Some types of car insurance are required by law, others only if you have a loan or lease. There are many other optional coverages you can choose from to protect yourself and your vehicle.
Car insurance is required by law in most states. Liability insurance is the common coverage required by state law, but some states require more. Additional coverage such as personal injury protection and medical payments are required by law in some states, particularly those with no-fault insurance laws, and some also required uninsured motorist coverage.
However, car insurance isn’t one-size-fits-all and state laws are just a starting point. You may need higher limits, additional coverages or even an entirely different policy type. Understanding the different car insurance types can help you determine which coverage you need.
Read on to learn about the types of car insurance and what they cover to decide what you need to buy.
KEY TAKEAWAYS
- The three most common types of car insurance coverage are liability insurance, comprehensive and collision insurance.
- Liability insurance pays for damages and injuries to others when you’re at fault in an accident while collision and comprehensive coverage pay for damages to your car from an accident or a non-accident event like vandalism.
- Other common types of car insurance coverage include personal injury protection, uninsured/underinsured motorist, rental car reimbursement and roadside assistance.
The most common types of car insurance coverage
There are several main types of auto insurance coverage. Depending on where you live, several of these may be legal requirements. It’s important to know your state’s laws before you start shopping, but also to know what other type of coverage you need; for example, if you have a loan with insurance requirements.
- Liability insurance is required by law in almost every state and pays for injuries and damages for others when you are at fault. It is broken up into bodily injury and property damage coverages.
- Comprehensive insurance is required if you have a loan or a lease and pays for damages to your vehicle that are unrelated to an accident, such as vandalism, theft, fire or animal strikes.
- Collision insurance is required if you have a loan or a lease and covers damages to your car in an accident, regardless of fault.
- Uninsured/underinsured motorist insurance covers personal injury and property damage if you’re involved in an accident with an uninsured or underinsured motorist, and is required by law in some states.
- Personal injury protection and medical payments insurance are required by law in some states and cover medical bills for you and your passengers regardless of fault.
Additional types of car insurance coverage
When you buy car insurance, you’ll have the option to add additional coverage. Here are several car insurance coverage types to consider for extra protection:
- Rental reimbursement. Rental reimbursement insurance will cover the cost of a rental car while your car is being repaired for a covered claim. Some insurance companies include this coverage as part of a standard policy. The cost of rental car reimbursement depends on your insurance company and the amount of coverage you choose.
- Emergency roadside assistance/towing and labor. Emergency roadside assistance, also called towing and labor coverage, will get your car back on the road if it breaks down. It typically covers fuel delivery, jumping a dead batter, flat tire changes, extrication and towing (up to a certain mileage). Roadside assistance can cost as little as $5 per month or as much as $100 per month. Pricier plans tend to offer more (and better) coverage.
- Mechanical breakdown insurance. Mechanical breakdown insurance will pay for certain vehicle repairs, even if it’s not part of a claim. It typically covers mechanical issues related to the transmission, engine, fuel system, brakes, air conditioning and power system. The cost of mechanical breakdown insurance varies based on the insurance company. Expect it to cost between $30 to $100 per year.
- Gap insurance. If you lease or finance your vehicle, gap insurance pays off your remaining loan balance if your car is totaled and you owe more than it is worth. You can buy gap insurance (or loan-lease payoff coverage) through your lender. It’s also available through standalone gap providers and many insurance companies. Gap insurance is about $41 per year. It’s typically cheapest to buy through your current insurance company if it’s offered.
- New car replacement insurance. New car replacement insurance is an endorsement that will pay to replace your vehicle with a similar new one if your car gets totaled without regard for depreciation. The price of new car replacement insurance depends on your insurance company and your vehicle’s make, model, and year.
More car insurance policy options
Depending on your needs, there are some other policies you might want to consider.
- Umbrella insurance. An umbrella insurance policy gives you extended personal liability coverage to help pay for legal expenses if you cause an accident and get sued by the other driver. The cost of umbrella insurance depends on your coverage limit. For example, if you have $1 million in coverage, the average premium is between $150-$300. On the other hand, a $5 million policy will run you between $375-$525.
- Pay-as-you-go/pay-per-mile insurance. Pay-as-you-go insurance or pay-per-mile insurance is a type of usage-based car insurance that you pay for based on miles traveled on top of a low flat rate. It is best suited for drivers who drive less than 10,000 miles per year.
- Non-owner insurance. Non-owner car insurance is a way to get car insurance if you don’t own a vehicle. It’s also required for drivers who don’t have a car but need to purchase liability insurance to keep their driver’s license. The average cost of a non-owners policy costs $474 per year.
- Classic car insurance. Classic car insurance is designed to cover classic and collector cars. It covers the car’s agreed-upon value rather than the actual cash value, which includes depreciation. According to Hagerty, one of the leading classic car insurance providers, the average cost of classic car insurance is roughly 34% cheaper than regular insurance.
Liability insurance
What does it cover?
If you cause an accident, liability insurance covers the other driver’s vehicle repairs and medical expenses. It also protects you in a lawsuit when you’re at fault in an accident and the other driver sues you for their losses.
Who should buy it?
Every driver should have personal liability insurance. Plus, it’s a legal requirement in every state where car insurance is mandatory.
Other factors to consider
If your state requires car insurance, you must purchase a minimum amount of liability coverage to register your vehicle and legally drive. However, the minimum amount of coverage may not be adequate.
It’s a good idea to raise your liability coverage limits for more protection. Otherwise, you risk paying out-of-pocket in a lawsuit.
How much does liability insurance cost?
The nationwide average cost for state minimum liability coverage is $637, but your rate will be higher if you purchase more coverage.
Comprehensive and collision insurance
What do they cover?
Collision and comprehensive insurance cover vehicle repairs and comprise full-coverage insurance.
Collision pays for your car’s repairs after an accident, and comprehensive pays for your damage to your car from a non-collision incident, like fire, theft, vandalism or hail. Both policies have a deductible that comes out of your insurance payout.
Who should buy it?
You should purchase collision and comprehensive insurance if you have a loan or lease your vehicle. Most lenders will require you to have it. It’s also highly recommended for anyone who couldn’t afford to pay for vehicle repairs or replacement out-of-pocket.
Other factors to consider
These coverages are generally sold together, but you can buy them individually in some cases. You can also have different deductibles for each of them.
How much do comprehensive and collision insurance cost?
The average annual cost for collision insurance is $723, and $263 for comprehensive insurance, according to Insurance.com’s most recent rates. Choosing a higher deductible may save you money, but it should never exceed an amount you can pay easily.
Uninsured/underinsured motorist insurance
What does it cover?
Uninsured/underinsured motorist coverage pays for your vehicle repairs and your medical expenses if you get into an accident with a driver who doesn’t have car insurance or doesn’t have enough car insurance to cover your losses in full.
Who should buy it?
Some states require one or both coverages, so it’s not always optional. If your state doesn’t require uninsured or underinsured motorist coverage, it can provide additional peace of mind, especially if you don’t have a full coverage policy.
Other factors to consider
Typically, your uninsured motorist bodily injury coverage limits cannot be greater than the amount of liability insurance you have. We recommend buying uninsured and underinsured motorist bodily injury limits that match your liability coverage if you don’t have health insurance. We also recommend buying property damage if you do not carry collision coverage.
How much does uninsured/underinsured motorist insurance cost?
On average, uninsured motorist coverage costs $176 per year, and underinsured motorist coverage costs $79 per year.
Personal injury protection and medical payments insurance
What does it cover?
Personal injury protection and medical payments insurance pay for the cost of treating injuries that you, authorized drivers or your passengers suffer in a car accident when you are at fault.
Who should buy it?
Personal injury protection is required if you live in one of the 12 “no-fault” states. In a no-fault state, each driver’s insurance company pays for their own injuries, no matter who causes the accident. Delaware and Oregon also require it.
Medical payments coverage is usually optional and comes with a full coverage policy. It’s only mandatory in Maine and for insured drivers in New Hampshire, where insurance coverage is not required.
Other factors to consider
If personal injury protection or medical payments coverage is optional in your state and you already have health insurance, we recommend buying enough to cover your deductible. If you do not have health insurance, we strongly recommend you buy at least $10,000 in personal injury protection or $5,000 in medical payments coverage.
How much do personal injury protection and medical payments insurance cost?
The average cost of personal injury protection is $236 per year. For medical payments insurance, the average rate is $21 per year.
Frequently asked questions
How do I know how much liability insurance coverage I need?
The amount of coverage you need is at least the minimum requirements in your state. Everyone has different car insurance needs, so choose coverage limits that you feel provide sufficient protection for your situation and fit within your budget.
For liability insurance, your coverage limit should be based on your personal assets. If you have investment accounts, savings, real estate or other assets that could be seized in the event of a lawsuit, it’s a good idea to increase your policy limits accordingly.
What is liability-only insurance?
Liability-only insurance is also called a minimum coverage policy. It means that your policy only includes bodily injury and property damage liability insurance, which apply if you hit another driver. Liability-only insurance doesn’t offer any coverage for your vehicle or your medical expenses after an accident.
Should I adjust my coverage when adding a teen driver?
If you’re adding a teen driver to your car insurance policy, it is a good idea to consider raising your coverage limits. Data show that drivers between the ages of 16-19 are more likely to get into an accident than any other age group.
However, keep in mind that adding a teen to your policy will cause your rate to increase. If you’re planning to add a teen driver to your policy and raise your coverage limits, make sure you’re taking advantage of all the discounts you qualify for.
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