Types of Car Insurance Coverage

When purchasing a car insurance policy, it can be overwhelming to pick and choose what coverage you need from the best companies for car insurance. Not having enough coverage can result in high out-of-pocket costs, whereas having unnecessary coverage means paying higher rates. 

While states require drivers to carry some coverages, other coverages are optional and the states leave it up to drivers whether they want extra coverage or not.  Because each coverage is different in what they protect against, drivers should read up on each coverage before making a decision. 

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To help you decide which coverages are right for you, we will go over each type of car insurance coverage in detail and how they work. 

Most Common Types of Car Insurance Coverage 

Car insurance is intended to protect drivers by paying the bills for accidents so that drivers don’t end up in debt. Car insurance rates vary from state to state and company to company. On top of that, your car insurance rate can be affected by a variety of factors like age, driving history, and even your credit rating.

Take a look at the map below to see what the average annual full coverage insurance rates are in your state.

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Every insurance company is different in what coverages they offer, but most auto insurance companies will offer the following types of car insurance coverage because all of them are required by either states or lenders. 

Liability Insurance 

Liability is the most important insurance coverage that drivers need to carry. Liability insurance consists of two parts: bodily injury liability and property damage liability. If you cause an accident and are deemed at fault, liability insurance will pay for the other parties' damages. 

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Bodily injury liability will pay if the other driver or passengers are injured, and property damage liability will pay for other driver’s vehicle repairs or property damages, such as a broken mailbox. 

Keep in mind that liability insurance won’t cover any of the accident costs for you. Almost every state requires drivers to carry this insurance so that if a driver causes an accident, the other parties involved will have their costs taken care of. 

Liability insurance is the lowest level of insurance you can legally carry. For more protection, you may want to consider full coverage. Of course, that will cost you more. Here's a look at how average annual minimum rates compare to those for full coverage from a few of the top U.S. auto insurance companies.

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Read on to find out more about the additional auto insurance coverage that is available to you.

Collision Insurance 

Unlike liability insurance, states do not require collision insurance for drivers. However, drivers who have a loan or lease on their vehicle will find that they are legally required in their contracts to carry collision insurance on their cars. 

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Collision insurance will pay for their vehicle damages if a driver crashes in the following situations: 

• They hit another vehicle. 
• They hit a stationary object, such as a fence. 
• They are in a single-car accident, such as a driver sliding off an icy road. 

Even if drivers are not required to carry collision coverage, they should consider adding collision coverage to their policy if they would be unable to pay for repairs or a new car if their vehicle is totaled. 

Comprehensive Insurance 

Similar to collision insurance, lenders may require drivers to carry comprehensive insurance on their vehicles, even though states don’t require it. Comprehensive insurance covers drivers in the following types of incidents: 

• Collision with an animal 
• Damages from weather, such as a hurricane or hailstorm 
• Damages from falling objects, such as a tree falling on your car 
• Damages from vandalism or theft 

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Once again, drivers who can not afford to pay to repair damages or replace their cars should add comprehensive coverage to their policies. 

Personal Injury Protection Insurance 

Personal injury protection coverage, also known as PIP insurance, is required in a handful of states but is optional in most of the U.S. If you are in an accident, PIP will cover your and your passengers’ medical costs. This may include emergency medical treatment bills, lost wages, or funeral costs. 

Even if you aren’t required in your state to carry PIP, if you can afford to add PIP to your insurance policy, it is worth doing so unless you have great health insurance. Even then, PIP covers things that health insurance doesn’t, such as lost wages from injuries. 

Underinsured/Uninsured Motorist Insurance 

Less than half of the U.S. states require drivers to carry underinsured/uninsured motorist insurance. This insurance coverage will pay for your accident costs if the at-fault driver doesn’t have enough insurance coverage to pay the entirety of your bills or has no insurance. 

Does insurance cover a hit-and-run? If the driver doesn't have insurance, they may hit-and-run, which means you’ll need extra protection. If you don’t have collision and comprehensive insurance, then you should consider adding underinsured/uninsured motorist coverage to your insurance policy in case another driver can’t pay your bills after crashing into you.

Medical Payments Insurance 

Medical payments insurance, also known as MedPay, is required in Maine and New Hampshire. MedPay will pay for you and your passenger’s medical bills if you are in an accident. 

It is more limited than PIP coverage, as it won’t pay for lost wages or funeral costs. However, if you want extra medical coverage, then you may want to add MedPay to your insurance plan. 

SR-22 Auto Insurance 

Some states may require drivers to file for high-risk insurance, also known as SR-22 insurance, if they have a DUI or other incidents on their record. Not all insurance companies provide SR-22 insurance, so you may have to shop around for coverage. 

Drivers who have to file for SR-22 coverage can expect rates to be higher than average, as they are considered high-risk drivers. 

Nonowner Car Insurance 

Drivers who don’t own their own car will have to purchase nonowner car insurance. Nonowner insurance will provide liability insurance if you crash a car, so the other parties’ bills will be paid. 

However, nonowner insurance won’t cover the damages to the driver’s car, as that will be up to the vehicle owner’s insurance. Your medical bills also won’t be covered under nonowner insurance. 

The good news is that even though nonowner car insurance isn’t as comprehensive as owned car insurance, it is usually cheaper than purchasing a regular auto insurance policy. 

Rideshare Insurance 

If you drive for rideshare companies like Uber or Lyft, your regular auto insurance won’t cover you. States require all drivers to be insured to drive legally, so you must purchase rideshare insurance to legally transport customers. 

Not all insurance companies sell rideshare insurance, so you may have to shop around in order to find a policy. 

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Other Types of Auto Insurance Coverages 

Unlike the most common types of auto insurance, the following coverages are completely optional no matter what state you live in. They may not be offered by every insurance provider. Take a look at them below to see how auto insurance works with these add-on coverages. 

Classic Car Coverage 

Generally, cars are considered classics by insurance companies if they are at least 25 years old. Classic car auto insurance is similar to a standard car insurance policy with liability, collision, and comprehensive bundles, but it is cheaper than regular auto insurance. 

This is because classic cars aren’t used for regular driving but for occasional pleasure drives. If you use your classic car regularly, then you’ll need to purchase a regular auto insurance policy.  

Emergency Roadside Assistance Coverage

Some insurance companies will offer optional emergency roadside assistance coverage. The best roadside assistance plans will help with all of the following: 

• Dead batteries 
• Empty gas tank 
• Flat tires  
• Locked out of the car 
• Tows 

If you have an older car prone to breaking down, then adding roadside assistance to your plan can save you money in the long run. 

Gap Coverage 

All cars start losing value as soon as they leave the lot. If you have a loan or lease and total your car, the amount your auto insurance pays you will be based on your car’s actual cash value. 

This depreciated amount can be significantly less than the amount left on your car’s loan or lease. This is where gap coverage comes in. Gap coverage will pay the difference between the depreciated actual cash value and the amount left on your loan or lease. 

Mechanical Breakdown Coverage 

Mechanical breakdown insurance will pay for car repair costs if mechanical parts in your car break down, such as your engine or transmission. It is similar to extended warranty coverages. 

Typically, insurance companies won’t sell mechanical breakdown coverage for old cars or cars with a high number of miles on them, as these types of cars are more prone to breaking down. 

Modified Car Coverage 

Some insurance companies will offer modified car coverage to drivers who have made expensive car modifications, such as a custom paint job or a new sound system. Without modified car insurance, the cost of modifications won’t be covered if the modifications are damaged in an accident. 

New Car Replacement Coverage 

Only cars that are no more than a few years old can qualify for new car replacement coverage. If you total your car, new car replacement coverage will pay for a new car of the same make and model as your totaled car. What cars will qualify for this coverage depends upon the insurance company. 

Rental Reimbursement Coverage 

If your car is in the shop getting repaired under a covered loss, then rental car reimbursement will pay for your rental car until your car is fixed.

Keep in mind that what kind of rental car insurance companies will pay for and how long they will pay for the rental car depends upon the company. 

Umbrella Coverage 

Umbrella coverage is extra liability insurance if you cause an accident in which costs exceed your basic coverage limits. It will also help pay for costs if you are sued after an accident. How much umbrella coverage will cover depends on the policy and company. 

Usage-Based Coverage 

Usage-based coverage may be offered at some insurance companies. Drivers pay a daily rate and then pay a small fee based on how much they drive. Some insurance companies may also offer usage-based programs where drivers let the company track their driving data and then earn discounts. 

The Final Word on Types of Auto Insurance Coverage 

All drivers are required to carry liability insurance, no matter where they live. However, most of the other coverages are optional, leaving it up to the driver to decide how much coverage they want to carry. 

To shop around for the best prices on auto insurance coverage in your area, use our free quote comparison tool. 

Frequently Asked Questions About Auto Insurance Coverages 

If you are still unsure about your auto insurance coverage options and aren’t familiar with all the coverages, don’t worry. To make sure we’ve fully answered all your questions about car insurance coverages, we’ve answered some of drivers’ most common questions below. 

What are the five types of car insurance? 

The five most common coverages required in most states or by lenders are liability insurance, collision insurance, comprehensive insurance, PIP insurance, and MedPay insurance. 

What is a full coverage policy? 

Generally, a full coverage policy is considered to be a combination of liability insurance, collision insurance, and comprehensive insurance. Drivers can also add PIP or Medpay for complete coverage in all areas. 

What is the most common insurance coverage? 

Liability insurance is the most common type of car insurance, as all drivers must carry it. If a driver causes damages to another person or vehicle, liability insurance will pay for the other party’s damages. 

Is full coverage the same as comprehensive insurance? 

No, they are not the same. Full coverage means a policy has liability, collision, and comprehensive insurance coverages. Comprehensive insurance coverage is a separate coverage that covers damages from animals, weather, vandalism, and more. 

What is collision coverage? 

Collision coverage will pay for damages to your vehicle if you crash into another vehicle or a stationary object, such as a mailbox. Drivers who lend or lease their cars must carry collision coverage. 

Is it worth it to carry comprehensive coverage on an older car? 

The general rule is that if the annual cost of comprehensive coverage will equal your car’s total value in a few years, then you can do away with comprehensive insurance. Otherwise, you’ll end up paying the worth of your vehicle in coverage fees within a few years.