Trying to understand different types of car insurance coverage can be confusing and overwhelming: What and where is car insurance legally required? Which type do you need? Should you add non-required coverage to your policy? It all depends on your personal circumstance, but understanding the wide variety of insurance policies is key to finding the right coverage.
The 7 Types of Auto Insurance
- Liability Insurance
If your state requires you to have auto insurance, it is usually this one. If you have a car accident and it is your fault, this type of coverage will pay for any property damage or medical bills that are results of your actions. Most states have a minimum requirement for liability insurance. If you can afford it, though, it is better to get liability insurance that is above your state’s set minimum, since you are personally responsible for amounts exceeding your state’s liability insurance limit.
- Collision Coverage
So, if only liability insurance is legally required, why bother getting any other type of coverage? Well, in case of an accident in which substantial damage is caused, you may have to pay for other people’s damages before your own. That’s why it is also a good idea to carry collision coverage. This means that your insurance company will pay for your own car repairs. Or, in case your car is totaled, your insurance will pay out the value of your car. Nevertheless, collision coverage may not be necessary especially when you are driving an old car.
- Comprehensive Coverage
But what if your car needs repairs that are not the result of an accident? What if your car is stolen, damaged by extreme weather, or animal collision? Liability or Collision policies won’t cover these expenses. In order to be protected against these types of situations, you need Comprehensive Coverage. This type of policy can be pricey, so in case your car is easily replaceable, you may not need it. Keep in mind that you can lower these premiums by installing anti-theft devices in your car.
- Personal Injury Protection
If you don’t carry a good and extensive health insurance policy, you may want to consider getting Personal Injury Protection. If you have an accident, medical bills resulting from personal injuries can be high, and this type of policy will cover all medical bills, no matter who’s at fault.
- Underinsured/Uninsured Motorist Protection
This is usually an inexpensive add-on to your insurance policy. If you are involved in an accident that isn’t your fault, and the person who is at fault has no insurance, and is unable to pay for property damage or medical bills, this type of coverage will cover expenses.
- Gap Insurance
You may want to consider getting this type of coverage if you haven’t paid off your car yet. In case your vehicle is totaled in an accident, this coverage will cover you. Especially useful, if you owe more on your car than you’ve paid for, since collision coverage will only pay for the value of your car, not the cost of replacing it.
- No-Fault Insurance
This coverage option is only available in few states. It covers any property damage and medical bills resulting from car accidents, no matter who’s at fault. If other coverage options are available to you, this may be an expensive add-on.