Different Types of Auto Insurance

Last Updated on October 17, 2020

Researching all the different types of car insurance can be overwhelming.

All car insurance plans come with some mandatory coverage limits as well as some optional policies. Which types of car insurance policies do you need to have? Which policies should you have? And which coverages can you do without? Today, we’re explaining everything you need to know about the different types of car insurance.

Liability Coverage (The Bare Minimum Car Insurance You Need to Have)

First, let’s start with something simple. There’s something called liability coverage that is an absolute requirement to drive on every road in the United States. Drivers in every state (except for New Hampshire) require a minimum amount of liability insurance to drive on the road legally.

Liability coverage doesn’t protect your own vehicle, nor does it cover your own medical expenses. Instead, the main purpose of liability coverage is to cover damages to other people and property. If you cause an accident, for example, then your liability coverage will be used to pay damages you inflicted upon the other vehicle. It may also be used to cover the medical expenses and lost wages of any passengers or drivers you may have injured.

Liability coverage isn’t optional. If you’re looking for the bare minimum level of car insurance required to drive on the road, then you need liability coverage. All other insurance policies listed on this page are optional, but you always need liability coverage.

Liability coverage limits vary widely between states. Some states require just $10,000 of liability coverage, for example. That means if you’re involved in an at-fault collision, then your insurance company will provide up to $10,000 in coverage.

Typically, liability coverage limits are expressed like 10/30/15.

What does this mean? Well, it means that your insurance policy covers $10,000 of damage for each person involved in the collision (like the drivers and passengers of the other vehicle), with a maximum of $30,000 of coverage per accident (for a maximum of three passengers or drivers) and a maximum of $15,000 of property damage coverage per collision. Some states require this 10/30/15 amount as a bare minimum. Other states have higher limits.

Liability coverage is broken down into two main components:

Bodily Injury Liability: This refers to coverage related to another person’s injuries – say if you cause an accident and need to pay for someone’s medical expenses. These are the first two numbers in the 10/30/15 example listed above ($10,000 of bodily injury liability per person per collision and $30,000 of bodily injury liability per collision).

Property Damage Liability: This policy covers damage caused to another person’s property while driving. This is the third number listed above. You might have $15,000 of property damage liability, for example, which means your insurance company is required to cover up to $15,000 of property damage per collision.

Ultimately, if you’re looking for the cheapest auto insurance coverage and just want to get on the road as quickly as possible, then you need liability coverage – nothing else.

Collision Insurance (Recommended But Not Required)

Up above, we talked about how liability insurance provides protection for other drivers, passengers, and property you might damage while driving. Basic liability insurance, however, provides no protection for your own vehicle.

If you want to protect your own vehicle in a collision, then you’ll need collision insurance. Collision insurance will cover damage to your vehicle after an accident. If you collided with another vehicle, then your liability insurance may be used to cover damages inflicted upon the other passengers, drivers, and vehicles, while collision insurance covers the costs of repairing or replacing your own vehicle.

Comprehensive Insurance (Recommended for Anyone Who Wants Maximum Protection)

Comprehensive insurance is the cream of the crop of car insurance policies. It’s the best policy you can get. It provides total protection against virtually any incident involving your vehicle.

The main difference between collision-only insurance and comprehensive insurance is that comprehensive insurance covers damage caused by non-collision-related incidents.

If your car is damaged by hail, vandalized, or stolen, for example, then you might not be able to file an insurance claim with your collision or liability coverage. You would, however, be able to successfully make a claim with your comprehensive coverage.

If you live in a rough neighborhood or a storm-prone region or park your car outdoors, then it may be a good idea to get comprehensive protection. Many drivers choose comprehensive protection for maximum peace of mind.

Comprehensive insurance can be particularly valuable on a newer vehicle because you have more to lose. Drivers of older vehicles, however, may be able to safely drop comprehensive coverage because repairing your vehicle might not be worth the added cost to your premium.

Other Types of Insurance

Liability insurance, collision insurance, and comprehensive insurance are the three main types of insurance policies. However, your insurance policy might have a number of optional policies you can add on. Below, we’ll explain some of the optional types of insurance you might see added to your policy:

Uninsured or Underinsured Motorist Coverage

Uninsured and underinsured motorist coverage provides an extra level of coverage if you’re involved in a collision with a driver with too little insurance – or no insurance at all. Uninsured and underinsured motorist coverage can also protect you in incidents where the other driver hits your car and flees (a hit and run). Typically, underinsured and uninsured motorist coverage is paired together. You add both to your policy simultaneously, although they technically cover different things.

Medical Payments Coverage

If you’re injured in an accident, then your medical costs can be very expensive. Medical payments coverage is an optional insurance policy that covers any medical costs incurred as a result of an accident. It works similarly to an ordinary health insurance plan. You can use medical payments coverage to cover your medical expenses regardless of who is at fault.

Personal Injury Protection Insurance

Personal injury protection insurance, or PIP, is optional in some states. In other states – particularly states with no-fault insurance systems – PIP is a legal requirement, just like liability insurance. Personal injury protection covers medical expenses and lost wages experienced after an accident. In some cases, PIP can cover as much as 80% of medical costs and other expenses stemming from an accident.

PIP is optional in some states and mandatory in others. However, insurance companies in some states don’t even provide PIP as an option.

Rental Reimbursement Insurance

Many comprehensive car insurance policies cover the costs of renting a car. This is covered under rental reimbursement insurance. If your car is in the shop for repairs, then your insurance might cover the costs of renting a replacement vehicle. Typically, rental reimbursement insurance covers approximately $20 to $40 per day for a rental car, and it’s only available after you’ve been in an accident for which you filed a claim.

Towing and Labor Insurance

Typically, towing and labor insurance is covered under your comprehensive insurance policy. However, you might also see towing and labor insurance available separately. As you may have guessed, this optional insurance policy reimburses you for towing and labor costs related to repairing your vehicle – say, if your vehicle breaks down on the side of the road and needs to be towed somewhere.

Classic Car Insurance

A number of insurance companies offer classic car insurance. This unique type of insurance covers older vehicles – say, vintage cars from over 40 years ago. Classic car insurance is cheaper than ordinary car insurance. It’s reserved for secondary vehicles – like a classic car you drive on weekends but don’t drive on a daily basis. To qualify for classic car insurance, you might also need to provide a certain level of ongoing maintenance to your vehicle.

Final Word on the Different Types of Auto Insurance

With so many different types of coverage, auto insurance might seem complicated. However, once you break car insurance into its different components, it becomes much easier to understand. Compare quotes today to discover which types of insurance are right for your unique needs.