Auto Insurance Types: Understanding Your Coverage Options

There are several types of auto insurance, and while you may not need all of them, it's important to understand the different coverage options available to make an informed decision when purchasing a policy. The most common types of auto insurance include liability coverage, collision coverage, comprehensive coverage, personal injury protection, uninsured/underinsured motorist coverage, and medical payments coverage.

Liability coverage is required in most states and covers the policyholder's legal responsibility for bodily injury and property damage to others resulting from an accident. Collision coverage pays for repairs or replacement of the policyholder's car after an accident, regardless of fault. Comprehensive coverage protects against damage to the policyholder's vehicle caused by something other than a collision, such as vandalism or natural disasters. Personal injury protection covers medical expenses, lost wages, and sometimes funeral costs for the policyholder and their passengers. Uninsured/underinsured motorist coverage protects the policyholder when the at-fault driver has insufficient or no insurance. Medical payments coverage pays for medical expenses for the policyholder and their passengers, regardless of fault.

Liability insurance

It is important to note that liability insurance does not cover damages to your own property or injuries you sustain. Instead, your damages and injuries would be covered under other types of insurance, such as personal injury protection or uninsured/underinsured motorist coverages.

The cost of liability insurance depends on various factors, including the amount of coverage you select. Higher coverage limits will typically cost more. It is recommended to choose liability coverage limits that match or exceed your total net worth to adequately protect your assets.

In California, for example, the minimum liability insurance requirements are $15,000 for injury/death to one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property. These requirements are set to increase in January 2025, with the minimum limits for private passenger vehicles being $30,000 for injury/death to one person, $60,000 for injury/death to more than one person, and $15,000 for damage to property.

Collision insurance

While collision insurance is not legally required in any state, it may be required by your lender if you are leasing or financing your vehicle. Collision coverage is considered optional coverage, and if you choose not to carry it, you will be responsible for paying for any repairs or replacements out of pocket. However, if your vehicle is brand new or still has a considerable value, collision insurance can provide peace of mind and help cover potentially expensive repair or replacement costs.

When purchasing collision insurance, it's important to understand the concept of a collision deductible. A deductible is the amount you agree to pay before your insurance company starts paying for damages. Typically, a higher deductible results in lower insurance costs, while a lower deductible leads to higher insurance costs. When choosing a deductible amount, it's essential to consider your financial situation and potential out-of-pocket expenses in the event of an accident.

Overall, collision insurance provides valuable protection against financial losses resulting from accidents involving your vehicle. It ensures that you are not left alone in shouldering the often-expensive repair bills and gives you the option to start repairs while the insurance claim is still being investigated. By understanding the terms, coverage limits, and exclusions of collision insurance, you can make an informed decision about whether it is the right choice for your vehicle and financial situation.

Comprehensive insurance

When deciding whether to get comprehensive insurance, consider the value of your car, your personal preferences, and your financial circumstances. If your vehicle has a low cash value and you can afford a higher deductible, comprehensive insurance may not be necessary. However, if your vehicle has a high cash value or you want the peace of mind of being covered against any unforeseen events, comprehensive insurance is a smart choice.

In summary, comprehensive insurance is an optional but valuable addition to your auto insurance policy. It protects your vehicle from a wide range of incidents beyond your control, giving you the confidence to handle whatever unexpected challenges come your way.

Uninsured motorist insurance

Uninsured motorist coverage includes two types of protection: Uninsured Motorist Bodily Injury (UMBI) and Uninsured Motorist Property Damage (UMPD). UMBI covers medical bills for you and your passengers if you are hit by an uninsured driver. It also covers non-medical expenses such as pain and suffering. Without this coverage, you could be responsible for paying your own medical bills, and you may have to rely on your health insurance, which might have a high deductible. UMPD, on the other hand, covers repairs to your car if it is damaged by an uninsured driver. If you don't have UMPD or collision coverage, you will have to pay for car repairs yourself or file a claim against the at-fault driver in court.

In some states, Underinsured Motorist (UIM) coverage is also available. UIM protects you if you are in an accident with a driver whose insurance policy limits are insufficient to cover your vehicle damage or injury expenses. Similar to UM coverage, UIM is divided into two categories: Underinsured Motorist Bodily Injury (UIMBI) and Underinsured Motorist Property Damage (UIMPD). UIMBI covers medical bills for you and your passengers if the at-fault driver doesn't have enough insurance, while UIMPD covers vehicle damage in such situations.

It is worth noting that uninsured motorist coverage also typically applies to hit-and-run accidents, although in some states, UMPD will not cover these incidents. In such cases, you would need collision coverage to pay for the damage to your vehicle. Additionally, if you live in a state that offers UIM, it is important to understand how the coverage is applied in your specific location.

When deciding on the amount of uninsured motorist coverage you need, consider matching the limits of your liability coverage. This ensures that you have sufficient protection in case of an accident with an uninsured or underinsured driver.

Underinsured motorist insurance

Underinsured motorist coverage typically includes two parts: bodily injury coverage and property damage coverage. Bodily injury coverage covers medical bills and may cover lost wages, while property damage coverage pays for the cost to repair or replace your vehicle. However, in some states, only underinsured motorist bodily injury coverage is available.

The definition of "underinsured" and how underinsured motorist coverage works varies by state. Underinsured motorist coverage is required in some states, including Connecticut, Kansas, Maine, Maryland, Minnesota, Nebraska, North Carolina, North Dakota, Oregon, South Dakota, and Vermont. In other states, it can be purchased as an endorsement on your car insurance policy.

Underinsured motorist coverage is different from uninsured motorist coverage, which covers cases in which the at-fault driver has no insurance at all. Uninsured motorist coverage may be divided into uninsured motorist property damage (UMPD) and uninsured motorist bodily injury (UMBI).

Whether you need underinsured motorist coverage depends on a range of factors, including your state's laws and your own personal needs and preferences. It's important to familiarize yourself with automobile insurance terms and understand what coverage options are available to you to make an informed decision.

Frequently asked questions