|Types of Auto Insurance
There are two main categories of auto insurance:
- Standard Automobile Insurance. There are three types of Standard Automobile Insurance:
- Liability Insurance. This can be considered the most important type, as it is the minimum required by law in most states. If you are found at fault in an accident, liability insurance pays for the injury and property damage expenses of the third party involved in the accident. It consists of two different policies - bodily injury liability and property damage liability. Property damage pays for the replacement or repair of anything that was damaged. Bodily injury expenses cover lost wages and medical bills. If you cause a major accident, you may find yourself not be sufficiently covered by your liability insurance. That is why it is usually recommended to buy more than the minimum required by your state.
The three numbers that usually describe an automobile policy (e.g. 50/100/25) refer to auto liability insurance. They're usually called the split limits of liability insurance. In our example they mean that you are covered for up to $50,000 worth of bodily injury caused to another person, $100,000 for bodily injuries caused to everyone and $25,000 worth of property damage.
- Medical payments insurance. This type of policy covers the immediate treatment of injuries caused by a car accident. You and all other passengers in your vehicle are covered regardless of who is at fault for the accident. Medical payments coverage may also compensate for lost wages or services of a person injured in the car accident. Personal Injury Protection (PIP) is similar to medical payments insurance, but usually provides broader coverage such as compensation for lost wages, funeral expenses, and pain and suffering.
- Underinsured and Uninsured Motorist Insurance. Both types of insurance protect you against injury caused in an automobile accident where the liability car insurance coverage of the at-fault driver is inadequate. Uninsured Motorist insurance is needed when the other driver has no liability coverage, while Underinsured Motorist coverage pays for the cost of your injuries that exceed the other driver's coverage maximum. Most states require neither type of coverage, but some require one or the other, and a few even require both.
- Optional Automobile Insurance. There are three types of insurance policies:
- Collision Insurance. This type of insurance pays for damage caused to your vehicle in an automobile accident, when you are at fault. A standard collision automobile insurance policy will pay for any repairs up to the fair market value of your car. Note that this value can be significantly lower than the cost of replacing your vehicle (or your loan balance.) If your car is financed or leased, you will need gap insurance to reimburse you for the difference between what you owe and what the car is worth. Collision insurance coverage is not required by law in any state, but if your car is purchased from a dealership or financed through a lender, you may be required by these parties to carry collision insurance.
- Comprehensive Automobile Insurance. This type of insurance is very similar to collision insurance. The main difference is that it covers damage caused to your vehicle by any unknown party or Act of God. It covers events such as vandalism, flood, hurricane, theft, and fire. Comprehensive coverage will also pay up to the fair market value of your car (less your insurance deductible.). It is not required by law in any state, but you will probably have to buy one if your car is purchased from a dealership or financed through a lender.
- Automobile Insurance Endorsements. These policies include extras such as towing insurance, auto glass insurance, daily rental insurance, and emergency roadside insurance. These policies are not required by any state, but you might value the peace of mind and convenience they provide.