5 Types Of Car Insurance Coverage

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Last updated on: November 22, 2019
Car insurance

For car owners searching for the right insurance policy, there’s a lot more to think about than price. Not only is it necessary to know what’s out there, but it’s equally important to make sure you get a policy that matches your needs, driving habits and the legal requirements of your state. Laws vary from state to state when it comes to exactly what kind of car insurance, and how much of it, you need. But in general, even taking state variations into account, most U.S. drivers can select from 5 types of car insurance coverage. Try to understand the ins and outs of each type and the state requirements for your geographic area before deciding what kind of insurance policy to buy.

You can shop car insurance quotes for liability only, but the minimum requirement in your state might not be enough if you have an accident.

Two common questions are “What types of car insurance are there?” and “What types of car insurance do I need?”

Here are the answers in a nutshell.

Types of Car Insurance Coverage

Here’s a look at the 5 types of vehicle insurance coverage:

1. Car Insurance Liability Coverage.

In most states, you can’t drive without liability coverage. Full tort is pricier, but it fully compensates for pain, suffering or death in a not-at-fault accident.

2. Car Insurance Collision Coverage.

This covers damage to your vehicle — even if you’re at fault — in a collision with another vehicle, a stationary object or the ground. It doesn’t cover damage to other vehicles or property, and there are limits.

3. Car Insurance Comprehensive Coverage.

This type covers damage resulting from theft, vandalism, fire, natural disaster or other circumstances that weren’t your fault. Many lenders require it until you pay off the car loan.

4. Car Insurance Medical Coverage.

Some states require a personal injury protection policy, or PIP, in case you or a passenger is injured in an accident that wasn’t your fault.

5. Uninsured/Underinsured Motorist.

Don’t overlook this one. One in 7 drivers don’t have the minimum coverage required by law. If you’re hit by an uninsured or underinsured driver, you foot the bills for your car repairs or personal injuries. Price shouldn’t be the only consideration when you shop for car insurance

Car Insurance Liability Coverage

Of all insurance types, the most common is a liability. The obvious reason it’s so common is that most U.S. states won’t let anyone operate a motor vehicle without liability coverage.

Full Tort and Limited Tort
These legal terms are important to understand for the purposes of knowing what kind of car insurance to purchase. In short, a limited-tort policy will not cover all related injuries that result from an accident. Sometimes, owners can be left with excessive medical expenses and repair bills when they only have limited tort coverage. There’s no coverage, for example, for “pain and suffering” under a limited tort policy.

Full tort coverage is more expensive but covers vehicle owners for the “full” amount of injuries and damages after a not-at-fault vehicle accident. Drivers often opt for limited tort coverage due to the significant price differences between the different types of car insurance cover. It’s usually not possible to get any compensation for pain, suffering or death unless a full tort policy is in effect.

types-of-car-insurance-coverage

What are the particulars of liability coverage?

Here are the three key points to remember:

  • It Focuses on the Damage You Cause
    • The name of this type of insurance is meant to be descriptive. “Liability” policies can help reimburse others for the damage that you cause. Notice that the policies are in place specifically for the benefit of others, not for you. Your own bodily injuries and vehicle damages are NOT covered by liability insurance.
      However, note that without liability coverage, you might be in a major financial bind. The injured party could take you to court and sue you for monetary damages. In most cases, a liability insurance policy will prevent you from that worry.
  • It Covers Property and Bodily Injury Expenses of Others
    • When you are at fault in an accident and someone else gets hurt or their vehicle is damaged, or both, your liability insurance policy covers some or all of the cost the other driver incurs. Likewise, if you don’t collide with another car but run into a sign or building, and you are at fault, your liability policy is the coverage that will apply to the damage expenses.
  • It’s Usually Inexpensive
    • Because it’s usually required by state law and covers the “bare minimum” threshold of damages and injuries to the not-at-fault driver only, liability policies are typically the least costly of all types of car insurance coverage. For this reason, liability insurance is commonly referred to as “minimum” legal coverage.
  • Bodily Injury Liability
    • If you cause a vehicle accident that results in someone else getting injured, this type of coverage will pay for the treatment of those injuries. In most states, drivers can’t operate any kind of motor vehicle without a stated minimum amount of this coverage known as “state minimum car insurance“.
      Bodily injury coverage won’t always cover all the costs associated with an injury, but typically take care of most of the immediate and long-term expenses. In addition to passengers, the coverage includes any bystanders and pedestrians who were hurt in the accident. In most cases, bodily injury insurance can cover medical expenses, loss of income directly related to the accident, legal fees, “pain and suffering,” and funeral expenses if there are any.
  • Property Damage Liability
    • When the other person’s car or anyone’s property is damaged as a result of an accident in which you were at fault, property damage liability can cover the costs to repair the vehicle, replace it, or repair the damaged property. This includes any damage done to houses, fences, offices, stores, telephone poles, highway guardrails and more. It does not cover damage done to the vehicle of the at-fault party.
  • Single Limit Liability
    • This newer version of liability insurance offers a more simplified approach to payments for injured parties and the repair of property. The entire payout amount comes from a “single” fund. If a policy has a $400,000 single limit in effect, all vehicle repairs, medical expenses and pain or suffering awards would come out of that fund.

Car Insurance Collision Coverage

Aptly named, the collision insurance coverage will pay for damages to your car in an accident, even if you are the party deemed to be at fault. It does not pay for the other driver’s vehicle damage, just yours. Here are the salient points to keep in mind when deciding whether you need collision coverage:

Whenever a car is damaged by another vehicle, or sustains damage by colliding with an object like a tree, pole, guardrail, home or something else, then “collision coverage” takes effect. Even when there is no specific collision with anything but the ground, as in a rollover or flip, this is the coverage that can reimburse related expenses. It’s the only type of insurance that covers damage to the at-fault driver’s own vehicle.

Insured owners need to file a claim with their own carriers in order to receive any compensation when they are the at-fault party. Collision policies only pay out up to their stated limits. In order to exceed those limits, drivers need to have a comprehensive policy in place. Collision coverage also does not pay the initial amount of damage expenses when there is a deductible amount to be paid by the insured party. After the deductible is met, the insurance company will pay the rest of the damage amount under a collision policy up to the maximum limit stated in the contract.

Towing Coverage

Drivers who have “towing coverage” as an added endorsement to their policies can use that coverage for towing service if the vehicle breaks down or has a flat. But if the car needs to be towed after a collision, then the collision or comprehensive coverage would be the applicable insurance in that case.

head-on-collission

    • You Must “Collide” with Something
      • When you are driving and collide with an object or another car, collision coverage is the insurance that can pay for damages your car incurs. It’s important to remember that collision policies do not pay out when your car is damaged by severe weather, rain or vandalism. Nor will a collision policy pay in the event of theft. Some insurance textbooks say that “collision means collision.”This clever phrase helps car owners remember that a collision insurance policy only covers a very narrow range of expenses, namely those resulting from a car “colliding” with something else.
  • First Party
    • In every vehicle accident where someone is at fault and another party is not at fault, there are three parties to the claim: the person injured, the person at fault and the insurance company. Typically, the injured person files a claim against the at-fault person’s insurance carrier. That insurance company pays the damages directly to the injured person for medical expenses and/or vehicle repair bills. In that situation, the first party is the at-fault driver, the second party is the at-fault driver’s insurer, and the third party is the injured person.
  • Third Party
    • The insurance company is the “second party in accident situations. The “third party” is typically the person who files a claim for damages against the at-fault driver’s insurance carrier. This person is called a third party because he or she is outside the dual relationship between the insurance company (the second party) and the at-fault driver (the first party).
  • Collision Polices are the Second-most Common Car Insurance Types
    • Collision is second only to liability insurance based on the number of car owners who have a policy in effect. Many owners of older cars and vehicles that are no longer partially owned by a bank or finance company often carry liability and collision coverage only, forsaking the much costlier comprehensive policies that owners of new cars are often required to have.

Car Insurance Comprehensive Coverage

In contrast to liability coverage, both collision and comprehensive insurance coverage are optional. However, banks and finance companies might require you to carry comprehensive coverage until you become the sole owner of the vehicle after it’s paid off. What does comprehensive insurance cover?

  • The Name is the Clue
    • Comprehensive insurance covers much more than the first two types of insurance listed above, liability and collision. That’s because comprehensive, as its name implies, tends to protect car owners from many varieties of mishaps that can damage their cars, especially events that are totally out of the driver’s control. In general, a comprehensive policy will payout in the event that your car suffers damage from vandalism, theft, fire, some natural disasters and even hitting wandering animals who venture onto the open roads.
  • What it Doesn’t Cover
    • Different insurance companies offer comprehensive policies that cover varying types of mishaps. However, most do not include freeze damage or breakdowns within their standard comprehensive policies. Always be sure to check with your carrier to see exactly what your own policy covers. It’s good to check your needs with different types of car insurance companies to know about types of car insurance cover and not covered before you choose.
  • It Might be Required
    • If you borrow money to buy a car, the lender will most likely require you to have comprehensive coverage on it. They do that to protect their financial interest. If you refuse to get a comprehensive policy and only opt for the lesser liability protection, lenders will purchase comprehensive policies themselves and charge you for the cost of the insurance. It’s wise to avoid that situation because the lender will not shop for low-cost coverage, and you’ll be left with the bill in any case.
  • Lienholder
    • So-called “lienholder” coverage is a mandatory amount of insurance a driver must have in place if a bank or loan company is the primary owner of the vehicle. This is a common situation in situations where someone finances a car. The bank has an interest in the vehicle and requires the driver, as part of the loan agreement, to have comprehensive insurance on the car. If the driver fails to purchase this coverage, the lienholder will do so and bill the driver for the full amount of the policy.
  • Rental Reimbursement Coverage
    • Rental reimbursement coverage is an endorsement that car owners can add to their types of insurance coverage. It typically pays for any fees associated with a loaner or rental car after an accident. When a driver’s car is in the shop as the result of a “covered claim,” then rental reimbursement insurance takes care of the related expenses.

Car Insurance Medical Coverage

neckband due to car accident

Left out of the above discussion of damages and expenses was the topic of medical injuries. What happens if you are not at fault in an accident and you or your passengers suffer broken bones or other kinds of medical problems that require the attention of professionals?

In an ideal situation, the at-fault driver’s liability insurance would pay for injuries to your passengers and you. But many states in the U.S. are “no-fault” jurisdictions, meaning they can require you to carry medical coverage. If you live in a no-fault state, you might already be familiar with the mandatory medical policies. They’re called “PIPs,” which stands for “personal injury protection” policies.

Another name for PIP policies is “no-fault” coverage. The name references that fact that whether you or the other driver was at fault, the policy will pay out just the same. Your PIP will pay for your injuries in an accident. It will also pay for any injuries suffered by your passengers.

  • Medical PIPs Might be Required in Your State
    • Check your state laws and find out whether medical or PIP coverage is required. If you’re new to the area, you might need to upgrade your policy to included no-fault insurance. Ask your insurance agent about how to upgrade and whether you need to.

Uninsured/Underinsured Motorist

Generally speaking, uninsured/underinsured (U/UI) policies will protect you in the event that you are hit by a driver who has no coverage or doesn’t have enough insurance to pay for the damages they cause. Many people ignore this type of coverage, which is a very unwise thing to do. In fact, about one out of seven U.S. drivers do not have enough insurance coverage to satisfy the laws of the state in which they live. That means about 15 percent of accidents involve at least one uninsured or underinsured driver.

In order to protect yourself from this threat, you can carry U/UI insurance. What will a U/UI policy do for you, and why is it necessary?

Uninsured/Underinsured Motorist Coverage is a Financial Safety Net

This kind of insurance coverage might be your only recourse if the at-fault driver has no liability coverage or doesn’t have enough of it. Your only option in such a disastrous scenario would be to take the person to court and sue of damages. That’s an expensive route that includes up-front legal costs for you and the distinct possibility that even if you win a judgment, the person won’t have the money to pay you.

A U/UI policy is your safety net to prevent such a financial nightmare. It will pay for any lost wages and medical expenses you incur as a result of the accident. Some U.S. states now allow motorists to buy U/UI policies that also cover property damage. That means you would be protected against medical bills, lost wages and car repair expenses even if you’re hit by a motorist who has no insurance at all.

It’s Often Required by State Law

A number of U.S. states require motorists to have at least a “bare bones” U/UI policy. Coverage like this typically pays for medical expenses and lost wages but not for property damage. However, if you want to add a property damage component to your U/UI policy, it’s your choice to add one, and it makes good sense to do so.

What about Underinsured Drivers?

If you’re hit by a driver who does, in fact, have insurance, you are not necessarily protected. That’s because many drivers carry liability policies with upper limits that aren’t high enough to reimburse your medical expenses and vehicle damage.

If you have underinsured coverage, you won’t need to worry about the at-fault driver’s coverage limits because your own U/UI policy will take care of whatever the at-fault driver’s policy does not cover. And if you carry a property damage component within our U/UI coverage, you’ll be able to collect reimbursement for any damage to your vehicle as well.

Important Reminders About All Types of Car Insurance Policies

Anyone who sets out to purchase car insurance should do a little bit of homework first. You should find out about any “mandatory” insurance laws in your state. What liability amounts are required? Is there a requirement for U/UI motorist coverage? If so, what are the amounts the state requires you to have?. Besides these basic points, there are some other facts to remember when it comes time to purchase a car insurance policy:

car-insurance-policy-form

There are Advantages and Disadvantages of Having Insurance

  • For coverage you are not required to purchase by law, there are some basic pros and cons:
  • Comprehensive and collision will protect you in the event of a hit-and-run accident, which might mean the at-fault driver is never located.
  • Having collision and comprehensive in effect is the only way to get financial protection in the event your vehicle is totaled in an accident, suffers damage from an “act of God,” or is harmed by extreme weather.
  • You’ll be meeting lenders’ requirements if you have comprehensive and collision, which means you get to choose the carrier and shop around for the lowest cost policy, rather than forcing the lender to charge you for a very pricey insurance policy. You can also look for the types of car insurance discounts available.
  • You’ll need to compare online insurance quotes to find the most cost-effective policy for your needs, but that’s just part of the shopping experience and doesn’t take much time.
  • For almost every types of car insurance policy, you’ll need to pay the deductible amount before the insurer covers anything.
  • Sometimes premiums will go up after you make an insurance claim, especially when you are the one at fault.
  • Comprehensive and collision policies can cost much more than a legally-required liability and U/UI insurance.

It’s easy to see that the few disadvantages of carrying auto insurance are far outweighed by the advantages. Insurance is just a part of driving and owning a vehicle. And if you are in an accident, it’s comforting to know that you don’t have to worry about the financial repercussions of the situation.

You Should Know Where to Go for More Information

At least 47 states now have a rather uniform auto insurance requirements, and the ones that only require “financial responsibility” in place of liability policies are already in the process of changing the way they handle drivers who don’t carry enough insurance.

  • No matter what state you live in, it’s helpful to contact the state insurance commission and find out the specific rules about types of auto coverage. Nowadays, every state insurance commission has a website, and most of those sites list different types of auto insurance coverages rules in a PDF document you can download or read online. Spend time going through the information and learn what your state’s laws are.
  • Do not rely solely on your insurance carrier’s representative. Check the law for yourself so you’ll have peace of mind about the amount of insurance you carry. After you do your homework, have a conversation with the agent about what types of car insurance coverage make the most sense for your situation. If you own an older car with a lot of miles on the odometer, it might make sense to forgo comprehensive insurance. This is especially true if the blue book value of your older vehicle is at or near zero.
  • Keep in mind that there are a lot of variables when it comes to car insurance. In addition to the age and mileage of your vehicle, you need to consider things like state laws, whether you live in an area where your car might be stolen or vandalized and whether your geographic region has lots of uninsured drivers.

What types of car insurance do I need?  Do your own due diligence on state laws. After that, spend a half-hour or so discussing your needs with an experienced insurance agent. Being an informed consumer can save you a lot of money and heartache in the long-run.

Insurance Facts That are Good to Know

car insurance quote calculation

Keep up with insurance trends.

Every once in awhile, check-in with a few of the major car insurance websites and see what the “prevailing” rates are for your kind of car and drivers like you. If rates have gone down, contact your agent and see if you qualify for any discounts based on age, driving record, membership in certain clubs, etc. You’d be surprised what type of car insurance should I get just by asking. Many insurers don’t advertise special discounts, so you might never find out unless you inquire.

Many factors affect the rate you pay for insurance. 

The first types of auto insurance policies was written in 1897, but things have changed a lot since then. For example, no matter what kind of car insurance you have, your credit rating can affect your rate. Keeping an eye on your credit scores can mean a lower car insurance bill. Other factors that can affect your rates include your age, your driving history, the make and model of the car you drive, and the zip code in which you reside.

Try to pay your premium annually. 

Drivers who pay month-to-month for car insurance are charged a bit more because they are seen as higher-risk people than those who pay annually. If you want to save a bit on car insurance, pay your premium once per year.

Endorsement. 

Simply put, an endorsement is a change to an insurance policy. For example, if a car owner decides to add towing coverage or another driver to the policy, each one of those specific changes would require special wording. Then they would need to be added to the policy contract to make them part of the new agreement between the vehicle owner and the insurance carrier.

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