discounts for driving safely, getting good grades, having multiple policies, or driving a car with safety features. Be sure to ask your insurance agent if you are eligible for discounts.
Understand your insurer's claim process before buying a policy, including how you submit a claim and how long it takes them to pay out claims. Some insurers offer hassle-free claim processes, while others might be more complicated or time-consuming.
Make Sure Your Car Is Covered
Auto insurance isn’t just a good idea – it’s usually a legal requirement. Driving without insurance can lead to fines, suspension of your driver's license, or even jail time. Plus, you could be personally liable for any damage or injuries if you're involved in an accident and don’t have insurance.
Choosing the right car insurance coverage depends on various factors, such as your financial situation, car value, health insurance coverage, and risk tolerance. Consult with an insurance agent or financial advisor to ensure you're adequately covered.
When you’ve lined up auto insurance coverage, contact Allcreditautos.com to help you find a car you’ll love. After submitting a fast and safe application, you’ll be matched with several car dealers who can guide you through the car buying process and offer great rates.