Understanding the Different Types of Car Insurance Coverage

If you’re in the market for car insurance, there are a lot of factors to consider and understand about the car insurance landscape to make an informed decision that aligns with your needs and budget. It’s important to understand how deductibles work in addition to the different types of insurance and what they cover.

Car insurance policies are comprised of various coverages that lend financial protection in case of loss involving the policyholder’s vehicle. The type of car you drive, where you live, and other insurance policies you have are all variables that could impact the choices you make about which coverages you’ll include in your automobile insurance policy. Depending on the state in which you live, some coverages are mandatory, and others are optional.

Here are some of the more common coverage types, what they cover, and how they work.

  1. Liability
    Liability insurance covers you in the event that you get into a car accident and it’s determined you’re legally at fault for injuries and property damage to others. This type of coverage pays for other people’s expenses, but not any damages to you or your vehicle. Liability coverage covers the cost of repairing property damage and medical bills caused by an accident. This coverage is required in the vast majority of states, and each state where it’s required has a minimum requirement for the amount of coverage drivers must have. In the event that you’re at fault and damages exceed the amount on the policy, you’re required to pay for costs that exceed the coverage’s upper limit.

  2. Collision
    Collision insurance covers damages to your car in accidents with other vehicles or objects like light posts or fences, regardless of fault. This type of coverage is typically required for leased or financed cars. For newer cars or cars with costly repairs, it might make sense to purchase collision insurance. It may not be necessary for older cars or cars with a lower value.

  3. Comprehensive
    Comprehensive insurance can serve as an extra level of protection, picking up the slack where collision insurance drops off. In the event that your car incurs damages due to incidents that aren’t a collision, such as weather events, vandalism, accidents with animals, or civil disturbances, comprehensive coverage helps pay for repairs to your car. Like with collision coverage, this type of coverage is also typically required with drivers who have a car loan or lease. However, comprehensive coverage can be quite costly.

  4. Uninsured and Underinsured Motorist
    Though most states require drivers to have some type of car insurance to get on the road, the unfortunate reality is that not all motorists play by the rules. Uninsured motorist insurance helps cover damages to you or your vehicle if you get into an accident with an uninsured driver. Underinsured motorist coverage serves as a safety net to cover damages when a driver who’s at fault has insurance that isn’t enough to cover the costs of an accident. These types of coverage are required in some but not all states. Because it’s usually an inexpensive addition to a policy, it might be a good idea to purchase uninsured and underinsured motorist insurance.

  5. Personal Injury Protection
    Personal injury protection (PIP) insurance helps cover your and your passengers’ direct and indirect medical expenses after a covered accident. Qualifying expenses may include medical bills, lost income, childcare, or funeral expenses. PIP insurance is required in no-fault states, but can be valuable coverage to purchase because it may protect policyholders from hefty medical bills. However, PIP coverage isn’t available in all states.

  6. Medical Payments
    Medical payments insurance is similar to PIP insurance, but there’s a key difference to keep in mind. While PIP insurance covers other costs in addition to medical expenses, medical payments insurance solely pays medical costs related to the covered accident for you and your passengers, regardless of who’s at fault.


Though these are the most common types of auto insurance, there are other coverages that are good to have in emergencies, such as gap insurance, rental reimbursement, emergency roadside assistance, and mechanical breakdown insurance.

How do you determine what types of coverage you need? Which types of auto insurance does your state require? What can you do to save money while still having the right amount of coverage for your needs?

Navigating the auto insurance space and finding the answers to these questions can be challenging to do without the assistance of an experienced professional.

If you have questions, contact us today to learn more about your available options and find auto insurance coverage solutions that fit your specific needs.

Guided Insurance Solutions, LLC, and its affiliates, do not provide tax, legal or accounting advice.  This material has been prepared for informational purposes only.  Please consult with your own tax, legal or accounting professionals before engaging in any transaction.

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