Types of Auto Insurance

Types of Auto Insurance Policies: Which Types of Auto Insurance are Right for You?

There are many different types of auto insurance policies and each covers a different set of services and protections. Auto coverage types can be combined into a customized contract to meet the needs of the policy holder.

By understanding the requirements in your state, and the different auto insurance types, you’ll be able to pick a policy that covers only the expenses and services that you and your family need. Below we cover the different auto coverage types, which are typically common between different types of vehicles like cars, trucks, and motorcycles.

Liability Coverage

There is a fixed amount of coverage for each liability insurance policy. This maximum pay out limit is split up into three different maximum pay outs: Bodily Injury / Death to a single person, Bodily Injury / Death to multiple people, and damage to property.

This is the most common type of auto insurance; each state (and the District of Columbia) requires their drivers to have minimum coverage for BI and PD liability insurance, but the minimum acceptable coverage amounts in each category vary from state to state.

Because liability insurance is so important, widely-used, and complicated, we have given it a page of its own. For more information on how Casualty insurance coverage works, a detailed explanation of what it is, and tips and tricks on how to buy is, feel free to visit our page on Liability Insurance.

To find out more about all of the vehicle insurance requirements and regulations in your state, please visit our page on the Car Insurance Requirements in Each State.

Auto Medical Payments (AMP) Coverage

Auto medical payments (AMP) coverage is insurance against any of your medical expenses that come from auto-accident injuries to you, your household relatives, or your passengers.  This also covers you if you get hit by a vehicle as a pedestrian.

AMP is generally an optional coverage.  This might stand on its own or serve as a supplement to Personal Injury Protection in the no-fault states.  However, in states in which Personal Injury Protection is required by law, AMP coverage usually does not qualify as an adequate substitute.

Personal Injury Protection (PIP)

In the no-fault states, drivers can purchase Personal Injury Protection (PIP) – also called No Fault Auto Insurance – which covers the expenses of auto accident injuries regardless of who was at fault for the collision.  PIP policies can also cover wages lost due to injuries caused by car accidents.

PIP is only available in no-fault states.  In most no-fault states, PIP is required coverage; it’s usually not optional.  PIP can sometimes be supplemented by AMP Coverage.  To get more information on PIP and to see if your state is a no-fault state, please visit our page on Personal Injury Protection and No-Fault Auto Insurance.

“Full” Coverage

“Full” coverage is a combination of collision and comprehensive coverages (both covered bellow). Liability coverage is also often implied in a full coverage policy.

Collision Coverage

It also covers the costs of vehicles damaged beyond repair, or “write offs”, with payments to you from the insurance company for the cash value of the totaled vehicle.

This type of policy generally has a deductible or excess payment attached to claims which is paid directly to the vehicle repair garage that fixes your vehicle.  In the event of a write off, the insurance company will subtract your deductible from the write off payment.  These policies may also be subject to dollar limits (annual or otherwise).

This type of coverage is almost always optional.  However, many states require vehicles financed by a bank or credit union (on credit) to have collision coverage.

Comprehensive Coverage

Some common examples of covered incidents are fires, auto-theft, attempted auto-theft, weather damage, and impacts with animals (such as deer).  This is usually where expenses and damages from “Acts of God” – events entirely out of human control – are covered.  Examples of acts of god are hurricanes, tornados, floods, hail storms, forrest fires, avalanches, and apocalyptic revolutions by artificially intelligent mechanical sentients.

Comprehensive coverage is often sold together with collision coverage as a “full” coverage policy.  As with collision coverage, this type of car insurance is often subject to deductibles and dollar limits on pay outs.  Furthermore, it is also optional in most states but may be compulsory for vehicles financed on credit.

Uninsured/Underinsured Motorist (UM/UIM) Coverage

If you have expenses that come from a collision in which the driver at fault was a third party who either doesn’t have insurance or doesn’t have a policy that can pay enough to cover the full extent of the damages done, Uninsured/Underinsured Motorist Coverage (UM/UIM) would take over and pay for the damage.  This type of insurance also covers your costs in the event of hit-and-run collisions.

These types of coverage are optional in many states, but other states require drivers to have UM and/or UIM coverage.  Be sure to find out if UM/UIM insurance is required in your state.

Loss of Use Coverage

Loss of use coverage is insurance to partially or completely offset the costs of a rental car if your insured vehicle needs repairs due to a covered loss.  This is meant to keep you from being stuck without a vehicle in the event that you have to send your insured vehicle into the shop due to a collision or other covered damages.  This coverage is optional.

Loan / Lease (GAP) Coverage

GAP coverage provides protection to consumers who purchase vehicles and accrue negative equity.

When you purchase a vehicle and finance it on credit, the cash value of your new car immediately drops (since it’s now used and not new) to well below the amount you owe on it (the price at which you bought it).  In the event that you totaled your vehicle before paying it off, you could still owe much more on it than you would receive from a write-off payment.  This is known as “upside-down” or negative equity.

GAP coverage is usually a supplementary policy from the car dealership or financing institution (bank or credit union) that is intended to protect you from the burden of this negative equity.

Vehicle Towing Coverage (Roadside Assistance)

Vehicle towing coverage (also known as roadside assistance or breakdown coverage) is insurance covering the costs of services you may need when mechanical problems in your vehicle leave you stranded on the road.

Some examples of services that might be covered include towing an inoperable vehicle to a repair garage, jump starting an automobile, bringing drivers small amounts of gasoline if they run out, helping people who’ve locked their keys inside their car, and pulling a car that’s stuck out of snow or mud.

Auto Repair Insurance

Auto repair insurance is coverage for the costs of natural wear and tear on your vehicle – damages unrelated to collisions or vehicular accidents.

This is not coverage for fire damage, vandalism, or damages done by natural disasters; all of that is covered in comprehensive coverage.  This is specifically for mechanical malfunctions of the car and damages that occur naturally over time as part of driving your vehicle.  This coverage is optional.

Rental Insurance (Collision Damage Waiver and Loss Damage Waiver)

A Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) is a type of car insurance that you can take out specifically to protect yourself from damages done to rental vehicles.

You can usually purchase these policies for an add-on fee from the rental car company at which you get the car.  Some credit cards (such as MasterCard and Visa) even offer you supplementary collision insurance on rental cars purchased with one of their cards.

This insurance may be unnecessary for you – some comprehensive, collision, and liability coverage policies will extend to rental cars.  Be sure to check your policy to see which parts (if any) of your coverage apply to rental cars as well.

Non-Standard Private Passenger Auto Insurance

People in special circumstances will likely need special car insurance.  You may have a high number of recent speeding tickets, moving traffic violations, or collision reports on your record.  Perhaps you’re driving a specialized car – a high-power sports car built for maximum performance, an outstandingly expensive vehicle, a classic or vintage automobile, or even a car that you built or seriously modified.

In all of these cases, you may have a hard time finding standard vehicle insurance on the private market, and there is a good chance that you will need to opt to find policies that are customized specifically to your type of situation.  You can do this on the Private Non-Standard Auto Insurance Market.