Choosing the best auto insurance can be frustrating, especially if you’re unfamiliar with the terms. Here, we’ll give you a breakdown of the different types of auto insurance, terms, and what they all mean. That way, you’ll be ready when it’s time to buy your next car insurance policy.
What are the main types of auto insurance?
Although there is no such thing as comprehensive car insurance, there are six main types of car insurance, each offering a different set of coverage.
Comprehensive coverage pays to repair or replace an automobile if it is damaged by fire, falling objects, hail, flood, theft or even hitting an animal. It also pays for windshield repairs.
Having a comprehensive insurance policy is optional in most situations. The exception is if someone is leasing their car, in which case their finance company will likely require the driver to purchase comprehensive coverage to protect against loss.
All-risk insurance accompanies the driver. Suppose someone drives a friend’s car, hits a patch of ice and slides into a ditch. This driver’s insurance coverage will pay to repair or replace the car they were driving, minus any applicable deductible.
Here are some of the reasons to consider comprehensive coverage:
- The driver lives in an area with a high rate of auto theft
- Driver lives in an area prone to natural disasters (such as hurricanes, earthquakes, blizzards, volcanoes, and tornadoes)
- The driver’s vehicle is valuable and he has no money to pay for repairs (or replacement) if he is involved in an uncovered accident.
Collision coverage is less expensive than comprehensive coverage, mainly because it doesn’t cover as much. Like comprehensive coverage, however, collision coverage is generally optional.
Here’s how it works: If someone is involved in a car accident with another vehicle, hits an object (like a mailbox or fence), or otherwise damages their car, collision insurance will pay up to the value cash from the vehicle, minus the deductible. Let’s say the car has a real value of $4,000 and it’s totaled. If the driver has a deductible of $1,000, collision insurance will pay $3,000.
Most states require drivers to have liability insurance. The minimum liability coverage required varies by state law. There are two types of liability insurance:
If someone is involved in an accident and found legally responsible for another person’s injuries, bodily injury liability insurance pays for medical expenses, lost wages, and pain and suffering.
Let’s say a driver loses control of his car, hits another vehicle parked on the road, and then hits a tree in someone’s front yard. Property damage liability insurance will pay to repair the vehicle the driver hit and treat the damaged tree.
If someone is sued, liability insurance will also cover court and defense costs.
4. Uninsured motorist and underinsured motorist
Some states require uninsured motorist coverage and underinsured motorist coverage, while others do not. If someone is hit by a driver who doesn’t have insurance, uninsured motorist coverage will help pay for medical bills and, depending on the state, repairs to the car. If a driver causes the accident without adequate insurance, underinsured motorist coverage will fill in the gaps in coverage.
5. Medical payments
Like most of these types of policies, medical expense coverage is optional in some states and required in others. This covers the policyholder, family members driving the insured vehicle and any passengers. This will help pay for things like hospitalization, surgery, and medical tests in the event of a car accident.
6. Bodily injury
Personal Injury Protection (PIP) is not available in all states. It is similar to medical coverage in that it covers medical expenses following an accident. Personal injury protection coverage goes one step further by providing extras like loss of earnings, house cleaning services, and child care expenses while the driver recovers. If someone in the vehicle dies as a result of an accident, PIP covers the funeral costs.
Other Types of Car Insurance Coverage
Let’s say someone pays $40,000 for a new car and it’s stolen or destroyed within days. They still owe $40,000, but since new cars depreciate when they leave the lot, that car is now worth $34,000. Even if the driver has full and comprehensive auto insurance, the maximum the insurer will pay is $34,000.
Gap insurance helps pay the difference between the car’s depreciated value and the amount the driver owes – in this case, $6,000. Gap coverage is optional, but it’s a good idea if a motorist doesn’t want to be out of pocket if their car is destroyed or stolen. Not all insurers offer Gap coverage. People can also consider purchasing a Gap policy through their lender or car dealership.
Towing and Labor Cost
Towing and labor cost coverage protects drivers against costs associated with things like flat tires, dead batteries, or accidental locking of the car. Some insurers include this service in their premiums, and some ask motorists to add it as an extra.
Reimbursement of rent
This coverage pays a fixed amount each day for a rental car or pays for public transportation while a vehicle is being repaired after an insurance claim. It does not cover things like renting a car for vacation or when a car is undergoing routine maintenance. Lease reimbursement coverage is usually an add-on.
New car replacement
If a car is destroyed, this coverage pays to replace it with a new vehicle of the same make and model. Insurers often add caveats, so be sure to ask the following questions before paying extra for new car replacement coverage:
- Do I have to be the original owner of the vehicle? The answer is usually “yes”.
- How old can my original car be? There is almost always a limit.
- What if the make and model of my original car is no longer manufactured?
- What are your exclusions? Travelers, for example, exclude fires, robberies, robberies and floods.
Classic car insurance
Classic car insurance is designed to cover vintage or classic cars. In other words, vehicles that are at least 25-30 years old. Classic car coverage extends to other high-value vehicles like hot rods and muscle cars. Although a standard insurance policy provides basic protection, it is unlikely to pay the full value of a car if it is damaged. Unlike car insurance for traditional vehicles, the value of a classic car is agreed between the owner and the insurance company. While a conventional vehicle depreciates over time, classic cars often appreciate, a fact that should be reflected in coverage. Ask your insurer how to qualify for classic car insurance. For example, many include limitations on the number of miles a car can travel each year and proof that it is properly stored.
If someone plans to drive for a ride-sharing service like Lyft or Uber, they should let their insurer know that they are getting paid to drive. Some insurers don’t allow this, while others provide additional coverage for carpooling. Also, some states require people to have a commercial policy if they work for a ride-sharing service, so it pays to know that.
According to Progressive, even if a rideshare service offers some level of coverage, it typically doesn’t provide full, collision or supplemental protection while people wait for a rideshare request. For example, if someone had an accident while waiting for a request, this would not be covered by the carpooling policy. What ride-sharing insurance does is extend the coverage of a personal auto insurance policy to cover when a driver is between customers.
What is the best type of car insurance?
The best type of car insurance depends on the person’s situation. If they have a classic car, they need coverage that protects it. If someone doesn’t have the money to pay for major repairs or to replace their vehicle, they may want to shop around for the cheapest auto insurance they can find. If a person drives an old thresher and doesn’t care if it gets broken or worries about what will happen if it’s totaled, liability insurance may be all they need.
How to Choose the Right Type of Auto Insurance Coverage
Choosing the right type of auto insurance coverage is easier if you follow these 5 steps:
1. Decide what coverage you need
Would you like full replacement cost or are you okay with your state’s minimum required coverage?
2. Determine how much you can afford
This will depend on your personal situation and your budget. Think about how much you drive, how many people drive your car, and what type of vehicle you own.
3. Determine which type of policy is best for your vehicle
For example, if a driver has a new car, they probably want a policy that allows them to add gap coverage.
The best policies offer the most comprehensive coverage at the lowest price. It may take a little time, but shopping around can save people hundreds of dollars a year and provide them with the coverage they need.
5. Ask questions
Ask the auto insurance policy the questions that matter to you. This way, when you get an auto insurance quote, you can compare each auto insurance policy with the others.
Thank goodness for auto insurance. It can get people back on the road when their car is inoperable, pay for medical bills in the event of an accident, and give drivers confidence when they’re on the road with thousands of other drivers having places to go.