Understanding the Different Types of Auto Insurance Coverage

Every state except New Hampshire and Virginia require that drivers have a minimal amount of auto insurance coverage. Why? Because despite our best efforts accidents happen and car collision costs can be very expensive.

The point of required auto insurance is to make sure you’ll be able to financially cover any damage you cause in a collision. After all, it’s only fair that whoever causes the accident should pay for the damage.

If you’re new to driving and setting up auto insurance things can get confusing fast. There are a lot of insurance providers offering a wide range of plans, and it’s not always clear what’s required and what isn’t. That’s why this guide exists. It’s here to serve as a reference for understanding auto insurance so driving is less stressful. Let’s get started!

The Required Minimum Liability Coverage

Auto insurance isn’t optional - at least not all of the options are optional. There’s a minimum amount of liability coverage you have to buy. Liability coverage pays for damage that you cause in a car accident. It includes a minimum amount for property damage and bodily injury as well as a total amount for the collision.

Property damage liability insurance includes the damage done to the other vehicles that are involved in the accident, any damage to someone’s personal property, damaged street signage and even destroyed landscaping. Bodily injury liability insurance covers medical expenses due to injuries from the collision as well as lost income from missing work.

Let’s look at the auto insurance requirements in Texas as an example. Texans need what’s referred to as 30/60/25 coverage. It breaks down to:

$30,000 minimum for bodily injury per person in a crash.

$60,000 - minimum amount the policy will cover per collision.

$25,000 - minimum amount of property damage that will be covered.

Any costs outside of what the insurance company covers through liability insurance could be left for the driver to cover. That’s why many drivers choose to get auto insurance that’s more than the bare minimum.

Other Types of Auto Insurance Coverage

If you can afford a more robust auto insurance policy, it’s worth considering additional coverage. A vehicle is an expensive piece of machinery and most medical expenses are astronomical. You don’t want to pay for the minimal coverage only to pay thousands on top of that to cover additional costs.

But don’t worry. Most car insurance companies offer many different types of coverage and add-ons that cover just about anything.

Personal Injury Protection

Personal injury protection (PIP) coverage, also known as “no-fault insurance” is nice to have if you find yourself with a bodily injury from a crash. With PIP coverage it doesn’t matter if the collision was your fault or someone else’s. Your auto insurer will cover medical expenses (and possibly even related costs like lost wages) for you and your passengers if you file a claim.

PIP coverage can be super useful because insurance companies can take a long time to determine who is at fault for an accident. With personal injury protection you can get covered immediately and don’t have to worry about going through someone else’s insurer for coverage.

One drawback: having PIP may limit your ability to sue someone for damages related to a crash.

Guaranteed Auto Protection Coverage

Look at the cars around you. There’s a good chance that many of them are not paid off by their owners. Most people get auto loans from banks to buy cars, then pay for them slowly over a few years.

So what happens if you experience a crash before the vehicle is paid off? You don’t want to be stuck with the same payments on a car that’s been totaled.

Guaranteed Auto Protection (GAP) coverage pays for the difference between the vehicle’s actual value and the amount you owe on the loan, which could be a substantial amount. GAP coverage could be a good idea for anyone buying a brand new vehicle or making a substantial down payment.

Collision Coverage

While property damage liability insurance covers other vehicles and objects that are damaged in the accident, collision coverage helps make sure that your own vehicle gets repaired or replaced. Even if you cause a crash, you’ll be covered with collision insurance.

Uninsured Motorist Coverage

Uninsured motorist coverage exists because not every driver follows the insurance rules. The Insurance Research Council (III) has determined that 14% of drivers are uninsured. One out of every seven cars you pass on the road is driven by someone without auto insurance.

It’s an unsettling thought for anyone without uninsured motorist coverage. As the name suggests, this type of auto insurance pays for damage caused by drivers without insurance coverage of their own. Uninsured motorist coverage helps protect you against loss in this situation as well as if you are involved in a hit and run accident.

Roadside Assistance Add-Ons

Roadside Assistance is coverage that rescues you if your car breaks down on the side of the road or you get locked out. It’s a separate service that can be added onto an insurance plan. Roadside assistance plans can help pay for:

• Towing

• Flat tire repair

• Repair shop labor

• Jump-starting a battery

• Gas and oil delivery

• Locksmith fees

Roadside assistance is basically the same as AAA. These types of services may also be offered for free through other providers like car manufacturers and credit card companies. Before you add it to your auto insurance, check to see if you already have access to roadside assistance.

For Everything Else There’s Comprehensive Coverage

Collision coverage helps pay for damage to your car from an accident on the road, and comprehensive coverage is for just about everything else. Comprehensive auto insurance covers damage from natural disasters, fires, vandalism and theft.

A Word About Rental Car Insurance Coverage

When you go to a car rental company, the salesperson might offer you rental insurance for the vehicle. In fact, they may offer several coverage options that can range from a few bucks a day to over $20.

The only coverage you really need to consider is the collision damage waiver, which helps you pay for damages, theft, towing and maintenance fees. However, even that may be unnecessary. Some auto insurance providers will extend your coverage to any car you rent. If that’s the case, often coverage from the car rental company is overkill.

Auto insurance may seem confusing at first with all the talk of premiums and different kinds of plans, but it's really not too tricky once you understand the basics above. Because each insurer has something different to offer, make sure to ask questions if something isn’t clear and you need more information. Most major insurers will walk you through the process step-by-step to explain exactly what each option includes and the costs for each plan.