Although car insurance may seem expensive, it offers vital protection for you, your family, and others on the road. It’s also illegal to drive without it almost everywhere in the country. And yet, it can be difficult to justify the cost when the coverages offered are confusing and often unused.
There are many ways to save money on car insurance. One of the best ways to save is a quick review of what’s available and which coverages you need. If you’re looking to better understand your policy and make some modifications, here are several different types of car insurance coverages and what you need to know about them.
7 types of car insurance explained
Insurance exists to offer you protection when the unexpected occurs. For car insurance, that would normally mean an accident or theft and the resulting consequences.
1. Collision coverage
Collision coverage is one of the most common types of coverage. If you’re driving and you collide with any object, car or otherwise, collision coverage will pay for damage to the policyholder’s car. This payment can cover either repairs or replacement of your damaged vehicle (after the deductible is met), regardless of who’s at fault in the accident.
Say you’re driving and you lose traction on a wet surface, which causes your vehicle to veer off the road and hit a telephone pole. This causes $3,000 in damage to your vehicle. With a $500 deductible, you could be paid $2,500 by your insurance.
2. Liability coverage
Liability coverage protects you (the policyholder) and any family members on the policy when any of you are at fault in an accident. It’s separated into multiple categories, including property damage and bodily injury.
If you’re in a car accident and you cause damage to someone else’s property, you could be covered if you have property damage liability coverage. This will normally result in your insurance paying for damage to another person’s vehicle, but it can also include other types of property, such as fences or buildings.
Let’s say you lose control of your vehicle and slide into your neighbor’s driveway, hitting both their fence and car. A portion of the fence is destroyed and their car will need some repairs. Property damage liability coverage could pay to repair the fence and their vehicle.
If you cause injuries to someone else in a car accident, bodily injury liability coverage will likely come into effect. This coverage pays for medical bills and lost income for anyone you’ve hit that is injured. Accidents involving bodily injury can often result in court cases, so related legal fees may also be covered.
Say you’re turning onto a street and the sun gets in your eyes, which causes you to hit a cyclist you couldn’t see. They require medical attention and can’t work because of their injuries. Bodily injury liability coverage could pay for their medical bills and lost income.
3. Uninsured and underinsured motorist coverage
This coverage protects you if you’re involved in an accident, the other driver is at fault, and they have either no insurance coverage or insufficient coverage. In the event they’re underinsured or uninsured, your insurance could kick in and cover your expenses. Depending on your coverage, this may apply to either bodily injury, property damage, or both.
Let’s say you’re rear-ended by another driver, which causes extensive damage to your vehicle and severe whiplash for you and your passengers. The driver at fault doesn’t have insurance or their insurance cannot sufficiently cover the full costs to repair your vehicle and/or pay for the required medical expenses. In this scenario, uninsured and underinsured motorist coverage could pay for your medical bills and vehicle repairs.
4. Comprehensive coverage
This coverage acts as broad protection for your car for events that are beyond your control. Included among these would be theft, fire, hitting an animal, vandalism, and acts of nature. This does not include coverage for collisions with other cars or objects. For instance, comprehensive coverage may cover your repair costs if a tree falls on your car during a hurricane.
5. Personal injury protection
Personal injury protection (PIP) is no-fault insurance, which means you and your passengers’ medical bills can be covered no matter whose fault the accident is. In addition, PIP insurance may also cover lost income as a result of your injuries, rehabilitation costs, and funeral expenses if the accident is fatal.
6. GAP insurance
If your vehicle is totaled or stolen, you may receive only the current market value from your insurance instead of the price you paid for it. To make up for the gap in what you may owe on the car and how much it’s currently worth, guaranteed asset protection insurance is available.
This coverage isn’t normally included in your auto insurance policy, but you can use a tool like Gabi insurance to see which companies offer it at the lowest price.
Let’s say your new car is worth $25,000 and you put down a $2,500 deposit, which leaves you with $22,500 owed. Your car is then totaled in an accident, but because of depreciation, the car’s actual cash value (ACV) is now $15,000. You have a $500 deductible, so your insurance pays you $14,500. With gap insurance, you can make up that missing $7,500 you still owe.
7. Rental car reimbursement
The average time a vehicle spends in a repair shop after an accident is two weeks. When you add rental car reimbursement to your car insurance policy, you can have a rental vehicle ready and paid for immediately. This means no footing a weeks-long rental car bill yourself while the claims process is being handled.
The final word on car insurance coverage
There are many types of car insurance available, and each coverage is important in its own way. That doesn’t always mean you can afford to have it all, though, so it’s essential that you take a look at your own coverage and see whether you need to modify anything.
With a tool like Provide Insurance, you can easily sift through and compare coverages from different insurance providers to find the best car insurance for you. The more you learn about how to get car insurance, the more money you can save.