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6 Types of Car Insurance Coverage For All Drivers

Types of Car Insurance For DriversThe following is a contribution from my blogging friend, Gary.

Although buying auto insurance is mandatory in the United States, the process of getting a policy isn’t as straightforward as consumers would like. There are three different types of car insurance coverage: liability, comprehensive or collision and medical coverage for drivers. Below, we will discuss the differences between these types of insurance policies to determine which is best suited for your needs.

Medical Coverage For Drivers

If you get into an accident and you or one of your passengers is injured, your driver medical coverage will pay for any hospital bills. The following are the types of medical coverage for drivers.

  • Medical Payments coverage will help cover expenses incurred should you have an accident – including funeral expenses for you or any of your passengers. This coverage will also be helpful if a car hits you while you are walking or riding a bike.
  • PIP coverage is there to cover the cost of medical for anyone in your vehicle should you have an accident – even if it’s your fault. Personal injury protection will pay for any medical expense – including hospitalization, rehabilitation and money you lose for missing work – provided you live in a no-fault state.

Vehicle-Based Insurance Coverage

Vehicle-based insurance coverage is there to protect your vehicle in the case of an accident. Various types of vehicle-based insurance coverage include:

  • Comprehensive auto insurance helps pay for repairs or replacements if your car needs to be fixed after damages caused by things other than a car accident, like theft or an “act of God.”
  • Collision auto insurance covers the cost of repair to your car, which is helpful should you be the one deemed responsible for causing the accident. When collision coverage is matched up with comprehensive insurance, you are considered fully covered. While it’s not generally required to have both comprehensive and collision auto insurance, it might be if you want to lease a car.
  • Emergency roadside assistance insurance is a godsend in the case of an accident. Being involved in a collision is bad enough, but, should your vehicle be rendered un-drivable for any reason, not having the means to transport it would be much worse. If you have ERS coverage, you can call a tow truck to come fix a flat, give your car a jump, or tow your car to your mechanic, all without the cost of service fees.
  • Rental car coverage exists to cover the price of a rental when your car is indisposed. To be eligible for rental car coverage you must have full coverage on your insured vehicle.
  • Loan/lease gap insurance supplements the amount between the ACV or actual cash value of your car, and the amount you owe if it is leased or purchased through loan and you have an accident that totals your vehicle. This is a huge help if you owe more than what the car is worth.

For example, you still owe $10,000 on your car, but at this point it is only worth $4,000. If you have an accident, you’d get a settlement check for the amount your car is worth, but you would still owe $6,000. Your loan/lease gap coverage would cover that expense.

  • Customization insurance covers the repairs for anything you have customized your car with – a pull out stereo, GPS system, a car phone or a custom paint job. There’s no sense in dropping a ton of money on your vehicle just to have your speakers stolen or your expensive paint job all scratched up in an accident.

Liability Insurance Coverage

Regardless of what type of car insurance you choose, you must at least be covered with liability insurance – it is required by law. If you cause an accident, liability insurance will help pay for the property, medical care and any possible lost income for other drivers and passengers.

Each state that requires liability insurance has set minimum limits that a driver has to have on their policy. The numbers exist in a 3-tier system, like 30/40/10, which would mean:

  • $30,000 as the most the insurance company will pay out for the cost of injuries per person.
  • $40,000 as the overall amount the insurance company is willing to pay for the cost of injuries per accident.
  • $10,000 as the most the insurance company will pay out for property damage per accident.

While you aren’t allowed to get liability insurance lower than what is required in your state, you can get it for a higher limit. But first, we recommend you research the average car insurance rates in your state. Here are some categories of liability insurance:

BI and PD Liability Insurance

BI, or bodily injury insurance, will pay for the cost of medical and lost income for drivers or passengers who are injured in an accident. PD, or property damage insurance, will pay for any repairs or replacement of items damaged in a collision – be it a vehicle or some other property like a fence.

Uninsured/underinsured Motorist Liability Insurance

Just as with bodily injury and property damage liability insurance, with uninsured and underinsured motorist liability insurance you are protected in case someone is injured or there is property damage. This type of insurance will help pay for expenses should you have an accident with someone who is uninsured or is underinsured in their coverage.

  • Uninsured motorist liability insurance will cover the cost of medical and lost income of those who are insured authorized drivers and passengers of a vehicle in the case of an accident when the other driver has no car insurance coverage.
  • Underinsured motorist liability insurance helps to fill in the gap if the driver who caused the collision doesn’t have enough insurance to pay for your expenses caused by the accident.

No-Fault Liability Insurance Coverage

In no-fault states, all insured drivers are covered in case of an accident, regardless of whose fault it is. Even so, bodily injury liability coverage is mandatory even in no-fault states because, depending on the injury, the driver who caused the collision can be sued. In that case, bodily injury liability insurance can help cover the costs.

It is recommended to purchase property damage liability insurance in no-fault states, because if you are deemed the at-fault driver, you will be held responsible for any and all damage you caused in the collision.

While liability insurance coverage may be the only required type of insurance in order to have the privilege of driving, it is in your best interest to make sure you are fully covered. The benefits that come with full coverage outweigh the costs, and if you have a good driving history record, your costs will be lower than average, freeing up cash to start investing for retirement.

 

Which of these types of car insurance do you have? Can you think of any other types of car insurance?

 

 

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John Schmoll is a Dad, husband and veteran of the financial services industry. He's passionate about helping people learn from his mistakes so that they can live lives free from the shackles of debt and empowered to make their money work for them. You can check out his other sites: Frugal Rules, for ways to improve your financial literacy; and Sprout Wealth for tips on different ways to make more money. John has been featured on Forbes, Lifehacker, Yahoo Finance and US News & World Report and more. If you're wanting to grow your blog, check out my blog coaching services to see how I can help you take your site to the next level.

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One comment

  1. This is a great post. So many people really don’t understand what they are buying when it comes to insurance, and they often wind up paying for something they don’t need, or they can find themselves underinsured.

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