Liability coverage pays for damage you cause, while additional policies pay for your own repairs and medical expenses.
By Ben Moore
Car insurance is meant to prevent you from having to pay full repair expenses or medical bills after an accident. Most states require a minimum amount of liability insurance, but insurers can offer several other types of auto insurance. To decide which car insurance policy you need, research what is required in your state and what will best protect your finances.
At the very least, your car insurance policy will include your state’s minimum required coverages and limits. While minimum car insurance requirements vary by state, the main types of insurance coverage you could be required to get are:
Liability insurance, which pays for expenses due to an accident you are at fault for. It typically includes bodily injury liability and property damage liability coverages.
Personal injury protection (PIP) or medical payments (MedPay) to cover your own medical expenses after an accident, no matter who is at fault.
Uninsured and underinsured motorist coverage pay out for damage from drivers without car insurance, or without enough to pay for damage they cause.
Liability insurance covers damage you cause
If you cause a car accident, liability insurance will cover the cost of any subsequent damages, injuries or deaths. All states, except New Hampshire and Virginia, require liability coverage.
The two types of liability coverage for auto policies are:
Bodily injury liability. This coverage pays for expenses from injuries or deaths you cause in an at-fault accident.
Property damage liability covers repair costs for a vehicle you — or someone driving your car — hit, and any other property you damage, such as fences, buildings or telephone poles.
The amount of liability coverage in a policy is usually expressed as three numbers — for example, 100/300/50 which includes:
$100,000 bodily injury for each person in an accident.
$300,000 for bodily injury per accident.
$50,000 for property damage per accident.
Your car insurance will pay up to the limits on your policy. After that, you will be on the hook for additional expenses.
Scenario: You rear-end a car with two people inside. While there are no significant injuries, both people experience whiplash and go to their doctors. The car also has a dented bumper. Your liability coverage pays for both doctors’ visits (bodily injury) and the cost to repair the bumper (property damage).
PIP and MedPay cover your injuries regardless of fault
Personal injury protection coverage or medical payments cover your own medical expenses after a car accident, no matter who was at fault. They also cover medical expenses for injured passengers.
Personal injury protection, sometimes called “no-fault insurance” may also cover lost wages due to injuries from an accident, child care or funeral costs.
Scenario: You’re driving with a passenger and get into an accident. You are both injured and you wind up missing work for a couple of weeks due to your injuries. But because you live in a no-fault state, your policy includes PIP, which pays for hospital bills for both you and your passenger, plus your lost wages.
Uninsured and underinsured motorist coverage pays when the at-fault driver can’t
Uninsured motorist coverage pays costs that result from an uninsured driver hitting you. In some states, uninsured motorist coverage will also payout after an accident with an underinsured driver. About 1 in every 8 drivers doesn’t have car insurance, according to a 2017 study by the Insurance Research Council.
Several states require a minimum amount of uninsured or underinsured motorist coverage, so it’s important to know how the two types function:
Uninsured motorist bodily injury coverage, (UMBI), pays for medical expenses caused by an uninsured driver.
Uninsured motorist property damage coverage, known as UMPD, will pay for repair expenses caused by an uninsured driver.
Underinsured motorist bodily injury coverage, (UIMBI), pays out once the cost of injuries and expenses are more than an at-fault driver’s bodily injury liability limits.
Underinsured motorist property damage coverage, (UIMPD), pays for repair costs that surpass the at-fault driver’s property damage liability limits.
Scenario: A driver rear-ends you at a red light. When you go to exchange insurance information, you discover the driver has none. Your uninsured motorist property damage coverage will cover the cost of repairing your bumper and UMBI coverage will pay for medical expenses.
Collision and comprehensive coverage pay to repair your car
Collision and comprehensive insurance are optional in every state, but may be required by your contract if you financed or leased a vehicle. They pay to either fix your car or reimburse you for its value if it’s stolen or damaged beyond repair, minus the deductible, which is your portion of repair costs.
Here’s how they work:
Collision insurance pays for damage to your car after an accident, regardless of who was at fault. It will also pay for pothole damage.
Comprehensive insurance pays out if your car is stolen, or damaged by anything other than car accidents. That includes damage from storms, floods, falling objects, explosions, earthquakes, vandalism or contact with an animal, such as hitting a deer.
Both comprehensive and collision coverage come with a deductible, which is how much of the insurance claim you’ll have to pay before your insurer pays. The higher the deductible you choose, the lower your premium will be.
Scenario: You hit a deer and damage the hood of your car to the tune of $3,000. Your comprehensive insurance deductible is $1,000, which you pay the mechanic. After that, the remaining $2,000 is covered by your insurer.
Gap insurance pays out if you total a new or leased car
A new car’s value begins to drop the moment it leaves the car lot — faster than loan balances decrease at first. If you total a new car that has not yet been paid off, gap insurance will cover the difference between what the car is worth and how much you owe on your auto loan.
If you’re leasing a car, the leasing company might require you to carry gap insurance. Usually, the car dealer will provide the gap insurance, and the cost will be included as part of the lease payment. However, that results in having to pay interest on coverage you can typically get cheaper through an insurer.
Scenario: You owe $20,000 on your auto loan when you get into a bad accident and your new car is totaled. Your collision coverage would first cover the total amount of your car’s market value (minus deductible), about $18,000. If you have gap insurance, the remaining $2,000 on your auto loan would be covered by your car insurance company.
Additional coverage options
You can choose from a variety of extra options, which usually don’t cost too much to add to a policy, but can come in handy in an emergency. You’ll need to buy collision and comprehensive to be eligible to purchase most extras, such as:
Rental reimbursement pays for a rental car while your car is in the shop following a covered claim repair.
Roadside assistance, or towing and labor coverage, provides help if you break down and need a battery jump, flat tire changed or your car towed to a repair shop.
New car replacement insurance works similarly to gap insurance and will pay for the value of a new car if yours is totaled in an accident. Most insurers only offer one coverage or the other.
Full glass coverage pays to repair or replace chipped or broken window glass, without a deductible.
Rideshare insurance will cover you when you are driving for a rideshare service such as Uber or Lyft.
Once you’ve determined the coverage options you want, it’s important to let us shop around and compare car insurance rates for you. if you'd like a quote, give us a call at Insurance Exchange!
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