What are the 5 Types of Auto Insurance?
So, you’ve purchased your dream car, and you’re ready to hit the road! But before you do, you need to take care of one last thing—getting auto insurance. You can easily get overwhelmed by all the different types of auto insurance out there, so read on to learn about the five most common types of car insurance coverage.
1) Physical Damage Coverage
This is a typical auto insurance coverage, and it’s what pays to fix or replace your car after an accident or other non-collision event. If you’re financing your car, lenders typically require that you carry both liability and physical damage coverage on your vehicle. Without it, they might make you buy GAP (Guaranteed Asset Protection) insurance. Physical damage coverage can also be purchased as a stand-alone policy if your insurer doesn’t offer it for free in conjunction with liability coverage.
2) Liability Coverage
Liability coverage is, by far, one of most important types of car insurance and should be purchased in a state-mandated minimum. This type of auto insurance covers bodily injury and property damage that you cause to other people. Property can include buildings and cars owned by other people. Liability coverage is also referred to as third-party liability or bodily injury liability, depending on what state you’re in. You can purchase multiple levels or limits up to $1 million per accident. The higher your limit, however, typically means higher premiums! If you live with roommates or drive often with others besides yourself (such as driving kids to school), it's always a good idea to have a high level of coverage so that everyone involved in an accident is protected by your policy.
3) Uninsured/Underinsured Motorist Coverage
The most significant type of auto insurance coverage, UM/UIM provides protection in situations where you’re not at fault in an accident. This includes accidents caused by drivers who don’t have car insurance or don’t have enough to cover your damages. Without UM/UIM, you could be held personally responsible for all medical expenses and any property damage resulting from a collision, even if another driver is at fault. If a careless driver causes you serious injury, underinsured motorist coverage will protect you from having to pay for all your hospital bills out-of-pocket.
4) Medical Payments Coverage
Medical payments coverage is a type of auto insurance that pays for medical expenses you have to pay for due to an accident. These expenses typically include doctor visits, tests, x-rays and hospital care. This type of coverage doesn’t have a deductible, so it will pay any covered expenses you have up to your policy’s limits. If you need special equipment because of an injury you suffered in an accident, Medical Payments Coverage might also cover these items. Examples include: wheelchairs, crutches and glasses or contact lenses if your vision is affected by an accident. Medical Payments Coverage should not be confused with health insurance – it covers only medical costs associated with injuries from car accidents.
5) Rental Reimbursement Coverage
If you’re renting a car, Rental Reimbursement Coverage is a good idea. It’s when your personal auto policy picks up coverage for your rental car. If you were at fault in an accident that caused damage to another vehicle or property, Rental Reimbursement Coverage would reimburse you for your losses in order to avoid out-of-pocket expenses and keeping a bad record on your credit report. If no one is hurt and it’s only material damage, then rental reimbursement will cover any costs associated with repairs or replacements required by law—minus your deductible amount. Be aware that not all renters policies provide for Rental Reimbursement Coverage; if yours doesn’t, you can buy an extra endorsement specifically for that purpose.