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Before purchasing an auto insurance policy, it is important to understand the different types of coverage. Knowing the basics can make it easier to decide what to buy.
In the event of an accident, auto insurance helps protect you, your vehicle, and passengers from the expenses of injury and property damage. The type of coverage establishes what exactly is covered and under which circumstances. Similarly, the amount of coverage determines how much can be paid out to cover accident-related expenses. When making your decision, it's important to keep both of these factors in mind.
Coverage needs vary from driver to driver. The amount of insurance you need will depend on your financial situation and your level of risk tolerance.
At the very least, by law you must have enough coverage to meet the state minimum insurance requirements where you live. When deciding on the amount of coverage, consider that the cost of an accident can range from tens of thousands of dollars to hundreds of thousands or more, depending on the severity. The higher the amount of coverage you can afford, the lower your financial risk will be.
Here are the five most common types of car insurance coverage:
Liability coverage is legally required in most states. In the event you are at fault in an accident, liability helps pay for the other party’s expenses on your behalf. Liability coverage consists of two components: 1.) bodily injury and 2.) property damage. Coverage amounts are often expressed as three figures. For example, a liability policy with limits of 25/50/15 indicates that the insurance would pay a maximum of $25,000 in bodily injury expenses for a single person, $50,000 in bodily injury if more than one person was injured, and $15,000 in vehicle and other property damages.
Learn more: What is liability coverage?
Personal injury protection (PIP) is also known as no-fault insurance because it provides coverage no matter who is the cause of the accident. PIP is legally required in certain states, which are known as “no-fault states.” In the event of an accident, PIP helps cover you and your passengers’ medical expenses, and depending on the circumstances, can also cover lost wages and household expenses.
Learn more: What is personal injury protection?
Full coverage can refer to policies that have at least three of the following types of coverage: 1.) liability, or depending on where you live, personal injury protection, 2.) comprehensive, and 3.) collision.
Comprehensive covers your own vehicle in the event it is damaged by something other than an accident, such as a natural disaster, theft, or vandalism. It is typically optional, though lenders may require comprehensive coverage if you are leasing or financing your car.
Collison coverage helps pay to repair or replace your car in the event of an accident with another vehicle or an object, such as a tree. Like comprehensive, it is also typically optional, with some lenders requiring it if you are leasing or financing your car.
Learn more: What is full coverage?
Like PIP, medical payments coverage (MedPay) covers your medical expenses in the event of an accident, no matter who is at fault. Unlike PIP, MedPay does not include coverage for lost wages. MedPay is required in some states and optional in others. It is typically available in states that do not offer PIP.
Learn more: What is medical payments coverage?
In the event you are hit by a driver with no insurance or not enough coverage, uninsured/underinsured coverage (UM) can help pay for your medical expenses and, in some states, repairs to your car. It is optional in most states, though required in some. Considering that the rate of uninsured drivers is over 20% in certain states, UM can offer added peace of mind.
Learn more: What is uninsured/underinsured coverage?
Unsure about how much coverage you need? With rates as low as $24.89/month* for basic coverage, enter your zip code now to compare and save today!
