Understanding 5 Types of Car Insurance Coverage

Getting the right car insurance is a bit more involved than finding the lowest price. It’s important that you get the right coverage for your situation, and first you need to understand what’s available. There are five main categories or types of auto insurance coverage. Let’s go through them:

Liability coverage is the most common because almost every state requires you to carry some minimum amount in order to drive legally. Liability coverage pays for the damage you cause in an accident when you are at fault. Specifically, liability coverage will pay for bodily injuries and property damage of others. Remember that liability insurance does not cover any of your damages; it protects others from damage you cause and also protects you financially. Without it, you could be on the hook for the entire cost of an accident out of pocket.

Collision coverage is the second most common type of car insurance coverage. It will pay for damages to your car from an accident, even if you were at fault. As the name implies, collision coverage pays for damage incurred when you’re driving and collide with another object. (NOTE: Losses from non-crash stuff: like theft or weather, are not covered by your collision insurance. For those things, you’ll need something called ‘comprehensive coverage’.)

Comprehensive coverage kicks in to cover losses that are totally out of your control. Like collision coverage, comprehensive coverage is optional. It will protect you from losses due to fire, vandalism, theft, hitting an animal or damage caused by certain natural disasters. But comprehensive coverage won’t cover everything. For example, most policies will not cover damage due to freezing, even though it’s weather related. Comprehensive coverage usually doesn’t cover breakdowns either. You should find out what is excluded before purchasing. Comprehensive coverage is often more attractive to drivers of a new or expensive vehicle. Some lenders may even require comprehensive coverage as a condition of financing your vehicle.

To recap: we’ve gone over liability insurance, which covers damage you do to others, collision insurance which covers crash-related damages to your car, and comprehensive insurance which covers certain unpredictable damage to your car. But what about injuries suffered by you or your passengers?

If you weren’t at fault, the other driver’s liability coverage should pay for your damages. But you can purchase your own medical coverage for additional protection. Medical coverage is usually optional, but certain ‘no-fault’ states will require you to buy a form of it called personal injury protection. Personal injury protection is also known as ‘no-fault insurance’ because, like medical coverage, it will pay the costs of treating your injuries regardless of who was at fault in an accident.

Finally, uninsured or underinsured motorist coverage will protect you against the risk of being hit by an uninsured or underinsured driver. It’s estimated that almost 15% of American drivers do not carry the legal minimum amount of car insurance as required by their state. If you are hit by one of these people, you won’t be able to collect from a liability policy they don’t have. Uninsured motorist coverage will pay for your medical expenses and lost wages. Many states now require uninsured motorist coverage for bodily injury, but you might have the option to purchase it for property damage as well. Underinsured coverage kicks in when you’re hit and your damages and expenses exceed the limits of the at-fault driver’s liability coverage.

When you’re shopping for an auto insurance policy, make sure you know exactly what you’re getting and why. Find out what is covered, what is excluded, what you need to stay legal, and what you need to stay protected financially.