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Types of Car Insurance

Illustration of a car driving down a road next to a green field.

What Are the Different Types of Car Insurance?

There are many different car coverages, but luckily only 5 types that you need a good grasp of so that if you need to file a claim, you’ll be better prepared to make informed decisions. Other remaining types of car insurance extend coverage, or offer specialized protection, like GAP protection, discussed later, which can help if you have a car loan.

So buckle-up. Here are the most common auto insurance coverages.

  1. Bodily Injury Liability (BI)
  2. Property Damage Liability (PD)
  3. Collision
  4. Comprehensive Car Insurance
  5. Medical Payments (MedPay) or Personal Injury Protection (PIP)

Bodily Harm and Property Damage Liability Insurance

The mandatory minimum insurance across the board is liability insurance. Liability insurance protects you against other people’s claims against you for damages and injuries you caused them because of an accident where you are at fault. Even in states where purchasing insurance is not strictly required, you’re still liable and on the hook for injuries and damages you cause. If you don’t have insurance and are sued, your physical and financial assets will be at risk, like your house and savings.

Liability car insurance is divided into Bodily Injury Liability insurance and Property Damage Liability insurance. Typically they are purchased together in the same policy and so are talked about as Liability Insurance.

Liability is a crucial piece of insurance for drivers. Because it pays the costs of damages to others, as a driver, it protects you against paying out-of-pocket for what are often expensive medical and repair bills.

Liability policies have deductibles, which the policyholder must pay before the policy begins to pay for any expenses. Policy limits for liability coverage are generally shown as three numbers, for example, 25/50/25 or 100/250/100. These numbers correspond to the maximum coverages for Bodily Injury and Property Damage. The following is an example breakdown for 100/250/100:

  • Up to $100,000 per person per accident
  • Up to $250,000 total per accident
  • Up to $100,000 for property damage per accident

Let’s illustrate this coverage in action in two scenarios.

In a distracted moment, you pass through a stop sign and collide with a minivan. No one is injured in your car, but three people in the minivan were sent to the hospital, and the vehicle’s damage was enough to consider it totaled. Total medical expenses came to $60,000, the driver’s medical bills came to $40,000, and the cost to replace the minivan was estimated at $20,000. Because your total bodily injury and property damage coverage far exceeded these expenses (100/250/100), you did not have to pay out-of-pocket.

Insurance coverage (100/150/100) > Accident expenses (40/60/20); therefore, no out-of-pocket expenses.

Had you been covered for just your state’s minimum car insurance requirement, let’s say 25/50/25, you would have to pay additional out-of-pocket expenses because you are underinsured for the damages caused. Total medical expenses were $60,000, and your coverage limit per accident is $50,000, which means your out-of-pocket costs are at least $10,000. But after further examination, you find out that the driver’s medical bills came to $40,000, which is $15,000 more than the per person per accident limit, and $15,000 that you must pay out-of-pocket. The minivan replacement cost, still $20,000, is covered by your property damage liability insurance.

Insurance coverage (25/50/25) < Accident expenses (40/60/20); therefore, you must pay $25,000 out-of-pocket expenses.

Comparing these coverage scenarios and their respective premiums is a good measure of how much protection you should get. If premiums are only slightly more for much greater coverage, it could save you a lot of money and headache if and when you need it.

Medical Payments (MedPay)

Medical Payments Coverage or MedPay, as well as Personal Injury Protection (PIP) insurance, covers your medical bills in case you or your passengers are injured. However, there are differences between the two, and not always are the differences standard, so always review your policy details.

MedPay is designed to pay for your medical bills, health insurance deductibles and copays, and other out-of-pocket expenses. MedPay does not carry a deductible or copay and can benefit by covering those expenses for drivers without health insurance. You must have auto liability coverage to get MedPay.

MedPay has payout limits just like liability and pays out up to a max amount per person per accident. If your state allows stacking of insurance policies, multiple MedPay policies can accumulate and be paid out. This means if a policy covers you while in someone else’s car, which also has MedPay covering their vehicle, then both policies could payout in case of an accident. MedPay is required only in New Hampshire (if you purchase insurance), Pennsylvania and Maine.

Collision and Comprehensive Coverage

Operating much like property damage liability coverage, Collision and Comprehensive coverage pays for repairs to your vehicle if it should happen to be damaged.

Collision insurance specifically covers your car if it is in an accident, regardless of who is at fault. This is good if you caused significant damage to your own vehicle or if someone at fault and uninsured is in an accident with you. If you drive into a telephone pole, there will be no one to blame other than yourself, and collision insurance will help you pay for your repairs in those cases too.

Comprehensive car insurance covers damage to your car in other cases beyond your control, such as damage caused by weather (like hail), unforeseen circumstances (like falling debris), vandalism, and theft of your car.

Collision and comprehensive both have their own deductible to be paid before they will kick in and cover any expenses.

Personal Injury Protection (PIP)

Personal Injury Protection (PIP) is typically more comprehensive than MedPay. Covering all the same things as Medpay, like out-of-pocket medical expenses. Furthermore, PIP offers additional coverages, such as funeral expenses, child care or household expenses, survivors’ loss (if the household breadwinner passes away), or lost wages due to injury. PIP can also cover you if you’re hit by a car while walking on the street or riding a bicycle.

PIP works well as an inexpensive stand-in policy for life insurance since it pays for funeral expenses and coverage for high deductible health insurance policies.

PIP is required in the following states:

  • Delaware
  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • New York
  • North Dakota
  • Oregon
  • Pennsylvania
  • Utah

What is Full Coverage?

When you purchase full coverage car insurance, you are buying a policy that includes Liability and Collision and Comprehensive coverage. It will typically include any other state-required insurance; if your state requires MedPay or PIP, then full coverage should include some minimum of it.

But, full coverage insurance is not “ALL coverage.” Full coverage is an umbrella term for an adequate amount of insurance coverage listed above, but each full coverage policy will have exclusions that it will not cover. If you use your personal vehicle for business use, full coverage may not cover damages when you are at fault for an accident. Or if you drive intoxicated, causing an accident, your insurance will likely not cover you.

Auto Insurance for other Circumstances

Beyond full-coverage, there are other special case coverages that are optional in most states.

  1. Underinsured/Uninsured Motorist (required in many states)
  2. Towing and Labor Insurance or Emergency Roadside Assistance
  3. Rental Reimbursement
  4. New Car Replacement [add a link to this insurance type page once it exists]
  5. Classic Car Insurance [add a link to this insurance type page once it exists]
  6. Guaranteed Auto Protection (GAP) [add a link to this insurance type page once it exists]
  7. SR-22 (For High Risk/motorists with DUIs)

Underinsured/Uninsured Motorist

Underinsured motorist coverage is for the cases when you’re in an accident, the at-fault driver has the bare-minimum mandatory insurance, and that minimum is insufficient to cover repairs to your car. This coverage is usually an inexpensive add-on to a base policy, and in a few states, it’s required. Because the average motorist is not insured to great heights, having underinsured motorist coverage can be particularly beneficial for luxury vehicle owners. It will help bridge the gap for unduly expensive repairs.

Uninsured motorist coverage protects against accidents with drivers who carry no insurance at all. The fact is one in eight motorists on the road are driving without insurance, according to the Insurance Research Council. Often, an uninsured motorist will choose to flee rather than stop at the scene of an accident. Hit-and-runs are considered as uninsured motorists for insurance purposes.

Towing and Labor (TL) Insurance or Emergency Roadside Assistance Coverage

Towing and labor insurance are coverages that you can add-on to your main policy to cover expenses associated with road-side breakdowns, dead batteries, flat tires, and car lockouts. Although other aspects of your policy may cover towing services as well, like comprehensive coverage, TL coverage is specifically for when your car is damaged and needs to be towed to a garage. In addition to towing, TL coverage can cover tire changes, jump starts, locksmiths, and gas and oil delivery, which are not covered under comprehensive.

Rental Reimbursement

Car Rental Reimbursement is optional insurance coverage that will pay for your rental car expenses when your car is in the garage being repaired. This does not cover a rental car if your vehicle is in the shop for routine maintenance or if you decide to rent a car on holiday.

New Car Replacement Coverage

If your car is totaled, which means that your insurance company deems it a lost cause to repair (total loss), usually when repairs exceed the actual cash value (ACV), then your provider will pay you out the ACV.

But, after owning the car for only a few years, the ACV will be thousands of dollars less than the price you paid for it. A New Car Replacement policy will make up the difference amount in order for you to purchase a new car of similar make and model. These policies usually have time stipulations, where your vehicle must be less than a decade old to qualify.

Classic Car Insurance

Classic cars, trucks, and motorcycles are considered special when it comes to insurance. Due to their value appreciating quality, they must be treated differently. With collectible cars, insurance typically covers them up to a “guaranteed” amount. In contrast, conventional cars are covered up to an actual cash value, a value less than the purchase price.

Based on the age of the collectible car, different types of insurance will be available to you.

  • Classic Car Insurance — This has a broad definition, but more often, it includes cars between 19-25 years old that are of greater than average value for the same make and model of that year. The vehicle must be in good working condition to be considered a classic car.
  • Antique Car Insurance — To qualify for this insurance level, the car will typically be 25 years or older and in good working condition, original or restored. The proper age bracket for antique vehicles is open to interpretation. Insurance providers will set their own age limits, somewhere between 20-45 years.
  • Modified Car Insurance — This category of insurance is for cars that have undergone significant modifications and do not fall closely under the restored-to-original category but are from the same family as classic chassis.
  • Replicas and Kits — Cars representing antiques, 25 years or older, but with separately manufactured components fall in this category. They are not quite classics, but they warrant extra protection.

Guaranteed Auto Protection (GAP) Insurance

Car values depreciate quickly, up to 30% of their value in the first year and up to 60% after five years. If in that time, you happen to get in a car accident that totals your car, but you do have collision insurance, your policy will likely pay out the total actual cash value. This could work for you if the vehicle is paid off, but if you still owe on a car loan, then you might benefit from GAP insurance.

Guaranteed Auto Protection (GAP) insurance is an add-on to your policy that will help pay your car loan in the event that your car is totaled. Considering the likelihood that your vehicle will be worth significantly less in the years after you purchase it, you may not be able to fully pay off its loan with the cash payout from a totaled car. If you have a car loan, look into how GAP coverage can help protect you.

SR-22 (High Risk/DUI)

SR-22 is a vehicle endorsement required by Motor Vehicle Departments for drivers classified as high-risk. Informally, SR-22 is called by the name DUI insurance and is necessary because many insurance providers will not insure these high-risk drivers. But it is not insurance. It is merely a statement that you have obtained adequate insurance from a service provider willing to insure your risk. Typically, your carrier will need to supply the SR-22 directly to the DMV. If you should stop paying premiums for your policy, your carrier must inform the DMV of that fact. The DMV will then suspend your license.

An SR-22 can be required for any of the following reasons:

  • DUI or DWI
  • Reckless driving
  • At-fault accidents
  • Driving without insurance coverage
  • Driving with a suspended license
  • Over-accumulation of lesser driving violations

Get a Custom Car Insurance Quote Today!

Whether you’re purchasing a new auto insurance policy or want to switch to a different company that offers better rates, you’ve come to the right place. Freeway Insurance compares rates for multiple companies, so you can choose the policy that fits your needs and budget. Get started with a quote online, visit us at an office near you, or call us at (800) 777-5620 for a quote.

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