Car Insurance 101: What Are the Different Types of Car Insurance Coverage?

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Many people buy car insurance as if they’re checking a box, disinterested in what it really MEANS for them. The truth is that most people don’t really understand how car insurance works until they’re forced to. Typically, that happens only when they’ve been involved in an auto accident. Now, is that really the best way to approach car insurance?

Here at Covered, we are big believers in education as empowerment. That’s why our new blog series will tell you everything you really need to know about car insurance. A cross between a “Car Insurance 101” guide for beginners and an “ultimate” guide covering some slightly more obscure car insurance topics, the goal is to answer your questions, share tips, and essentially turn you into a bona fide car insurance master.

To get started, let’s get clear on the different types of car insurance coverage. Your auto insurance policy provides several types of coverage. Each state requires different coverage levels, and your policy will be set up to meet minimum requirements.

There are six primary types of car insurance. There are also several common coverage options, or riders, that you may add to your policy. Welcome to Covered’s first installment of Car Insurance 101, which spells it all out as simply as possible.

Liability Coverage (AKA “Whoops Messed Up Big Time”)

Liability coverage applies to situations in which YOU are at fault for an accident. This coverage, required in most states, helps you meet your legal obligations to others in these situations.

  • Property damage liability coverage helps you cover the costs of repairing or replacing the damaged car(s) or personal property belonging to others. It does not pay for repairing or replacing your vehicle.

  • Bodily injury liability coverage helps you cover the costs of medical expenses and other expenses (e.g., lost wages) incurred by the other driver(s) hurt by the accident. It does not pay for the bodily-injury-related expenses of you or anyone else in your car.

Uninsured/Underinsured Motorist (AKA “They Can’t Pay”)

Uninsured/underinsured motorist coverage applies to situations in which you’re hit by a driver who either doesn’t have auto insurance (uninsured) or has insufficient auto insurance (underinsured) to pay the costs resulting from the accident. This coverage may also come into play in hit-and-run situations, when your car has been damaged but the perpetrator failed to leave you a nice windshield note. It may also protect you if you are a pedestrian hit by a car.

Uninsured/underinsured motorist coverage is required in several states (currently CT, IL, KS, ME, MA, MN, MO, NE, NY, NC, ND, OR, SC, SD, VT, WV, WI, and Washington DC).

Medical Payments (AKA “Get Fixed Up No Matter What”)

Medical payments coverage can pay for your or your passengers’ medical expenses due to an auto accident. This coverage can come into play no matter who’s at fault. It is not available in all states; when it is, it is almost always optional.

Personal Injury Protection (AKA “I’ve Got Your Back, Literally”)

Personal injury protection (PIP) coverage — optional in some states; required in others — can pay for your or your passengers’ medical expenses AND other costs (e.g., lost wages, rehabilitation services, funeral costs) due to an auto accident, no matter who’s at fault.

Note that this coverage is not available in all states. Generally speaking, PIP is available in “no-fault” states, while medical payments coverage is available in states that aren’t “no-fault.”

Collision (AKA “My Car Deserves Fixing, Too!”)

Collision coverage may pay for damages to your car when you’re at fault for a collision. Basically, this covers collision-related property damage that ISN’T covered by liability. It may also cover the towing of a damaged vehicle to a repair shop. Note that it does not cover the cost of towing due to a breakdown.

Collision is generally optional, except in situations where your car is leased or financed. Often, you can’t purchase collision coverage without also purchasing comprehensive coverage.

Comprehensive (AKA “Oh Swell It’s My Unlucky Day”)

Comprehensive coverage may pay for damages to your car that aren’t the result of a collision. For example, if you hit a deer, your hood gets pock-marked by hail, your tires get slashed, or your car gets stolen, this coverage can help. As mentioned, comprehensive and collision coverage are most often purchased together. Like collision, comprehensive is only required if your car is leased or financed.

If you buy comprehensive coverage, make sure that you understand whether your car is insured for actual cash value (ACV) or replacement cost. They’re very different.

Let’s Go Riding! Common Options for Extra Coverage

When you buy your auto insurance policy, you may also elect to purchase optional riders. Common auto insurance riders include:

  • Rental reimbursement coverage (also known as “loss of use”) helps you get around while your car is being repaired as a result of a covered loss. It can reimburse you for a rental car or public transportation costs (e.g., taxis, buses).

  • Roadside assistance coverage can provide roadside services such as towing, tire changes, jumpstarts, lockouts, and fuel delivery. (Covered typically doesn’t recommend adding this coverage. Learn why.)

  • Towing and labor coverage can reimburse you for the costs of towing and labor to repair your vehicle. This rider is typically only available as an add-on to comprehensive coverage.

  • Mechanical breakdown insurance (MBI) can help pay the costs to repair your vehicle’s mechanical parts and systems (e.g., engine, transmission, drivetrain, brakes, power system). MBI is similar to an extended manufacturer warranty, but it often covers more systems.

  • Windshield glass coverage can pay to repair or replace a damaged windshield. Your deductible is waived for this coverage.

  • Gap insurance coverage can pay the difference between the car’s ACV and any amount still owed on a car loan or lease. Gap comes into play if your car is stolen or declared a total loss.

  • Waiver of depreciation coverage guarantees that you’ll receive the total, non-depreciated amount you paid for a new car if it’s declared a total loss within a set time following its purchase.

  • Accident forgiveness coverage can mean that your first at-fault accident is “forgiven” provided you’ve had no other at-fault accidents within a six-year period.

  • Custom equipment coverage can pay to repair or replace any after-market accessories you’ve permanently installed in your car.

  • Family protection coverage increases your liability coverage limits if you or one of your family members are hurt in an accident for which an uninsured or underinsured driver is at fault.

Now don’t you feel smarter already? We thought so! Why not keep your smart streak going by comparing rates on a new car insurance policy? We’ll get you accurate quotes in a minute or less!

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Cover Photo by Michael Jin on Unsplash

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