Knowing how each type of car insurance covers you can help you save on your car insurance premiums.
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When you hurt somebody or damage his or her property with your car, your car insurance picks up most of the bill. Car insurance pays for expenses like your medical bills or those of your passengers when you’re involved in an accident, or when your car is damaged or stolen.
Each of these instances is covered by separate types of car insurance contained within your policy. Beyond what’s required by your state’s legal minimum, you’re able to adjust coverage under each type of car insurance until you have enough coverage in each component at a premium rate that’s affordable.
Knowing how each component of car insurance covers you can help you save on your car insurance premiums. Read on to learn more about the different types of car insurance.
Liability insurance covers your cost when you cause an accident and are liable to pay to victim’s expenses. In every state that requires you to have car insurance, you must have a minimum amount of liability insurance, the amount of which varies by state.
Liability comprises both bodily injury liability and property damage liability. When you purchase car insurance, you’re paying for coverage for three different limits under the two main coverages of liability insurance: bodily injury liability coverage per person; the total bodily injury liability coverage per accident; and property damage liability.
The amounts for each are typically expressed with three digits, such as 20/40/10, meaning you have $20,000 in bodily injury liability coverage per person, $40,000 in total bodily injury coverage per accident, and $10,000 in property damage coverage. These figures are called the limits of liability, meaning the insurer’s maximum liability to you under the car insurance coverage you purchased. They are listed on your auto insurance declarations sheet, the first page of your car insurance policy.
To make sure you’re getting the most coverage for the car insurance rates you can afford, speak to a licensed agent at Policygenius who can help you compare plans and get quotes.
Liability coverage generally does not extend to liabilities incurred while you’re operating your car for a fare, such as driving a taxi or an Uber, or otherwise for certain business purposes.
Bodily injury liability (BIL) coverage pays for the expenses you’re liable for when you injure somebody in a car accident. This includes, but is not limited to, hospital bills, loss of income, legal fees, and funerals.
When the victim of a car accident files a claim for bodily injury, he or she actually files the claim with the other party’s insurance and the carrier pays the claimant on behalf of the policyholder. Insurers will only pay reasonable medical expenses, which means anything that isn’t experimental or recognized by most doctors as an appropriate treatment.
Keep in mind that bodily injuries could cost tens of thousands of dollars if the other party doesn’t have health insurance, so make sure you buy enough coverage that you’re not paying someone’s medical bills out of pocket.
This type of car insurance pays to repair or replace another person’s car when you’re liable for the damage. It also covers damage to other types of property when owned by someone else, such as a house, a storefront, or even a tree. Note that property damage liability coverage does not cover damage to your own car, which is covered under collision and comprehensive insurance.
As with BIL coverage, the victim must a file with your own insurance company. The same caution about costs applies, too, so be sure to purchase as much as you need lest you have to pay out of pocket for an accident you caused. The limit for property damage applies to each occurrence.
Personal injury protection (PIP), also called no-fault insurance, helps pay for the medical bills you and your passengers incur from an accident regardless of who caused the accident. This type of car insurance only comes into play to cover expenses not covered by your health insurance or the at-fault party’s car insurance, which could include lost wages and funeral costs.
Many states make personal injury protection optional, and those that require it only mandate that you purchase a relatively low amount. If you already have good health insurance, you may not need PIP coverage and you can save money on your car insurance by not adding it.
Damage to your car is covered under the optional coverages of collision insurance and comprehensive insurance. These two types of car insurance cover both the damage and total loss of your car under their respective provisions.
Along with comprehensive insurance, collision insurance protects you from damage to your car. Collision insurance pays out when your vehicle collides with another car or object and you need to repair or replace your car.
Collision has its own maximum limit of liability as well as a deductible, the amount you have to pay out of pocket before your insurance company pays anything toward your expenses. Typical collision insurance deductibles are $500 or $1,000, with a lower deductible yielding a higher premium, and vice versa. Some collision provisions also include coverage for some personal effects, like luggage and clothing.
This type of auto insurance is optional in every state. However, if you lease your car or purchase it with a car loan, you’ll be required by the lienholder or lender to purchase collision insurance.
Comprehensive insurance, or comp, is often purchased with collision insurance. Whereas collision insurance covers damage to your car in an accident, comprehensive insurance covers your car from other types of damage, such as weather-related perils and malicious activity. As with collision insurance, comp has a deductible, which can be raised or lowered to suit your financial needs.
Typical perils covered by comprehensive insurance include:
Missiles and explosions
Theft, vandalism, larceny, or miscellaneous mischief
Civil commotions and riots
Windstorm or hail
Water or flooding
Impact with an animal
Comprehensive insurance will likely be required by any lender or lienholder if you lease your car or buy it with an auto loan.
Both collision and comprehensive insurance exclude many other types of perils, such as freezing, regular wear and tear, or mechanical breakdown. For example, while riots are covered, war, insurrection, rebellion, and nuclear contamination are not.
Although they may vary by insurer and policy, common exclusions for comprehensive and collision coverage include:
Custom furnishings, such as painted murals and furniture
Modifications, including CD players, radios, and televisions, unless installed by the manufacturer of the car
Any loss caused by competing in or practicing for a race
Government seizure or impounding
If you have comprehensive or collision insurance, your policy may also come with rental car insurance. This type of coverage reimburses you for the cost of renting a car under two conditions:
Your vehicle is being repaired or is otherwise unable to drive because of a covered comp or collision loss.
Your vehicle was stolen, before it’s recovered and operational, or the insurer replaces it or reimburses you for it.
Rental reimbursement coverage only lasts for a certain length of time after you file your collision or comp claim, which is defined by your policy.
This type of car insurance pays for the costs you incur for labor done at the scene of the accident, including towing and some repairs. Towing and labor insurance is typically included if you purchased collision and comprehensive insurance.
When your car is completely destroyed or stolen and not recovered, gap insurance may pay the difference, or gap, between what you owe on a lease or loan and what your car is worth after depreciation. “Gap” is a backronym for “guaranteed auto protection.”
Without gap insurance, an insurer may only reimburse you for the actual cash value of a car, which is the value of your car when bought new minus depreciation. This value calculation is used whether the car was destroyed because of someone else or whether the loss falls under your collision or comprehensive insurance.
As with collision and comp, your lender or lienholder may require you to purchase gap insurance.
In most states, everyone who gets behind the wheel of a car is required to have at least a minimum amount of auto insurance. But if someone only buys the minimum amount, or decides to drive without car insurance at all, he or she may not be able to pay for the entire liability they owe you in an accident. Uninsured motorist insurance and underinsured motorist insurance pays the excess of what you’re owed by the at-fault party if he or she doesn’t have enough insurance.
These types of car insurance are optional additions to your basic car insurance policy, but, like collision and comp, you may be required to purchase them if you lease your car or buy it with a loan.
Uninsured/underinsured motorist insurance pays bodily injury liability and property damage liability claims just as the other party’s liability coverage would pay if he or she had an adequate amount of insurance. This coverage may even pay if the driver of the car isn’t the owner of the car, such as an uninsured acquaintance of the car’s owner, or a thief.