07 Oct Types of Auto Insurance and What They Mean
Unless you want to break the law, possibly even lose your license, or pay an exorbitant amount of money after a car accident, you need auto insurance. However, with so many different types of auto insurance, it can be overwhelming shopping for the coverage you need.
For instance, most types of auto insurance include multiple types of coverage.
The language used to define the different types of auto insurance can make consumers feel confused about what type they have to have and what types of coverage are just add-ons.
When you purchase auto insurance, you choose the type of coverage you want and the amount of financial coverage you want for each type.
Keep in mind that most states have clear coverage requirements for auto insurance that will affect which types of auto insurance you need to purchase.
According to Value Penguin:
- “With the exception of Florida, every state requires bodily injury liability insurance (BI), while all 50 states plus Washington, D.C., require property damage liability (PD).”
- “Roughly half of the states require a type of uninsured/underinsured motorist insurance (UIM). Lastly, only a handful of states require personal injury protection insurance (PIP) or a similar type of first-party benefit insurance.”
- “Together, these basic coverages are what’s considered the state minimum, and is usually the cheapest possible option for car insurance.”
In other words, most states in the U.S. require drivers to possess multiple types of auto insurance.
The problem is that the cost of owning various types of insurance adds up.
Bankrate reports, “The average American pays $1,674 a year or about $140 a month on auto insurance. Nearly 215 million drivers carry car insurance in the U.S, and the industry as a whole is worth about $311 billion as of 2019.”
What an individual pays for auto insurance varies according to a number of factors, including:
- The state where they live.
- Type of vehicle they own.
- Driving history.
- Types of auto insurance coverage selected.
If consumers do not understand the different types of auto insurance, they may wind up spending more money out of confusion.
That’s why it is wise to be an informed consumer and take the time to review the different types of auto insurance to fully understand which type is best for your unique situation.
Use the following list of types of auto insurance to shop smart.
Property Damage Liability
All 50 states, plus Washington D.C., require property damage liability (PD).
This coverage pays for costs associated with repairing or replacing another person’s property when you are legally responsible for a vehicle accident.
It is important to note that property damage liability only covers damage to the other vehicle and not your own.
Is $110,000 enough to cover you in your area? If you live in rural Oklahoma, possibly it is.
However, if you live in Dallas or Miami and you hit a Lambo, you probably need much more.
In addition to covering vehicular damage, property damage liability also covers damage to other property damaged by your vehicle, such as mailboxes, lampposts, or fences.
Bodily Injury Liability
With the exception of Florida, bodily injury liability is one of the types of auto insurance that states require for drivers.
Bodily injury liability coverage helps pay for bodily injury expenses (like hospital bills and medical care) that you may be held responsible to pay if you cause an accident that injures another driver or another vehicle’s passengers.
Most states have a minimum requirement for the amount of bodily injury liability insurance you must carry.
Full coverage, also known as comprehensive coverage, is typically optional.
However, if you are leasing a vehicle, your lender may require it.
As an optional type of auto insurance, comprehensive coverage is sometimes referred to as “other than collision coverage.”
This is because it covers damage to a vehicle resulting from a variety of things outside of a collision, such as hail, theft, vandalism, deer, falling objects, and more.
Sometimes people will refer to the multiple types of coverage they have as “full coverage.”
Full coverage is not a real type of auto insurance.
This just means that someone has purchased a combination of different coverages, including comprehensive coverage.
Uninsured Motorist Coverage
Let’s assume you get into a vehicular accident caused by a driver driving illegally with no insurance.
Remember, all states require drivers to carry property damage liability. And with the exception of Florida, all states require bodily injury liability.
But, since they don’t have any insurance, it means they won’t be paying for any damages to your vehicle or bodily injuries.
This is where uninsured motorist coverage comes in.
It protects you from paying for injuries from an accident that wasn’t your fault. In some states, it also covers damages to your vehicle.
UM coverage changes from state to state, so your coverage is unique.
Underinsured Motorist Coverage
Let’s say you are in a collision and the at-fault driver does have the required liability insurance for his or her state.
That’s good news. But what if they only have the minimum and it is not enough to cover the damage they caused in the accident?
This is where underinsured motorist coverage is helpful.
If their coverage isn’t enough to cover the amount for medical expenses in your claim, underinsured motorist coverage will cover the remaining amount up to your policy limit.
Collision Damage Insurance
One of the more familiar types of auto insurance is collision damage insurance.
Collision damage coverage is used to pay for repairs to damages your vehicle sustained in a collision.
Unlike property damage liability where the costs are paid by the at-fault driver in a car crash, collision damage insurance only applies to the driver’s vehicle when the driver is at fault himself.
Collision damage kicks in if you hit something (another vehicle, a tree, a hole in the road).
Personal Injury Protection
Personal injury protection (PIP) is one of the types of auto insurance required in many no-fault states.
According to Allstate, “If you’ve been injured in an auto accident, personal injury protection may help pay for medical bills, hospital bills and costs not covered by your health insurance company.”
This type of coverage works no matter who is at fault and covers you and anyone in the car with you at the time of the accident.
In some cases, personal injury protection will also cover the loss of work wages and substitute services (such as childcare or housekeeping).
Roadside assistance, also known as towing and labor cost coverage, is an optional coverage you can add to your auto insurance plan.
It provides emergency roadside assistance for those times when you need a jumpstart, lock your keys in the car, or run out of gas on the side of the road.
It also covers towing services.
Full Glass Coverage
Full glass coverage is an add-on that covers windshield and window damage without requiring a deductible.
Before you choose to purchase full glass coverage, check to see if a comprehensive auto insurance plan covers windows.
Some comprehensive plans include vehicle windshield repair coverage, which pays to repair any damaged glass on your vehicle’s windshield.
Car Rental Reimbursement
Rental car reimbursement is an optional auto insurance coverage that pays for the cost of a rental car while your vehicle is being repaired after a covered loss.
In other words, it does not apply to routine maintenance that requires you to rent a car or travel.
You may also use the rental car coverage to pay for public transportation costs while your car is in the shop.
Cars depreciate in value quickly – as soon as you drive it off the lot.
Gap insurance is designed to fill the gap between your loan amount and the vehicle’s depreciated value.
Let’s say you are in an accident and your car is totaled at a time when you owe more than it is worth.
Gap insurance helps cover the gap between what you still owe after collision coverage and what is remaining on your auto loan.
New Vehicle Replacement
Some insurance carriers offer new vehicle replacement insurance in case your new vehicle is totaled soon after purchasing it.
For example, Allstate claims, “If the unexpected happens and it gets totaled in an accident, optional new car replacement coverage can help. If your car is two model years old or less, we won’t just give you a check for the depreciated value—we’ll replace the car completely.”