What Are The Five Types of Car Insurance?
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When you shop for car insurance, you’ll hear terms like liability, collision, and comprehensive. An insurance company may reference your state minimum insurance requirements, and tell you that you need certain types or amounts of insurance.
To start making sense of all of this, it’s important to have a basic understanding of the primary five types of car insurance. When you understand these basics, you’ll know more about why each coverage type is important and which auto insurance policies are right for you.
What Are the 5 Types of Car Insurance?
Understanding the five main types of car insurance can help you to determine what types of coverage you need to feel confident on the road. Keep in mind that your state minimum insurance requirements will also factor into the types of coverage that you’ll need, but you can always add on more coverage than those minimums.
Liability coverage is the most basic type of insurance. This type of policy covers bodily injury and property damage expenses that can occur to other people when you’re at fault for an accident. The coverage helps to protect you from being sued for those damages, and most states require liability coverage.
Liability insurance typically features three coverage limitation numbers, like 25/50/25. These numbers represent the maximum of each different type of coverage included. For example, a 25/50/25 policy would include:
- $25,000 bodily injury limit per person
- $50,000 total bodily injury limit for all parties
- $25,000 for property damages
Your state may have specific limits, but it’s a good idea to invest in as much liability coverage as you can afford.
Collision coverage helps to pay for any damage that might occur to your vehicle during a collision with another car or with an object. For collision coverage to take effect, your vehicle must have been in motion when the accident occurred. Collision insurance won’t cover damage that occurs if a tree falls onto your car.
While no states require collision insurance, it’s a good idea to invest in this coverage, especially if you’re driving a newer vehicle with higher value. If you’re leasing or have a loan on your vehicle, your lender will likely require you to have collision insurance on the car.
Think of comprehensive coverage as complementing your collision coverage. Since collision insurance doesn’t cover damage that occurs to your vehicle when it’s not in motion, comprehensive provides that missing coverage piece.
Comprehensive insurance covers damage that wasn’t caused by an accident, including the damage that can occur from theft, hail, fire, vandalism, falling objects, and more. Comprehensive coverage is optional, unless your lender requires you to have the coverage. Whether or not this coverage is worth it will depend on the value of your vehicle.
Uninsured and Underinsured Motorist Coverage
As car insurance costs increase, more and more drivers are taking out only the bare minimum coverage, or they’re even driving without insurance. If these drivers are at-fault in an accident, you could be left with medical expenses and vehicle damage costs that their insurance won’t pay.
Uninsured and underinsured motorist coverage helps to protect you against this scenario. When you have this coverage, your insurance company will pay any remaining expenses that the other driver’s insurance company won’t pay. You will need to choose your coverage limits when you purchase your policy, but this type of insurance can potentially help to protect you from a very expensive situation that isn’t your fault. Some states also require you to have this coverage.
Personal Injury Protection
Personal injury protection, or PIP insurance, offers you some extra protection in case you or any of your passengers are injured during a car accident. This coverage applies no matter who was at fault for the accident.
PIP coverage pays for injury-related expenses that can result from an accident, including medical bills, rehab costs, childcare, funeral expenses, and even household cleaning services. The coverage helps to pay for these expenses while you recover and get back on your feet. Because of the importance of PIP insurance, more states are requiring drivers to carry it.
Most car insurance policies will combine some or all of the above five types of coverage. Keep in mind that coverage limitations and the type of coverage you choose will affect your policy rates.
To find the best rates and get the protection that you need, it’s important to compare quotes from multiple car insurance companies. Compare.com makes that easy. When you use our auto insurance comparison tool, we’ll compare rates from over 70 top insurance companies. Then, you’ll receive only the best quotes that fit your insurance needs.
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Additional Types of Car Insurance
While those five types of car insurance are the most common, you can also customize your insurance policies by adding on additional coverage. These tend to be more optional, so you’ll need to decide which are most important for you.
If you’ve taken out an auto loan to buy your vehicle, or if you’re leasing a vehicle, it’s a good idea to consider gap insurance. This kicks in if your car is totaled by paying the difference between what your standard insurance policies will cover and what you paid for the vehicle. In other words, it helps to avoid a scenario where your vehicle is totaled but you’re left making payments on a car you no longer have.
This is best explained with an example.
Let’s say you take out a loan to buy a $35,000 car. You’ve paid down $3,000 of the loan, but you get into an accident and your car is totaled. Your insurance company estimates that your vehicle’s current worth is only $30,000 because of depreciation. The most the insurance company will give you for the car is $30,000.
In this situation, you would still need to pay $2,000 toward your car’s auto loan, even though you don’t have the vehicle anymore. With gap insurance, your policy would cover that remaining $2,000, making up for that gap between what your insurance pays out and what you still owe on the car.
Discovering you have a flat tire or breaking down while you’re on the road isn’t just inconvenient – it can be expensive, too. It can easily cost hundreds of dollars to have your vehicle towed, and if you’re traveling or in a rural location, it can be tricky to locate a tow truck in an emergency.
Roadside assistance can save you money and frustration in these situations. These plans often cover essential services like jumpstarting a dead battery, changing a flat tire, towing your vehicle in an emergency, and unlocking a vehicle when you’ve locked your keys inside.
Many insurance companies offer roadside assistance as an add-on, and some even include it as part of their primary policies.
Accidents happen in seconds, but the financial implications of a car accident can last for years. If you’re in an accident, your car insurance rates may increase. Even if you try to switch car insurance companies, the accident will stay on your driving record, so a new company might categorize you as a high-risk driver.
Accident forgiveness coverage can help to protect you in case you’re at-fault for an accident. This coverage is often available as an add-on, and it gives you peace of mind that you can get into an accident without your insurance rates increasing.
You may also want to put a rental reimbursement policy on your car insurance. If you’re in an accident and your car is damaged or totaled, you will need a vehicle to drive until you buy a new car or your vehicle is repaired. Rental car prices can be expensive, and if you need a vehicle for multiple weeks, you could spend thousands of dollars out of pocket.
With rental reimbursement coverage, your car insurance company will help cover the cost of your rental car after an accident.
If you’re using your vehicle to generate income by driving for a rideshare or food delivery app company, you will need additional insurance for your vehicle. Most personal insurance policies won’t cover you when you’re signed into an app like Uber or DoorDash. Rideshare coverage helps to fill that gap, ensuring that you’re covered while you’re using your vehicle to generate money.
How to Decide What Type of Insurance Is Right for You
With so many options, it can be difficult to tell which types of policies and how much car insurance is right for you. To start, you will want to think about how much risk you’re comfortable with.
For example, you might decide to forego comprehensive coverage on your older vehicle, since you know you have enough money set aside to be afford most repairs that the vehicle might need. But if you’re driving a newer vehicle and don’t have that extra money saved, chances are you will want to invest in some comprehensive coverage.
Your state minimum insurance requirements will also give you a starting point, but don’t just stick to the bare minimum coverage that your state requires. If you’re in an accident and you don’t have enough liability or collision coverage to pay for all of the expenses another driver incurs, you will be held responsible for those costs. If you’re unable to pay, the other driver could take you to court, at which point you will also have legal fees to cover.
As a rule of thumb, it’s best to invest in as much car insurance you can afford. A car insurance company will often suggest a policy that incorporates multiple types of coverage, and insurers often provide recommended coverage limits that will protect you well in most accidents.
Finding the Best Deal on Car Insurance
The price of your insurance policy will also affect the type of coverage you’re able to afford. Coverage with lower limits will naturally be more affordable, but this isn’t always the best strategy and can leave you responsible for any expenses your insurance doesn’t cover.
Instead, consider other ways to find the best deal on your car insurance. You might decide that you’re comfortable taking out a policy with a higher deductible, which can lower your monthly premiums. Just be sure that you have enough money set aside to be able to pay that higher deductible, and consider whether you’re comfortable with that higher degree of risk.
You may also qualify for discounts. If you’re taking out multiple policies, you could be eligible for a multi-policy discount. Signing up for paperless billing will often get you a discount, and you also might be able to save by taking a safe driving course. Ask your insurance company about available discounts and see what you might qualify for.
Finally, take your time and shop around for car insurance. Using Compare.com, you might find that you can get the coverage you want at a lower price point. Compare.com users save an average of $720 per year on their car insurance, and the platform is quick and easy to use.
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