If you own or lease a car, you may want to explore your car insurance options. There are many different types of car insurance policies, covering different scenarios depending upon the vehicle’s use. Additionally, many states have a minimum car insurance amount requirement.
So how does car insurance work? Let’s take a look at some of the common types of car insurance policies, state requirements and what is typically required.
Types of Car Insurance Coverage
It’s helpful to first look at the different types of car insurance coverage options. Here’s a quick introduction to some common policy types:
Liability Insurance
Liability insurance is a third party coverage option and is designed to help cover the cost of bodily injury and property damage suffered by third parties resulting from a covered accident. We take each in turn below:
Bodily Injury Liability: This type of liability insurance typically helps cover the medical expenses of third parties who suffered bodily injury (including death) as the result of a covered accident. This coverage may also help cover defense costs in the event the policyholder is sued. Note: this coverage does not cover medical expenses suffered by the policyholder.
Property Damage Liability: This type of liability coverage typically helps cover the cost of damages caused to third party property, including vehicles, buildings, homes or other personal property, resulting from a covered accident. Note: this coverage does not cover damage to the policyholder’s own car or property.
Auto liability insurance is an important coverage type to consider In fact, 49 out of 50 states currently require vehicle owners to maintain auto liability insurance. New Hampshire is currently the only state that allows for the refusal of liability insurance (although drivers wishing to waive the coverage must establish financial capacity to pay for damages).
Comprehensive Insurance
Comprehensive car insurance helps cover damages to vehicles due to events such as theft, vandalism, falling trees/objects, hitting deer or other animals in the road. Damages due to weather events may also be covered. This can be especially helpful in regions where hailstorms are prevalent. This type of insurance does not cover damages resulting from collisions.
Collision Insurance
Collision insurance will typically help cover damages to the policyholder’s car due to a covered accident with another vehicle or object (such as a tree, fence or pole), regardless of fault. Collision coverage is often required by lenders when leasing or financing a car.
Medical Payments Insurance
Medical payments insurance helps cover medical expenses due to injuries suffered by the policyholder, and any passenger in the vehicle, resulting from a covered auto accident. This coverage typically applies regardless of who was at fault in the accident.
Personal Injury Protection Insurance (PIP)
Sometimes referred to as “no-fault insurance,” personal injury protection insurance is similar to medical payments insurance, as it may help cover medical expenses to the policyholder and passengers resulting from a covered accident, regardless of fault; however, personal injury protection insurance can also help cover additional expenses such as funeral costs, childcare expenses, or lost earnings and wages resulting from the auto accident. This type of insurance is not available in every state.
Uninsured/Underinsured Motorist Insurance
This type of insurance can help provide coverage for expenses resulting from an accident with an uninsured or underinsured driver (or a hit and run). When an uninsured or underinsured individual is responsible for an accident, but does not have the financial ability to pay compensation, this type of insurance can help cover the resulting costs.
Like liability insurance, this type of Insurance is also broken into two categories:
Uninsured/Underinsured Motorist Bodily Injury (UM/UIM): UM/UIM insurance helps cover bodily injury and medical costs suffered by the policyholder or their passengers as a result of an accident with an uninsured or underinsured driver.
Uninsured/Underinsured Motorist Property Damage (UMPD): While UM/UIM insurance typically covers medical expenses resulting from bodily injury, UMPD can help cover damages to property and vehicles resulting from an accident with an uninsured or underinsured driver.
Some states require motorists carry a minimum amount of Uninsured/Underinsured Motorist Bodily Injury and/or Uninsured/Underinsured Motorist Property Damage coverage.
Gap Insurance
This type of insurance can help cover the difference between a car’s actual value and what may still be owed on the auto loan. It may be useful in scenarios where the loan amount is more than the car’s worth. This can happen due to the tendency for new cars to depreciate in value once they “leave the lot” (are sold to a customer). In some cases, gap insurance may be required when leasing a vehicle. Car dealerships may suggest rolling the cost of gap insurance into the cost of the loan itself.
Other Car Insurance Coverages
In addition to the insurance coverages discussed above, drivers may also purchase other policy options. Typically, these are specific-scenario policy additions, which may be available for an additional cost. Some examples of optional coverages include:
Rental Car Reimbursement: This can help pay for costs to rent a car while the policyholder’s vehicle is being repaired.
Roadside Assistance: This can help pay for towing or labor should the policyholder’s car break down and require assistance.
Full Glass Coverage: This can help cover the cost of damage or chips to a windshield without requiring payment of the applicable insurance deductible.
Custom Parts and Equipment Coverage: This can help cover damages or malfunctions to custom vehicle add-ons (may be useful if a car has custom or unique parts).
Rideshare Insurance: This type of insurance is unique to individuals who drive for rideshare services like Uber or Lyft.
Classic Car Insurance: This type of insurance helps cover the cost of repairs to classic or antique cars.
What Car Insurance Coverage Is Required?
While car insurance policy requirements vary by state to state, many states require drivers to maintain all or some combination of the following coverages: liability insurance, personal injury protection, medical payments insurance, and uninsured/underinsured motorist insurance.
What Does Car Insurance Typically Not Cover?
While the terms, conditions and exclusions of each specific policy will vary, the following events are typically not covered under a standard car insurance policy:
- General maintenance needed by the vehicle
- Regular and gradual wear and tear occurring over time
- Damage the policyholder intentionally does to their own car
- Personal items or valuables stolen from the vehicle
- Any existing damage that was done by the vehicle’s previous owner
- Electrical wear and tear unrelated to an accident
- Any damage that exceeds the limits of the policy's coverage limit
Acrisure Can Help You with Your Car Insurance Needs
Acrisure can help you review your available car insurance coverage options so you can begin to build a policy that works for you. We’d love to help! Contact us today.