Types Of Auto Insurance

Car insurance policies, unlike health insurance, are made up of several types of coverage, each with its own set of costs and benefits. Motorists can frequently choose different coverage amounts for the various components, so it's critical to understand which types of insurance are best for your specific situation. Here is a rundown of the most common types of auto insurance.

Liability car insurance

When you are at fault in a car accident, liability car insurance protects the other party financially. It covers two types of losses: bodily injury (BI) and property damage (PD) (PD). BI covers expenses incurred as a result of an accident-related injury, whereas PD covers property damage. In most states, drivers must have liability insurance or demonstrate another form of financial responsibility in order to drive. This is done to ensure that drivers who injure others or cause property damage can adequately compensate the other party.

In this format, liability insurance limits are typically written as three numbers: 25/50/10.

Bodily injury liability

Because it is required in almost every state, bodily injury liability coverage (BI) is the most common type of auto insurance. It protects you if you cause an accident that injures or kills others. Your auto insurance company steps in to cover the other party's medical bills, lost wages, or funeral expenses. If the other party decides to sue you in court, BI will pay your legal fees.

Your insurer will provide coverage up to the BI liability limits in your policy; any bills in excess of that amount will be your responsibility. While the majority of states require BI limits of $25,000, they can range from $10,000 per person in Florida to $50,000 per person in Alaska. You can raise your limits as long as state law permits, but you should consider your budget and whether your assets would be jeopardized in the event of an accident.

People frequently confuse bodily injury liability and personal injury protection (PIP). Your insurance company will pay for any injuries sustained by you or your passengers in an accident if you have PIP coverage. (More on that later.)

Property damage

Property damage (PD) insurance protects you against damage to someone else's property. For example, if you lose control of your car and collide with a neighbor's house, property damage insurance will cover the costs of repairs up to the policy limits. Similarly, if you rear-end someone's car through no fault of their own, property damage insurance would cover the incident as well. Find out more about property damage liability by clicking here.

Each state establishes the minimum amount of PD insurance that each driver must carry. However, while it may be tempting to only carry the bare minimum of PD coverage, you will be liable for any expenses that exceed your coverage limits.

Many people are perplexed about whether their car is covered by property damage insurance. In a nutshell, no. You'll need one of the two physical damage car insurance coverages, which we'll go over below, to cover damage to your vehicle.

Physical damage car insurance

Physical damage car insurance covers your repair costs if your vehicle is damaged in an accident or by a fallen tree branch. It is divided into two types of coverage: collision and comprehensive, which are distinguished by the circumstances surrounding the damage to your vehicle. These have a deductible, which typically ranges from $50 to $2,000, that you must pay before your coverage kicks in. Your premium is affected by the deductible you select, with higher deductibles resulting in lower premiums and vice versa.

Collision insurance

Collision coverage is an optional insurance rider, but LowCostInsurance advises you to include it in your policy. Collision insurance covers repairs to your own vehicle if you are found to be at fault in an accident. Even if you are the world's best driver and did not cause the accident, you may be found partially at fault. If this is the case, you may find yourself in a legal battle to prove that it was not your fault. In this case, collision coverage will pay for car repairs while the insurance company tries to prove your innocence and recoup their money.

In the event of a car accident caused by another driver, the property damage portion of the other driver's auto insurance policy would kick in to pay for repairs to your own vehicle.

Comprehensive coverage

Comprehensive car insurance, also known as "other than collision" or "comp" insurance, protects against vandalism, theft, and natural disaster damage. Collision and comprehensive insurance incidents are both classified as "physical damage." Comp insurance covers any physical damage to your car that is not covered by collision insurance. The idea that comprehensive insurance covers everything is a common misconception. No, it does not. It only covers vehicle damage from non-collision accidents and does not cover stolen personal items such as your wallet or car radio.

Rental insurance

Some insurance companies, such as AAA, provide liability insurance for rental cars. Check with your own insurer first before paying extra for the rental company's car insurance. Keep in mind that this coverage is not the same as car rental reimbursement insurance, which is an optional coverage that pays for a temporary rental car while your car is being repaired.

No-fault or personal injury protection

When you are in a car accident, personal injury protection (PIP) pays for your medical expenses as well as the passengers in your car. It's also known as "no-fault insurance" because it covers your injuries regardless of who caused the accident. PIP will sometimes cover lost wages, household expenses, and even funeral costs in addition to hospital expenses. Some states, such as New York and Michigan, make PIP mandatory, while others make it optional.

You'd have to file a claim or potentially sue the at-fault party's insurance policy in "at-fault" states. This time-consuming process may be less appealing, especially for those on a tight budget. However, because PIP pays out for expenses regardless of fault, premiums in no-fault states may be slightly higher. Refer to our personal injury protection guide for more information on how this coverage works and how much it can cost.

Uninsured/underinsured motorist coverage

Most states require drivers to have auto insurance liability coverage, but there are still many motorists on the road who do not. The percentage of uninsured drivers varies by state, but typically ranges from 12 to 25 percent. When you are in an accident with an uninsured driver, your uninsured and underinsured motorist coverage kicks in. This coverage is relatively inexpensive and can be extremely beneficial in some cases. Some states include UM/UIM coverage as part of the required minimum auto insurance.

Uninsured motorist coverage

If you are hit by an uninsured driver, uninsured motorist coverage pays for your own medical expenses and car repair bills. This may include hit-and-run accidents as well as cases in which the driver stole the vehicle.

Underinsured motorist coverage

This covers your medical expenses and car repair bills if you are hit by a driver who does not have enough insurance to cover the damage they cause. If your claims exceed these limits, you can sue the driver for additional compensation; however, the underinsured driver may not have enough assets to pay in some cases. Underinsured motorist coverage will assist in covering the remaining medical bills or other expenses incurred as a result of the accident.

SR-22/FR-44

Although SR-22, or FR-44 in some states, is not a type of car insurance, it deserves some consideration here. If you are caught driving without insurance or breaking any other traffic laws, the state may require you to purchase car insurance and provide proof of coverage. That proof is the SR-22 or FR-44 form, which your insurer must file on your behalf.