What Are The Different Types of Car Insurance Coverage Available?

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There are many types of car insurance coverage available to you. Some are required and others are optional. Each state sets its own requirements for auto insurance, so you need to check to your state’s car insurance guidelines to find out what you need to have.

However, be aware that the minimum amount of coverage required by your state, may not be enough to provide proper financial protection in the event of an accident. So please take the time to read the following information thoroughly, so you don’t get a nasty surprise when you can least afford it.

Please note that although we have tried to be a though as possible, there may be other types of auto insurance available that are not covered here. Moreover, each type of car insurance may work slightly differently, depending on which company you buy a policy from, and which state you live in. When in doubt be sure to read your policy’s fine print and check with your state’s Department/Division of Insurance.

Liability Car Insurance Coverage

This is the most basic type of auto insurance available and is mandatory in 48 states, plus Washington DC (With an opt-out option in two others). Liability car insurance pays damages to others if you are found at fault in an accident. It will only pay up to the limit set out in your insurance policy, so it is very important you buy enough. Most states require you to purchase both Bodily Injury (BI) liability coverage and Property Damage (PD) liability coverage as part of the liability portion of your policy.

Since it is such an important type of auto insurance to buy and understand properly, we have written a more detailed article about it. Find out more by reading What Is Liability Car Insurance Coverage?

Uninsured Motorist Coverage (UM)

The second important type of auto insurance to know a little something about is uninsured motorist coverage. Basically, this coverage pays you if you get in an accident with an uninsured driver who is at fault. Since many states have large numbers of uninsured drivers on the road, it can provide peace of mind that even if they hit you, you’re financially protected.

In some states this coverage is optional, whereas in many others it is part of the mandatory car insurance you are required by law to purchase, before being legally allowed to operate your vehicle. A complete list of states where it is required by law can be found below.

Similar to liability coverage, uninsured motorist coverage can be divided into two types. You can purchase uninsured bodily injury coverage (UMBI) and uninsured property damage coverage (UMPD). In most cases this works in the reverse way the liability portion of your policy works. Instead of paying out to others, your insurance company will pay you, up to your policy limits, if an uninsured driver is responsible for an accident against you.

There are a few other key things to know about uninsured motorist coverage. For one, your insurance company may try to recoup its payments to you, from the at fault driver, through the courts. If you don’t have uninsured motorist coverage, you would have to do this yourself. Second, you are usually required to have the same amount of uninsured motorist coverage as the liability portion of your policy.

Finally, not all states listed below require both uninsured bodily injury and uninsured property damage coverage. Many just require bodily injury coverage. Yet, it may be a good idea to get both nonetheless. Again if you are unsure about coverage in your state, talk to a licensed insurance agent.

Required in: Connecticut, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Virginia, Washington D.C., West Virginia and Wisconsin.

Underinsured Motorist Coverage (UIM)

Underinsured motorist coverage is very similar to uninsured motorist coverage and is required by law in many of the same states that require UM coverage. The main difference between the two, is that Underinsured motorist coverage pays you when the at fault driver in the accident does not have enough insurance coverage, rather than not having any at all.

This is not really an issue if both you and the at fault driver have the minimum amount of insurance coverage required by your state. However, if you do as most insurance experts recommend, and buy higher-limit insurance coverage then UIM can really come in handy. Let’s look at example to see why.

Say you live in El Paso, Texas and have bodily injury uninsured/underinsured motorist coverage of $100,000 per person and $300,000 per accident. You get in an accident with a driver who only has the basic Texas liability insurance limit of 30/60/25. They are responsible for a major injury to you that costs $80,000 to treat. In this case, their insurance would only be legally obligated to pay out $30,000 (remember liability insurance pays out on a per person basis). However, the underinsured portion of your policy would then pay the difference.

Your insurance company would likely seek to recoup costs from the at fault driver, but you can feel confident that you don’t have to worry about having to go through the courts yourself to recoup medical bills. Finally, like uninsured motorist coverage underinsured motorist coverage comes in both bodily injury and property damage types. These limits are almost always tied to your own liability insurance limits for either type.

Personal Injury Protection (PIP) and Medical Payment Coverage

Personal Injury Protection (PIP) is another commonly required type of car insurance. It is often known as ‘no-fault’ coverage, because it is usually paid out regardless of who causes or is at-fault in an accident. Medical Payment coverage is a more limited form of Personal Injury Protection that only pays for medical costs. It is not mandatory in most states and is most commonly found in tort states that may not offer PIP coverage.

Personal Injury Protection coverage varies from state to state and from insurer to insurer. In its most basic form, there is no real difference between it and medical payment coverage. They both cover medical costs for you, your passengers and your family that arise from an accident regardless of who is at fault.

In its broadest form Personal Injury protection can cover other costs that arise from an accident as well, including lost wages, and other damages. This coverage is very important to have, especially if you do not have a good health insurance policy. Hospital and doctor visits can really add-up after an accident, and you don’t want to be forced to pay these out-of-pocket. Just be sure to speak with a licensed insurance agent in your state, about exactly what is and is not included in your state’s coverage.

Required In: Arkansas, Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania, and Utah.

Collision Car Insurance Coverage

Collision car insurance coverage is the most common type of non-legally mandatory coverage people choose to purchase. Basically, collision coverage insurers your vehicle when it hits another vehicle or object, or is hit by another vehicle. It pays you regardless of who is at fault.

Most collision polices are subject to a deductible. This is the amount of money you must pay out of pocket before the insurance kicks. A standard deductible amount is $500. So if your car, hits another car, and sustains $1,000 worth of damage, you’ll have to pay $500 and your insurance company will pay $500. Raising your deducible can be a good way to save money on car insurance, but does leave you open to paying for more repairs out-of-pocket.

Finally, while no state at the current time legally requires collision car insurance, many do allow banks and/or car loan/leasing companies to require you to purchase it as part of your loan. In many states, if you decline to buy it on the open market, they can purchase it for you and charge you the premiums. At the end of the day you are advised to consider collision insurance, if you can not afford to purchase another car in the event of a serious accident.

Comprehensive Auto Insurance Coverage

Comprehensive car insurance is another common and popular type of insurance coverage. It too is not legally mandatory. Basically it covers damages to your car not caused by collisions. Most commonly things like theft and storm damage are covered. However, be careful to read any policy thoroughly, because not all polices cover all situations.

Similar to collision car insurance coverage, comprehensive insurance is usually subject to a deducible. Your loan/leasing company can also force you to purchase it in many states, and can charge you the difference. Again, this is a good type of insurance to consider on newer, more expensive cars, and for those who could not afford to lose the use of their vehicle if it were stolen or damaged in a storm.

Gap Car Insurance (Loan/Lease Payoff Coverage or Total Loss Coverage)

Gap car insurance also known as loan/lease payoff coverage ot total loss coverage, is a rather specialized type of car insurance that pays off your car loan or lease, if your car is severally damaged or declared a total loss. To understand how this works let’s look at a simple example. Say you own a car with an outstanding loan balance of $10,000.

Now, you get in an accident and your car is declared a total loss. You have collision insurance, because your bank required you to buy it. However, it turns out the blue book value of your car is only $5,000. Therefore, your insurance company is only legally required to pay you the $5,000 your car is worth, not the $10,000 that you still owe on your loan.

However with GAP insurance, your insurance company will pay off the difference between the amount paid for collision damage and the outstanding loan balance. Without this coverage you would still be legally obligated to pay off the remaining loan balance, without any car to show for it. Finally, some car dealers who offer financing, may require you to purchase this coverage as a condition of a loan.

Rental Reimbursement Coverage

Another type of optional coverage that some drivers choose to purchase is rental reimbursement. It offers coverage for the use of a rental car, if your main vehicle is damaged as the result of an accident. Essentially if you purchase this type of insurance, your car rental payments are paid by your insurance company while your damaged vehicle is being repaired. It can be good to have if you really can’t be without the use of your car, but for many drivers the extra premium payments are not worth the benefits provided.

Towing And Emergency Road Service Auto Insurance Coverage

Finally, some auto insurance polices also cover additional costs surrounding accidents and other vehicular mishaps. Towing and emergency roadside service are both options that can be added on to many company’s insurance polices. Again, this can come in handy, but always check to see how much your paying for this service. In many cases the increase in rates may not be worth the services being offered. Consider, looking to a AAA membership instead.

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