What are the types of car insurance?
The seven primary types of car insurance are liability coverage, collision coverage, comprehensive insurance, uninsured/underinsured motorist insurance, personal injury protection, GAP insurance, and medical payments coverage. This article breaks down each type of auto insurance so you can be prepared when shopping for insurance online. Enter your ZIP code below to compare car insurance rates and coverage options from top-rated companies in your area.
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UPDATED: Nov 17, 2020
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Auto accidents are expensive in many ways. Repairing even a little fender bender can cost several hundred dollars; a typical rear-end accident can cost several thousand dollars to repair. That does not even include medical expenses, lost wages, and the possibility of paying the bills out of your own pocket when an uninsured driver is involved. Having auto insurance is important not only because it is legally required, but because it also makes good sense financially.
The majority of states in the U. S. require drivers to carry a minimum level of liability insurance. When an individual is involved in a car accident and it is determined they are at fault, liability insurance will cover costs to repair any damage to cars, buildings or other personal property, in addition to any medical bills for injuries that result from the accident. The legally required amount of liability insurance is usually somewhat light, and it makes sense for drivers to purchase more than the minimum liability requirements if they can afford to. Since drivers are held personally responsible for any monetary claims that exceed the upper limits of their coverage, it is much safer to have the financial protection of higher insurance coverage rather than paying a significant chunk of cash out-of-pocket. The amount of liability coverage that makes sense depends on each person’s unique situation, and for those with a large number of assets, higher levels of coverage make more sense.
Often, an issue for drivers who carry only the minimum insurance coverage is the lack of funds to repair their own car if it is damaged in an accident, since liability insurance only covers damage done to other people’s cars. This is where collision insurance becomes important, since it covers the cost of repairs when a person’s own car has been damaged in an accident, or needs to be totaled. The insurance company makes a decision on whether the car should be totaled or not, and collision insurance will reimburse the policyholder for the approximate cash value the vehicle was worth before for the accident.
Is Collision Coverage Necessary?
Each state requires that drivers cover damage they might do to other people and other peoples’ property. Once a vehicle gets older, and has had most of its value depreciate, collision coverage may not be worth the extra expense. In fact, a driver only gets what his car is worth according to the insurance company’s formula, regardless of the amount of damage to the vehicle. So, consider whether the premium for collision coverage is too expensive compared to how much the insurance company would potentially pay out. Car insurance should have a declaration page at the front of the policy that details the costs for each component of the auto insurance. Individuals who decide the cost of collision insurance is not worthwhile would benefit from setting aside some money in a separate emergency car savings account, in case repairs need to be covered, or the money needs to be used towards the purchase of another car.
Comprehensive insurance takes care of everything else that does not stem directly from a collision. If the car becomes damaged due to the weather, an animal or theft, liability or collision insurance will not provide coverage for the damage. Comprehensive insurance can be very convenient, since it will handle just about any other damage that comes up. The disadvantage is that comprehensive can be expensive, and, similar to collision insurance, may not be worth buying for older cars that have fully depreciated. For those who want to purchase comprehensive coverage, any sort of antitheft or tracking device installed in the car can reduce the insurance cost somewhat.
Although every state requires drivers to carry insurance, the reality is many drivers are on the road without any type of insurance coverage. Additionally, since liability insurance requirements are set fairly low a liability policy may not cover the entire amount of expenses that result from a car accident. The worst-case scenario is a person who ends up with large medical and repair bills even when an accident was not their fault.
A driver who is at fault in an accident still has the liability for damages even if his insurance does not fully cover them. However, if the driver cannot pay out of pocket, a problem exists and this is where uninsured/underinsured motorist protection steps in to provide coverage for the policyholder.
Personal Injury Protection
Medical or personal injury protection covers medical costs related to injuries from an auto accident, which can be incredibly expensive. Personal injury protection is available to cover these types of costs regardless of who caused the accident. This insurance covers medical bills for the driver, along with any injured passengers. People who can get good health insurance through their jobs or other means may be better off relying on this rather than medical or personal injury protection coverage. Additionally, a general health insurance policy will cover much more than personal injury protection insurance, so this should be a consumer’s primary choice of protection.
Gap insurance is a good type of coverage for people still making payments on their car. This type of insurance will pay off a driver’s car if he is involved in an accident in which the car is determined a total loss by the insurance company. This type of coverage makes sense for consumers who still owe more on their vehicle than they can afford to pay off in a short amount of time, or have an outstanding loan balance that is higher than what the car could have been sold for before the accident.
Many other types of insurance coverage will only reimburse an accident victim for the current market value of his vehicle right before the accident, and some lenders may even require a person to carry gap insurance or a similar type of coverage until the vehicle is paid off.
Medical Payments Coverage
Medical payment coverage is a form of insurance which allows coverage for medially related costs regardless of fault. Some states require drivers to carry medical payments coverage while others allow drivers to choose whether or not to carry this type of coverage. In accidents where you are at fault medical payments coverage can be very beneficial especially considering the extremely low cost.
Many other types of car insurance options exist including rental car reimbursement, towing and labor coverage and more but the types of car insurance above represent the most important parts of auto insurance. Get started with a car insurance comparison search today to find the best rates for your profile. Enter your ZIP code above to compare car insurance quotes from providers nationwide.