Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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UPDATED: Oct 19, 2021

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Here's what you need to know...

  • There can be several different coverage types in one car insurance policy
  • Each type of coverage applies to a specific set of circumstances
  • Liability covers damages you cause to other people or their property and is legally required in nearly all states
  • Additional coverage types required in some states are med pay and uninsured/underinsured motorist
  • Depending on your own circumstances and lifestyle, you will want to consider purchasing collision, comprehensive, and gap coverage

Most drivers are very aware of the fact that they need to have auto insurance to legally drive a car. However, a lot of drivers do not understand their own auto insurance coverage or additional coverages that may be available to them. Perhaps even more frustrating for drivers is finding the best rates on auto insurance.

To compare car insurance companies, rates, and policies, consumers used to spend a lot of time and effort. Thankfully, the internet has allowed drivers a platform, often referred to as an online price comparison tool or calculator, to compare these things all in one easy place.

In just a few minutes, you can compare several different car insurance carriers and rates with a price comparison tool. Try our FREE tool today by entering your zip code above and select the policy and premium that best fits all of your needs.

Deciphering Types of Car Insurance

A car insurance policy is more like several different policies all rolled into one. Each piece of coverage is designed to be used in certain situations. Depending on your circumstances, you may need to use or file a claim for only a single portion of your coverage, or you may need to utilize multiple coverages at once.

Some drivers are easily confused about which policy types they truly need and which ones they don’t. Not having the coverage you need can turn into a financial or legal disaster while having insurance coverage you do not need can be a waste of money.

Read on to learn more about each specific coverage type and to find out what you may or may not need to purchase.

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Liability Coverage

One of the biggest concerns of a car owner is the damage that may be done to other people or property in an accident. Liability insurance provides protection from these circumstances. Nearly all states require their drivers to have some amount of liability insurance. Liability is proof that the driver can pay for damages that they might cause when driving.

There are generally two types of liability insurance:

  • Property liability covers damages you may cause to other cars, buildings, or physical property
  • Bodily injury provides coverage for physical injuries other people sustain in the accident

Another benefit of having liability coverage in place is protecting your money and assets. If you cause an accident, you can be sued in civil court. If the plaintiff is awarded money for their damages, you could personally be on the hook for several thousands of dollars.

In many states, you could have your wages garnished, assets seized, or liens placed on your home or other property to satisfy the amounts you would owe the party you caused damage to.

The maximum amount your insurance carrier will pay for a loss is known as the liability limit. Your insurance carrier can use two ways to determine the limits:

  • Single limit–With this method, there is one dollar amount that the insurance company will pay out for all damages covered by the policy. This number does not change regardless of the number of people injured. Anything owed above this amount is the responsible driver’s responsibility.
  • Split Limit–With a split limit, your policy will have a series of three different numbers written something like this: 100/300/50. Meaning you will have $100,000 in coverage for each injured person, a maximum of $300,000 per accident, and $50,000 for property damage. As is with the single limit, anything above these amounts becomes the burden of the driver who is at fault.

Uninsured/Underinsured Motorist Coverage

According to the Insurance Research Council (IRC), over 12 percent of drivers were uninsured in 2012 across our nation. Uninsured/underinsured motorists are a sizeable risk to every driver on the road. Due to this risk, some states such as Illinois, Maryland, Maine, Oregon, and South Dakota mandate that drivers have uninsured motorist coverage.

This coverage will pay for your damages if an uninsured driver causes your accident. It can also be used in if you are a victim of a hit-and-run driver or involved in an accident as a pedestrian or a bicyclist.

In most states where it is not a legal requirement, the law still requires car insurance carriers to offer it to their customers. If a customer declines this coverage, it often must be waived in writing.

Underinsured motorist coverage can be used when you have exhausted the limits of another driver’s policy. For example, you are hit by another driver, and they are determined to be the party responsible for the accident.

You suffer $50,000 in physical damages, yet the other party only has physical liability for $25,000. Your underinsured motorist coverage will cover the difference between the two amounts, up to your policy limits.

Medical Payments or Personal Injury Protection

Personal injury protection, also known as PIP, medical payments coverage or med pay, is only a legal requirement in a handful of states. Sometimes it is also referred to as no-fault insurance as it is mainly available in no-fault car insurance states. However, this type of coverage is imperative to most drivers.

Med pay coverage not only provides payments for medical bills related to an accident, but it also covers the following:

  • Lost income–If you miss time at work due to your injuries, med pay will help make up your lost wages.
  • Child care expenses–If you are unable to care for your kids or need help caring for your children due to your injuries from a car accident, med pay applies.
  • Funeral expenses–This cost includes burial, cremation, and the funeral itself.
  • Survivor’s loss expenses–This cost included lost income of the deceased and other expenses survivors may have.
  • Household help–If your injuries necessitate hiring someone to help with your household duties, med pay will help cover the costs.

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Collision Coverage

It is important for drivers to note that liability coverage only goes so far. Your own liability insurance will not cover any damages to your vehicle from an accident or another event. Many drivers elect to have collision coverage added to their policy.

Collision coverage will pay for damages to your vehicle related to an accident with another vehicle, a rollover, or colliding with other buildings or objects like a light pole or guardrail. With this type of coverage, you can select your deductible amount and your policy limits. Keep in mind that a lower deductible will usually mean higher premiums.

Comprehensive Coverage

Similar to collision coverage in that you also select your deductible and policy limits, comprehensive coverage is another important part of a car insurance policy. However, comprehensive coverage applies to other situations that may damage your car or otherwise cause a loss such as:

  • Pothole damage
  • Fire
  • Vandalism
  • Theft
  • Weather such as hail or wind damage
  • Natural disasters like tornados or floods
  • Hitting wildlife or other animals

For vehicles that are leased or have a loan, comprehensive and collision coverages are often contractually required. These coverages protect both the bank or leasing company and the owner of the vehicle.

Gap Insurance

Another type of coverage that is usually required on leased vehicles is known as gap coverage. Although not mandated for non-leased vehicles, drivers who have a loan out on their vehicle may also want to purchase gap insurance.

Gap insurance pays the difference between what your car insurance company determines is the fair market value of your vehicle and what is owed on your loan or lease. For example, you are in a car accident and your car sustains $15,000 in damages.

However, because your car insurance carrier decides your vehicle is only worth $12,000, it writes you a check for the following amount instead of fixing it.

This amount may seem like a fair deal until you realize you still owe $14,000 on your loan or lease. With gap insurance, the additional $2,000 would be covered by the insurance carrier, and you would walk away owing nothing on the vehicle.

Without gap insurance, you would still owe your bank or leasing company the additional $2,000 out of your own pocket.

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Factors to Consider When Getting Car Insurance

There are many different variables to car insurance coverage and what you might need. Certain types and amounts of coverage that are a good fit for one person, their vehicle, and their lifestyle may not be the best option for a different person. When purchasing car insurance or making changes to your existing policy, you should consider the following factors.

Your health insurance coverage

If you do not have health insurance or your health insurance doesn’t provide you with good protection, you will want to increase your personal injury protection or medical payments amounts.

Car accidents can cause thousands of dollars in medical expenses, even for accidents that may not seem big or that only involve one person. If your health insurance does not cover your medical bills from a car crash, you need to be able to rely on your auto insurance policy to do so.

Your driving experience

If you have an inexperienced driver such as a teen driver in your home or you do not have that much experience yourself, you will want to increase your personal liability coverage and lower the deductible. This is because inexperienced drivers can be more prone to accidents.

The age and condition of your car

Drivers with newer cars will need to secure enough insurance coverage to pay for their investment in the event of an accident. However, they can likely forgo towing coverage as newer cars are less likely to break down.In contrast, drivers with older cars may be able to decline certain types of coverages, but they should elect towing and rental car reimbursement coverage.

Your financial situation

Selecting higher deductibles will decrease your auto insurance premium. This lower monthly costs may sound like a great deal to many drivers who need to keep their premiums low. However, it can put you in a bind.

If you are in an accident and need to file a claim, you will be required to pay your deductible. You should be sure you have your deductible amount in a savings account to pay it if and when you need it.

The car insurance requirements in your state

Above all, your car insurance coverage elections should start with the mandatory auto insurance types and amounts. Each state has their own specific requirements when it comes to car insurance. Not meeting these requirements can lead to serious consequences.

It pays to be an informed consumer. By researching the car insurance requirements in your state and assessing your insurance needs, you can make the right choices for insurance coverage on your vehicle.

If you are finding it difficult to afford the premium for the car insurance types you want and need on your policy, it is time to use an online price comparison tool. With the help of this kind of tool, you can ensure that you are paying the best premium rates available and stretching your hard-earned dollars.

Enter your zip code into our FREE comparison tool to get started today!