The Different Types of Car Insurance Coverage (and When to Buy Each One)

The auto insurance market size in the United States has grown by 2.7 percent from 2015 to 2020. As of 2020, the market size is $288.4 billion. The different types of car insurance coverage are gaining traction as more drivers appreciate their significance. 

types of car insurance coverage

Yet, drivers buying auto insurance for the first time are often in a dilemma. A driver might have a notion that car insurance is just one product that has minor differences based on the insurer. It is vital to understand that car insurance has different elements making up the policy.

If you're shopping for auto insurance, you're in luck. Read on to learn about the main types of car insurance coverage that you can consider for your vehicle.

Liability Car Insurance 

Liability car insurance is arguably one of the most crucial types of auto insurance you’ll need for your vehicle. In most states, this cover is mandatory.  For the two states where a liability auto cover isn’t a requirement, you need to prove your financial ability in case you cause an accident. 

So, what is a liability car insurance? In its simplest definition, liability auto insurance is a policy that covers financial damages faced by other parties when you are at fault.

This type of insurance is a combination of property damage and bodily injury. Your insurance will compensate for any property damage and pay all injury expenses.

The liability insurance plan covers the medical bills and the costs the third-party faces. When buying this insurance, your provider will quote the limits, which is 25/50/10 category at minimum. The split limits represented through the numbers are a depiction of the amount the carrier will have to pay for one injured individual, coverage for several people who have been injured, and any property damage. 

If the damage exceeds the limits, you will have to pay out of your pocket. Most states have a law that requires you to have basic liability insurance, which offers the minimum coverage. However, it is recommended to invest in higher coverage to avoid last-minute frustrations.

With advanced features and technology, cars are becoming expensive. The cost of healthcare is also at an all-time high. Extending the liability insurance of your vehicle would prove beneficial when a car accident causes grave damages.

The average car insurance cost depends on your state and the insurer. You can get quotes from different providers to make a comparison. While at it, inquire more about what the cover includes.  

Personal Injury Protection 

Injuries are an inevitable reality when accidents happen. But most people focus more on the losses due to car damages, which obscures their attention on health care expenses. Personal Injury Protection, or PIP, is amongst the types of car insurance coverages that provide a solution to this gap.

Personal injury Protection, also known as no-fault insurance, covers all healthcare expenses that are associated with a car accident. This option includes all healthcare expenses for both injured policyholders and any passengers on board during such accidents.

Some states set out personal injury coverage as a compulsory requirement. However, in others, personal injury protection is optional for car owners. With a PIP coverage, you're entitled to compensation regardless of who caused the accident.

This type of coverage seeks to offer relief on a variety of expenses. These expenses include health insurance deductibles.

No-fault insurance also helps you with coverage on health expenses that may exceed your health insurance coverage limits. You may also get relief in case of lost income due to injury.

In some cases, no-fault coverage even covers funeral expenses for the policyholders. You can claim for essential services such as child care or cleaning during medical support.

Collision Coverage 

Did you know that the U.S. has an estimated 17,260 car crashes per day? It’s not easy to fathom this figure, yet it is a reality that we have to embrace. Despite being a seasoned driver, you may find yourself in a car accident, as a victim or as the at-fault party. 

As such, you might want to consider collision insurance for your vehicles. This insurance coverage option helps you repair or replace your car in the event of a collision with another vehicle or object. Apart from a collision with other cars, your vehicle might crash into a tree or a fence, leading to damages.

Collision coverage can be optional or compulsory, depending on the circumstances. If you're leasing or financing your vehicle, then collision insurance is a mandatory requirement. The lender insists on this coverage to caution them from any losses due to collision.

If your car is on a one-off settlement, then collision coverage is optional. The collision insurance coverage covers your vehicle in case of damages due to accidents involving other vehicles.

You also get compensation through collision insurance in case your car hits a wall or a tree. You can also benefit from collision insurance in case of a single-car accident, where your car rolls or falls over.

However, this coverage does not include damages to another person's vehicle. You also can't claim medical bills reimbursement in case of an accident, even if the accident meets the mentioned criteria.

You should consider this choice if you want to minimize the risk of losses in case of accidents, where the costs of repairs or replacements could be extremely high. 

Comprehensive Insurance Coverage 

The comprehensive coverage is one of the critical car insurance types that you wouldn’t want to miss. While the comprehensive cover is optional, it is a great plus for your basic vehicle policy. When listing the different types of car insurance coverage, comprehensive insurance hardly tops the list since it’s not a state requirement. 

This type of insurance will cover damages that are caused by factors other than a collision with another vehicle. Comprehensive coverage will cover you from damages resulting from vandalism, fire, theft, falling or flying objects, riots, hitting an animal, and extreme weather conditions. You might want to purchase a comprehensive insurance plan if your car is on loan or lease.

Comprehensive covers have deductibles, which refers to the out-of-pocket amounts that you pay. Most insurance providers allow you to choose a deductible that resonates with your financial situation. Often, the standard deductible for this cover ranges between $100 and $300.

Your deductible depends mostly on your car's value or insurance cost. With a high deductible, you can rest easy even when your vehicle ranks as high-risk. It is crucial to ensure that you won't have any trouble paying the deductible.

Categorizing comprehensive coverage as a responsible or at-fault accident isn’t easy. The most confusing aspect of this cover is when you hit an animal, which is still under comprehensive insurance. Given this dilemma, it would help to know how your insurance provider deals with such claims.

Underinsured or Uninsured Motorist Coverage 

About 27% of the motorists you meet on the road don't have the minimum coverage that the state requires. Someone crashing your car is devastating, but the worst of it is when the motorist claims they don't have auto insurance. So, what do you do in such a scenario? 

You’ll be in for an unpleasant ride if you don't have uninsured motorist coverage. You might have to go the legal way, which can be frustrating, especially if the motorist doesn't have the financial ability to compensate for the damages. As you invest in the basic auto insurance, consider having the underinsured and the uninsured motorist coverage.  

The uninsured motorist insurance covers for the economic losses incurred when an uninsured motorist causes an accident. This coverage is in two categories: property damage and bodily injury coverage. The property damage cover considers the harm to your home or vehicle, while the personal injury cover compensates for hospital bills, replacement services, and lost wages. 

In the U.S., 20 states require you to have uninsured motorist insurance. Most of these states have different minimum requirements for this insurance plan. Notably, the uninsured and underinsured covers are cheaper than the typical personal injury covers.  

Medical Payments Coverage

Medical payments coverage, commonly referred to as med pay, is an auto insurance coverage that covers medical expenses for you or your passengers after a car accident. This cover is beneficial regardless of the at-fault party. However, the insurance plan is not mandatory in most states. 

Med pay covers hospital visits, x-rays or surgeries, co-pay and health insurance deductibles, nursing services, and emergency fees. While this insurance is almost similar to the standard health coverage, it fills several gaps and covers the plan's deductibles. The medical payments insurance is also different from the bodily injury liability.

In states such as Maine, Pennsylvania, and New Hampshire, medical payments coverage is a requirement. In states where the cover isn’t compulsory, you might want to add it despite having a medical cover. However, read through your health insurance before signing up, as some companies might include the clause in a health cover. 

The Different Types of Car Insurance Coverage Are Essential for Any Driver

Whether you own a personal or commercial vehicle, car insurance is indispensable. Read through the types of car insurance coverage to know the insurance plan you'll need. Companies have different plans, and you might want to compare the policies and the quotes before signing up.  

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