Understanding Auto Insurance Coverage Types

September 19, 2023

Why Do You Need Automobile Insurance?

While the answer might seem obvious, an insurance car policy is essential when accidents like hit-and-run, auto wreckages, and damages happen. These accidents cause health issues and financial losses, and your car may be damaged or totaled. If some negative situations happen, you need to cover specific expenses, whether it’s your fault or not. So depending on what accident has happened, you may appeal for car insurance coverage of a particular type.

Factors such as age, marital status, car ownership, type of car, policy deductibles and limits, driving experience, obligatory state requirements, and other essential elements impact your auto insurance coverage. In the following section, we will discover various insurance coverage types.

Primary Types of Car Insurance

Liability Insurance

Coverage: When you are at fault and cause a road accident that leads to injuries and property damage to other drivers and/or passengers. It also covers legal expenses when you may be sued in court.

Who needs this insurance: It is required in almost every state except Florida for car insurance buyers.

Average monthly cost: $54

Possessor of liability car insurance pays victims of an accident when they are hurt, or their property is damaged. So this type of car insurance consists of the following:

Bodily injury (BI) liability coverage: You can cover payments to pedestrians, drivers, and passengers when at fault. These types of car insurance can also cover legal expenses when sued.

Property damage liability (PD): When you’re at fault for a car or other types of damages, you may cover the expenses of others.

You need to pay a mandatory monthly cost for liability insurance, but you’d better increase insurance premiums to a reasonable level. Then you’ll avoid unfortunate situations during car crashes if you are at fault.

Uninsured Motorist Insurance (UM)

Coverage: You or your passengers may cover medical, injury-related, and damage-related expenses (depending on the state) when you have an accident with an uninsured driver or a hit-and-run accident.

Who needs this insurance: In some states, uninsured motorist insurance is obligatory. These types of car insurance may be helpful for those drivers who don’t have health insurance. If an accident with an uninsured driver occurs, they may cover their medical expenses.

Average monthly cost: $17

With uninsured motorist insurance (UM), you protect your medical and other expenses when an uninsured driver crashes into your car. In this case, the uninsured driver doesn’t receive any payments.

What costs you can reimburse:

  • Medical expenses for you and your passengers
  • Pain and suffering
  • Lost wages or fees if you or your passengers can’t work after an accident
  • Funeral costs
  • Car damage (depending on your state)

This car insurance coverage may have two variants:

  • Uninsured motorist bodily injury (UMBI): These car insurance policies cover medical expenses, lost wages, funeral costs, or other related expenses for you or your passengers caused by an uninsured driver.
  • Uninsured motorist property damage (UMPD): You cover damages to your car caused by a hit-and-run accident or an uninsured driver.

In some states like New Hampshire and Virginia, these types of car insurance are obligatory. According to Simply Insurance, 13% of drivers in the U.S. don’t have car insurance. So, whether your state requires you to have this type of car insurance or not, it’s better to obtain it. And unfortunately, hit-and-run accidents happen not as rare as we might think.

Underinsured Motorist Insurance (UIM)

Coverage: When an underinsured driver hits your car, you may cover medical or other expenses.

Who needs this insurance: The same as for uninsured motorist insurance.

Average monthly cost: $17

Collision Insurance

Coverage: These types of car insurance cover possible damages to your auto due to a collision with another vehicle or a pole.

Who needs this insurance: Car owners who prefer to carry extra automobile insurance policies and those who have leased or financed vehicles.

Average monthly cost: $66

Comprehensive Insurance

Coverage: Comprehensive car insurance covers damages caused by non-road collision accidents like theft, vandalism, flood, hail, fire, and falling objects.

Who needs this insurance: Drivers who want additional car insurance options and those who lease or finance vehicles.

Average monthly cost: $30

Collision and comprehensive car insurance usually sell together. They may cover a wide range of problems with your auto off and on the road. If you lease or finance your automobile, your agent will require you to have those two types of car insurance.

Medical Payments (MedPay)

Coverage: These types of car insurance cover possible medical costs for your passengers and you after an accident, regardless of who caused them.

Who needs this insurance: Only Maine, Pennsylvania, and New Hampshire drivers.

Average monthly cost: $3

MedPay is one of the cheapest types of car insurance with minor coverage: $1,000-1,500. It pays you or your passengers’ medical bills after an accident, notwithstanding who was at fault. Only a few states require this type of car insurance.

Personal Injury Protection (PIP)

Coverage: PIP covers medical bills and related expenses for you or your passengers after car collisions, regardless of who is at fault. Additionally, these types of car insurance offset rehabilitation, lost wages, and funeral costs.

Who needs this insurance: Drivers in Utah, Oregon, North Dakota, New York, New Jersey, Michigan, Massachusetts, Maryland, Minnesota, Kentucky, Kansas, Hawaii, Delaware, and Florida must possess PIP.

Average monthly cost: $21

Personal injury protection (PIP) works similarly to MedPay and covers medical expenses for you or your passengers after car crashes, no matter who was at fault. Coverage includes:

  • Medical bills after car accident injuries
  • Rehabilitation expenses
  • Lost wages if you or your passengers can’t work after injuries for a certain period
  • Child care or cleaning services and other activities that you can’t do because of injury
  • Funeral costs

PIP may be required in several states, while it is optional or unavailable in others.

Other Types of Car Insurance

Guaranteed asset protection (GAP) insurance These types of car insurance cover the difference between the loan on your car and its worth if your vehicle is totaled. For example, you have $15,000 outstanding on your loan, while the crashed car costs $12,000. Then you can cover the “gap”: $3,000. Discover this type of car insurance coverage in more detail here.
Accident forgiveness coverage If you cause an accident, your insurance firm may “forgive” you and won’t raise insurance premiums afterward. But such auto insurance coverages don’t last forever. The “forgiveness period” lasts for a specific time after a car accident.
Rideshare insurance You may cover specific accidents when you drive for a rideshare company like Lyft or Uber. Such accidents may happen if you drive to take a passenger, waiting for a request. You don’t want to pay medical or repair bills in these cases, right? So this car insurance coverage will be helpful for you in these accidents.
Roadside assistance insurance If your car needs a jumpstart, a locksmith to open its doors, or a tow truck, these types of car insurance coverage are for you. More information about this car insurance protection you may find here.
Rental reimbursement insurance If you repair your auto because of an issue covered by your policy of car insurance and can’t use it at a particular moment, you can use a rental car or other transportation services. In this case, rental reimbursement insurance offsets your transportation costs during the repair period.
New car replacement insurance If your car is totaled because of an accident covered by your policy, you can buy a new car of the same model. These types of car insurance are relevant for cars that depreciate quickly.
Temporary car insurance If you use your car rarely (less than six months), this car coverage may help. But these types of car insurance are rare, and most insurance companies don’t offer them.
Mechanical breakdown These auto insurance options are for those who prefer a licensed mechanic to repair their car. Instead of using this coverage, you can pay from your savings or emergency fund.
Pay-per-mile coverage You can cut costs while using this auto insurance coverage, especially when you don’t use your car so often to commute. Your insurer can install a GPS device. Then you will be billed per mile rather than paying annual premiums.
Classic car insurance If you like to restore old cars from 90ties and older and want to protect yourself from accidents and their consequences, this type of auto insurance coverage is for you. Restoration is costly, as is damage repair for such cars after road collisions.
Custom equipment If you’re up to installing custom equipment into your car or performance parts on your car (not from the original manufacturer), this coverage suits you well. Add this car insurance coverage, and you can repair or replace things like custom paint jobs, stereo systems, and custom running boards without question.
Umbrella insurance These types of car insurance matter only for those whose net worth exceeds $500,000 or higher. Umbrella insurance gives everything that offers liability insurance plus other forms of protection like legal fees, false arrests, and other expenses.
Original Equipment Manufacturer (OEM) Endorsement With this auto insurance coverage, you can repair your car with original spare parts if an accident happens. Not every company has such car insurances types. If you want such coverage, you may find an experienced agent to reveal how this auto insurance works.

How Much Money You May Save On Auto Insurance

In 2022 drivers in the USA spend 2.6% of their annual income on car insurance. So to cut your bill, you need to do some homework beforehand. Firstly, you need to know what amount of coverage you want.

Second, gather quotes with types of auto insurance coverage you choose from top companies and compare them. What discounts may these companies offer? Consult with an insurance agent. If you are a teen and want to get eligible discounts, learn more about that here.

Third, increase deductibles to an appropriate level. If you file an insurance claim, the deductible is an amount the insurance company deducts from your payout. For instance, when the repair bill to fix your car is $1,500, and your deductible is $500, your insurance check will be $1,000. The higher the deductible, the lower the premiums you pay. Choose the relevant rate of deductibles and premiums for you.

Four, improve your credit score. So you may receive cheap auto insurance.

And finally, update your car insurance policies annually. That is true when you change your marital status, move to another location, spend more or less time commuting, and other factors. In this case, you may slice coverage you don’t need.

Which Kind of Auto Insurance Coverage Is Legally Required?

Every state in the U.S., except New Hampshire, requires drivers to obtain liability insurance. Other types of car insurance coverage may be required depending on the state. For instance, PIP, uninsured and underinsured motorist coverage may be obligatory in some states.

Collision and comprehensive coverage are optional, but lenders may require them for car financing. In such cases, gap insurance may also be required to cover possible differences between the amount you owe and the current market price.

The Best Auto Insurance for High-Risk Drivers

According to Forbes, average high-risk car insurance costs $3,217 annually. An overview made by Forbes Advisor’s Analyst shows that the cheapest high-risk insurance is USAA, with $2,379 annually. You must be a military, veteran, or military family member to be eligible to carry such insurance.

In second place is GEICO at $2,704, then the American family at $2,995.

Forbes analysts based average car insurance costs for high-risk drivers on data about drivers with at-fault property damage, drivers with a DUI, drivers with poor credit, and drivers with an accident with injury.

How to Acquire Auto Insurance After Being Rejected Coverage

You may be denied because you have:

  • Too many at-fault accidents
  • Too many moving violations
  • Age restrictions (too old or young, in some states, it doesn’t matter)
  • A poor CBI score
  • A fast or expensive car
  • A location out of the insurer’s coverage area

Don’t give up if an insurance company rejects you. Apply to other companies’ quotes, but be aware of a possible insurance hoax. Typical types of car insurance frauds are explained here.

Find a decent insurance agent who can quickly work your application through several insurance companies.

Bottom Line

Different types of car insurance coverage may be mandatory or optional. You choose for yourself what basic car insurance is relevant for your pocket. But it surely must be above the minimum established in your state to cover potential hazards.

Listen to your insurance agent for auto insurance coverage recommendations and tune in for updates to make a proper decision.

Frequently Asked Questions

What car insurance do I need if I own a classic car?

You need classic car insurance coverage. This auto insurance coverage allows you to cover your 20, 30, 40 years old car for damage to third parties, theft, fire, or damage to your vehicle. Insurance companies have specific requirements for your age, the age of your car, and other requirements.

What types of car insurance are included with full coverage car insurance?

“Full coverage” means you must carry state mandatory car insurance coverage and collision and comprehensive car insurance. Liability auto insurance coverage is obligatory in almost every state. Collision and comprehensive are optional. Nevertheless, your lender may require you to carry both.

What types of auto insurance do I need if I’m a delivery driver?

While working, delivery drivers need commercial auto or rideshare car insurance coverage to protect themselves in case of an accident. Every individual type of car insurances works only for non-business use autos.

What is the minimum amount of car insurance you need?

Each state has its requirements for the minimum amount of insurance. But if you want decent financial protection for yourself, we recommend you pay higher premiums.

Usually, you will see liability limits as a simple formula like $25,000/$50,000/$25,000, where the first number means bodily injury coverage per person, the second is bodily injury coverage per accident, and the last is for property damage per accident.

Victoria Berezhetska

Victoria Berezhetska is a Content Lead at Phonexa.com and an expert contributor to CoverExplore. She has a Bachelor of Science degree in Business Administration, with extensive working experience as a PR specialist and content writer. At CoverExplore, she helps customers find the right educational material through easily digestible blog posts and buying guides backing their insurance coverage choice. Victoria covers diverse topics around digital and insurance marketing, including auto, home, health, and life insurance.

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