8 Types of Car Insurance: How Many Do You Really Need?
Car insurance rarely makes the top of anyone’s “hot topics” list. It’s one of those things that most really don’t think about very much until they need it. Not only is car insurance nice to have when you need a small repair, in some states it is a legal requirement.
All Insurance Is Not Created Equal
When you purchase auto insurance, you’re purchasing a policy. The type of policy you’re offered is dependent upon a variety of different factors, including the type of car you’re driving and what kind of insurance you want or need.
Purchasing an auto insurance policy is actually purchasing a package of various types of insurance coverage. To understand exactly what it is you’re purchasing, you’ll first need to understand the different types of insurance coverage available.
Types of Auto Insurance Coverage
When it comes to auto insurance coverage, there are eight main types from which you can choose. The first step is to determine what minimum requirements, if any, there are in your state.
You’ll need to meet the mandatory requirements of your state then consider adding other components as your needs dictate.
- Liability insurance. Most states that have mandatory insurance requirements will insist that you carry liability insurance. This is the insurance that covers the cost of repairs to damaged property and the medical bills of injured persons should you be at fault in a car accident. Damaged property can be anything from a person’s mailbox to their car or a building. If you don’t have insurance coverage beyond liability, you can still be personally responsible for any claims against you that exceed the coverage limits of your policy.
- Collision insurance. Limiting your insurance coverage to only liability puts you in a risky situation. Liability insurance pays for damage to the property of others; it won’t pay for the repairs to your own vehicle. For that, you’ll need collision insurance on your policy. If an accident damages your car, collision insurance covers the cost of repairs. Collision insurance is what pays you the cash value of your “totaled” car.
- Uninsured and underinsured motorist protection. We all know that having a law requiring everyone to carry insurance doesn’t mean everyone is compliant with that law. Even if a driver has liability insurance, there’s no guarantee that his or her maximum coverage limit will actually cover the expenses that an accident may generate. This means you could find yourself stuck with the bills for an accident that wasn’t your fault. This doesn’t mean you have no recourse against someone whose accident insurance doesn’t cover the out-of-pocket costs for that accident. Uninsured motorist protection comes into play when the person who caused the accident has no money or assets of value.
- Comprehensive insurance. Will liability and collision insurance cover damage to your vehicle from an event other than an accident? No. If someone steals your car, if you have a collision with an animal, such as a deer, or your car sustains weather damage (think hail storm, wind blowing down trees, etc.), you’ll need comprehensive insurance. When your policy includes this type of insurance coverage, your insurer will take care of just about any damage caused by anything that life throws at you. The cost of this insurance usually decreases if your car has tracking devices and anti-theft features installed.
- Medical and personal injury protection. No matter who is at fault in an accident, the cost of treating personal injuries can be devastating. If your insurance policy includes medical and personal injury protection, your insurer will pick up costs for medical bills for you and your passengers. Your personal health insurance plan will probably be the first source of payment but your medical and personal-injury protection from your auto policy can pick up the costs not covered by your primary care plan.
- No-fault insurance. This type of insurance is not available in all states. Your insurance agent can let you know if your state offers it. This type of insurance covers injuries and property damage caused by an accident, regardless of who is ultimately determined responsible for the accident. No-fault policies can be expensive so be certain to weigh the cost of the policy against the cost to repair or replace your vehicle.
- Gap insurance. This type of coverage is for those who are still making car payments. It’s for drivers who would need to pay off the amount owed on the car if it’s totaled in an accident. If you owe more on your vehicle than you could easily pay off on short notice, this type of insurance may be worth serious consideration. Since most insurance companies cover the cash value of your totaled car, rather than replacement cost, gap insurance may be worth the additional cost. Check with your lender before purchasing gap insurance, however. Some lenders require it automatically, meaning you may already have this coverage but are unaware that you do.
- Towing, labor and rental reimbursement insurance. These specific benefits are common in a comprehensive insurance rider on your policy, but be certain to check on this at the time you purchase the policy. This type of specific coverage will reimburse you for towing and labor costs to repair your vehicle. It will also help pay the costs of a rental car if you need one to get around while your car is being repaired.
Accidents happen; it’s a fact of life. Being prepared should it happen to you is just one more thing you can do to protect yourself, your family and your property.