Types of Auto Insurance

Some types of car insurance pay for damage to you and your car, like collision and comprehensive coverage. Other types pay for damage you cause to other drivers and their cars, like liability coverage. Understanding what each type of car insurance covers can allow you to choose the amounts that best fit your needs and save you money on coverages you may not need.

Required types of car insurance

Liability car insurance helps financially protect the other party when you're at fault for a car accident. It includes two types of coverage: bodily injury (BI) and property damage (PD). BI pays for expenses that result from injuries sustained in an accident, while PD pays for damaged property.

In order to drive in most states, motorists must have some form of liability coverage or demonstrate another form of financial responsibility. This is to ensure that drivers who hurt others or damage other people’s property can properly compensate the other party.

Bodily injury liability

BI pays for the other party's medical expenses, lost wages and funeral, as well as your legal fees if they take you to court. Bodily injury liability coverage is the most common type of auto insurance, because it's required in almost every state.

Protection is provided by your insurer up to the BI liability limits in your policy; any bills beyond that will be your responsibility. While most states require minimum BI coverage of $25,000, it can range from a low of $10,000 per person in Florida to a high of $50,000 per person in Alaska. You can increase your limits, as long as the state law allows, but you should consider your budget and whether your assets would be at risk following an accident.

People usually get bodily injury liability and personal injury protection (PIP) mixed up. With PIP coverage, your insurance company pays for any injuries that happen to you or your passengers in an accident. BI will not cover you, but it does cover the driver of the other car and their passengers.

Property damage

As an example, if you lose control of your car and run into your neighbor's house, PD insurance would cover the cost of repairs, up to your policy limits. Likewise, if you rear-end someone's car, due to no fault of their own, property damage insurance would also cover that incident.

Each state determines the minimum amount of PD insurance each driver is required to carry. But remember, while it may be tempting to only comply with minimum PD coverage, you'll be responsible for any expenses that exceed your coverage limits.

One thing many people get confused by is whether property damage insurance covers your car. It does not. To cover damage to your vehicle, you'll need one of the two physical damage car insurance coverages: collision or comprehensive.

Uninsured/underinsured motorist coverage

The number of uninsured drivers varies by state, ranging from 5% to 25%. Uninsured (UM) and underinsured (UIM) motorist coverages kick in when you're in an accident with an uninsured or underinsured driver. This coverage is relatively low in cost and can be incredibly helpful in some cases. Some states include UM/UIM as part of the minimum required auto insurance.

Uninsured motorist coverage

Uninsured motorist coverage pays for your own medical expenses and car repair bills if you're hit by an uninsured driver. This may include hit-and-run accidents and cases where the driver stole the vehicle.

Underinsured motorist coverage

This covers your medical expenses and car repair bills if you're hit by a driver who doesn't have enough coverage to pay for the damage they've caused. If your claims exceed the limits of their coverage, you can sue the driver for additional reimbursement, but in some cases, the underinsured driver may not have enough assets to pay. Underinsured motorist coverage will help cover the balance of medical bills and other expenses related to the accident.

Personal injury protection (PIP)

It's also called "no-fault insurance," because it covers your injuries, regardless of who is at fault for the accident. Beyond hospital expenses, PIP will sometimes cover lost wages, household expenses and even funeral costs. PIP is mandatory in some states, such as New York and Michigan, and optional in others.

PIP is required in twelve states . It's optional in 38 other states. In at-fault states, you'd have to file a claim or potentially sue the at-fault party's insurance policy to get compensated for your injuries and damages. This drawn-out process can be daunting, especially if you have a tighter budget or are hesitant to pay for an attorney or court filing fees.

Because PIP pays out for expenses regardless of fault, premiums in no-fault states can cost a bit more.

Optional types of car insurance

Collision and comprehensive coverage

When your vehicle is damaged in an accident with another car or by an object, like a fallen tree branch, physical damage car insurance covers your repair costs. It consists of two types of coverages, collision and comprehensive, which are differentiated by the circumstances under which your car was damaged. These come with a deductible — typically ranging from $50 to $2,000 — that you'll need to pay before your coverage kicks in. The deductible you choose affects your premium, with higher deductibles resulting in lower premiums, and vice versa.

Collision coverage

Collision insurance pays for repairs to your own vehicle if you were responsible for the accident.

Collision coverage is an optional insurance rider, but it's recommended that you include it in your policy if possible. Even if you are the world's best driver and didn't cause the accident, there's always the chance you'll be ruled partially at fault. If that's the case, you could find yourself in a legal battle, trying to prove it wasn't your fault. In this scenario, collision coverage will pay for the repairs to your car while the insurance company attempts to prove your innocence and get their money back.

When you're in a car accident that's another driver's fault, the property damage portion of the other driver's auto insurance policy would pay for repairs to your own car.

Comprehensive coverage

Comprehensive car insurance, also referred to as "other than collision" or "comp" insurance, covers issues such as vandalism, theft and damage from natural disasters.

Both collision and comprehensive fall into the "physical damage" category of car insurance. Comp coverage covers all physical damage to your car not covered by collision insurance. A common misunderstanding about comprehensive insurance is that it covers everything. It does not. It only covers automobile damages from noncollision accidents and will not cover personal items, such as your wallet or car radio, if they are stolen.

Gap coverage

Gap insurance, also known as guaranteed asset protection coverage, pays the difference between what you owe on your car loan and what you would receive from your insurance company if you were to total your car.

Gap insurance is a great option if you owe more on your car than it's worth. Adding gap coverage could be a good idea if you would struggle to cover the hundreds or thousands of dollars that you would still owe to a lender if your car were totaled.

Adding gap coverage to your auto policy bumps up your car insurance payment by around $50 to $250 per year, but it's much cheaper than opting for gap coverage through your car dealer or lender.

Rental insurance

Rental reimbursement coverage is an optional add-on to your policy that pays for the cost of renting a car while yours is being repaired after an accident or claim. Sometimes, rental coverage also reimburses you for transportation other than a rental car, like rideshares, trains or buses.

Who is covered by car insurance?

An insurance policy covers the individual policyholder who purchases it, you. If multiple drivers regularly use the same car or live together, you should add these drivers to your insurance to ensure they’re also covered. If you drive multiple cars, you should add the cars to the policy so all of the cars are covered.

Ever wondered who you should add to your car insurance policy? The answer varies from insurer to insurer, but as a general rule, add someone to your auto insurance policy if they live in your household, have a driver’s license and have regular access your car. This includes:

Even if someone isn’t in your immediate family, add them to your policy if they frequently drive your car . Not adding them means you risk being denied coverage if they get into an accident while driving your car.

Ask your insurer who your policy covers before you let someone else drive your car. Some insurance policies only cover drivers specifically listed on the policy, while others have a permissive use clause. This clause guarantees coverage if someone else is driving your car in a one-off situation, such as if you loan your car to an out-of-town guest or ask a friend to drive you home from a party.

What does car insurance not cover?

Car insurance doesn’t cover car repairs not related to an accident. For example, if your car rusts because you didn't take care of it properly, that isn't covered. Basically, if the repair isn't a direct result of an accident, insurers won't cover it. The only exceptions are if you have:

Additionally, your insurer might not cover you if you use your car for business purposes, unless you have commercial use coverage or rideshare coverage. Insurance companies make a distinction between personal and commercial use of cars. If you use your car to give rides or deliver food through services like Uber or DoorDash, you have essentially turned your personal car into a business car.