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Car insurance types explained

Car insurance is made up of several different types of coverages. Here we explain how accidents, injuries and damages are covered under each type of car insurance and how these coverages shield drivers from having to pay for repairs and medical bills. You can also learn about special types of policies, including non-owners and SR-22 certificates.


  • Car insurance coverage types
  • Choosing your coverage
  • Alternative car insurance policy types

Car insurance coverage types


Bodily injury liability covers the following for those you injure in an accident that’s your fault:

  • Medical expenses
  • Funeral expenses
  • Loss of income
  • Pain and suffering
  • Legal defense if a lawsuit results from the auto accident

Property damage liability covers:

  • Damage you cause to another driver’s car
  • Damage to other’s property, such as fences

What it costs:

  • Bodily injury liability and property damage liability costs $510, on average, annually for minimum coverage.

Coverage recommendations:

If your net worth is:

  • less than $50,000 choose at least 50/100/50
  • between $50,000 and $100,000, choose at least 100/300/100
  • more than $100,000, choose at least 250/500/100

Liability car insurance is required in all states except New Hampshire (where you still must show you’re financially able to pay for an accident you cause – and liability auto insurance is the easiest way to do that). You can get by with bare-bones coverage, your state required minimum liability requirement to drive legally, or buy higher amounts for more protection. It pays out up to the amount of coverage you buy.


What it covers:

  • Damage to your car if you hit another car or object, or are hit by a car or object
  • Damage to your car if it is flipped or rolled over

What it costs:

  • Collision coverage costs an average of $488 a year.

Coverage recommendations:

  • If your car is less than 10 years old, you should consider buying collision.
  • If your car is more than 10 years old, buy collision if your car is worth $3,000 or more.
  • Buy collision if you can’t afford to replace it if you crash it.

In all states, collision coverage is optional. It is typically fairly affordable, and it’s wise to have it if you have a newer car. If you finance or lease your car, you will be required to buy collision coverage. Collision coverage come with a deductible, the amount you pay before insurance kicks in, and pay out up to the cash value of your car.


What it covers:

  • Damage to your car from flooding, hail, wind and fire
  • Vandalism to your car
  • Stolen cars
  • Damage from hitting animals, such as deer, elks or moose
  • Damage from falling objects, such as trees

What it costs:

  • Comprehensive coverage costs an average of $172, a year.

Coverage recommendations:

  • If your car is less than 10 years old, you should consider buying comprehensive.
  • If your car is more than 10 years old, buy comprehensive if your car is worth $3,000 or more.
  • Buy comprehensive if you can’t afford to repair your car.
  • Buy comprehensive if you live in a region prone to flooding, hail or animal strikes.

Comprehensive insurance is usually optional, but you may be required to buy it if you took out a loan to purchase your car or lease a car. Comprehensive coverage come with a deductible, the amount you pay before insurance kicks in, and pay out up to the cash value of your car.

Uninsured/underinsured motorist coverage (UM/UIM)

What it covers:

  • Uninsured/underinsured motorist property damage (UMPD) insurance covers damage to your car if hit by an uninsured driver or a driver with insufficient coverage
  • Uninsured/underinsured bodily injury coverage pays medical bills for you, your passengers and members of your family if injured in an accident caused by an uninsured driver or driver with insufficient coverage
  • Uninsured motorist bodily injury coverage pays your medical expenses if you are injured in an accident caused by a hit-and-run driver

What it costs:

  • Uninsured motorist coverage costs an average of $83 a year.
  • Underinsured motorist coverage costs an average of $52 a year.

Coverage recommendations:

If you have collision insurance, UMPD, which is optional in most states, is not a must-have since collision offers better coverage. But without UM/UIM bodily injury coverage, you could be stuck either paying for your own injuries or suing a driver with limited financial resources to try to recoup your costs. What happens after an accident with an uninsured/underinsured driver depends on your state insurance laws.

In no-fault states:

  • Your own insurer would pay out for medical expenses under personal injury protection (PIP). But typically personal injury protection limits in no-fault states are quite low, so even a minor accident could leave you with expenses after a claim payment. And, though your health insurance may help pay your leftover medical expenses, it won’t pay for lost wages, or pain and suffering, which is where UM/UIM bodily injury coverage can help.
  • No-fault (PIP) coverage does not cover physical damage to your car, so you need UMPD or collision to make a claim for your vehicle’s damage if you don’t have collision.

In a “tort” state, which means a state where you can sue for damages:

  • To get compensated for an accident caused by an uninsured/underinsured driver, you may have to sue for damages, which is a complicated and costly process. And, it is likely the driver won’t have much money or any assets even if you take him to court.
  • Your MedPay, if you have it, will cover you up to your limits in this instance, but if your limits are too low to cover all your costs, you will be stuck either paying out of pocket or having to litigate.
  • If you have PIP coverage and no collision, it will only cover medical expenses -- not physical damage to your car -- so you need uninsured motorist property damage to make a claim for your vehicle’s damage.

Uninsured motorist coverage and underinsured motorist coverage are required in some states, and in other states it’s optional. It’s a wise idea to carry this type of coverage as one in eight drivers isn’t insured, according to the Insurance Research Council. It pays out up to the limit you buy, which is usually the same as your liability limits.

Personal injury protection (PIP)

What it covers, for you, your passengers, family members and those you allow to drive your car, regardless of who is at fault for the accident:

  • Medical expenses
  • Lost wages (you are reimbursed a percentage of your income)
  • Funeral expenses
  • Cost for house cleaning, child care and other tasks you may not be able to perform if injured (loss of essential services)
  • Also covers you and your family members if hit by a car while walking

What it costs:

  • The average annual PIP cost is $198.

Coverage recommendations:

  • If PIP is optional in your state, buying PIP coverage is a good idea if you have little savings to live on should you be injured and lose your income for a period of time.

Personal injury protection (PIP) is required in the 12 no-fault states, optional in 10 states and the District of Columbia, and not available in 28 states, according to the Insurance Information Institute. Your PIP limits set the maximum amount that will be paid per person for any combination of covered expenses. PIP limits vary by state but are usually in the range of $1,000 to $10,000. Some states allow you to choose your PIP limits and others set it to a certain amount. You can always choose to buy additional PIP coverage beyond your state required amount.

Medical payments coverage (MedPay)

What it covers, for you, your passengers, family members and people you let drive your car, regardless of who is at fault in the accident:

  • Reasonable and necessary medical expenses, such as hospital visits and stays, surgery, dental, nursing and X-rays etc.
  • Funeral expenses
  • Injuries if hit by a car or bike while walking (in some states)
  • Injuries while a passenger in another driver’s car

What it costs:

  • MedPay costs an average of $22 a year.

Coverage recommendations:

  • If you have health insurance that covers car accidents, MedPay isn’t a must-have.
  • Even so, MedPay can work with your health insurance to cover costs for an accident, and is very affordable, so is worthwhile to carry.
  • You may be able to use MedPay to pay your health insurance deductible or co-pays.
  • If you have a high health insurance deductible, MedPay is advisable.

MedPay insurance is required in just one state – Maine, though if you opt to buy car insurance in New Hampshire, you must include MedPay coverage in your policy. In other states, it is an optional coverage. MedPay pays out, up to your limit, for each individual in the accident. It is usually available for up to $10,000 worth of coverage.

Gap insurance

What it covers:

  • Gap insurance, commonly also called loan-lease insurance, pays the difference between the actual cash value of your car and the amount you owe your lender for the vehicle.
  • To make a gap claim, your car must be declared a total loss due to an incident covered under comprehensive and collision coverages.
  • Sometimes gap insurance comes with a limit to the payout, for instance, up to 25 percent of the actual cash value of the car at the time it was totaled.

What it costs:

  • Gap insurance costs about $20 a year, according to the Insurance Information Institute.

Coverage recommendations:

  • Buy gap insurance from an insurance company, not from your car dealer.
  • Gap insurance sold at dealerships can cost hundreds of dollars more than a policy sold from a car insurance company.

Gap insurance may be required if you finance your car, and is required if you lease your car. Do not buy gap insurance if you own your vehicle outright. To purchase gap insurance, your lender must be a financial institution – not an individual person – and your policy must have comprehensive and collision coverages on it.

Full coverage

The term “full coverage” is often misunderstood. Many people mistakenly believe that full-coverage means you are insured for all damages and injuries in any accident. That’s not always the case. Rather, full-coverage is used to describe a car insurance policy that includes comprehensive and collision insurance, in addition to liability insurance.

You should opt for full coverage if you have a newer car, you drive a lot and own a home and have assets to protect. A full-coverage policy with limits of 100/300/100 and a $500 deductible costs an average of $1,864 a year.

Choosing your coverage

Deciding how much insurance to buy depends on a few factors. Bare-bones coverage may be a good choice if you have few assets or have an old car and don’t drive much. But if you have a home and investments, consider buying more insurance. If you don’t, you’re at risk for having your money and house taken to cover the cost of an accident. If you financed or leased your car, you will be required to get comprehensive and collision coverage in addition to liability limits of 100/300/100.

Use our How Much Car Insurance Do You Need? tool to get a recommendation.

Alternative car insurance policy types


What is an SR-22?

  • An SR-22 is a form that your car insurance company files on your behalf with the state, typically after you’ve been convicted of a major violation, not a type of insurance.
  • Your car insurance company uses an SR-22 form to prove to the state that you are carrying the legally mandated coverage you need to drive.
  • Some violations that typically would require you to have an SR-22 include DUI, reckless driving and driving without insurance. An FR-44 is required in some states, and is basically the same as an SR-22 but is used when the state mandate you carry even higher liability limits.

How do I get an SR-22?

  • To get an SR-22, you must use an auto insurance company that provides SR-22 filing services – not all do.
  • You must then buy a policy with at least the minimum limits that the state requires you to carry.
  • Your insurer will get the form for you, fill it out and file it with the state.
  • Once the SR-22 form is filed by your insurer, you’ll need to maintain the related insurance coverage for the state-mandated period of time, usually three years.

Non-owner car insurance

What is a non-owner car insurance policy?

You might not own a car, but if you still drive, non-owner car insurance is for you. Non-owner policies are liability car insurance policies and are for:

  • High-risk drivers who are required to buy a liability policy to keep their driver’s license
  • Drivers who don’t own a car and rent frequently (but make certain the non-owner policy covers rentals)
  • Drivers who don’t own a car and want to keep continuous coverage

How do I get a non-owner insurance policy?

You buy a non-owner policy in the same way you buy a standard policy. Typically, non-owner coverage is less expensive than an owner’s policy, usually about $300 a year, though depending on your record, where you live and other factors, it could be more. To buy a non-owner insurance policy, call our licensed agents at 1-844-252-4551.


No-fault auto insurance is mandated in some states, optional in others and not available in the rest. This type of auto insurance refers to any policy in which the driver's own insurer covers:

• Medical bills
• Lost income
• Other injury-related costs

No-fault car insurance benefits are paid regardless of who is at fault in an injury accident. No-fault insurance laws restrict drivers rights to sue for non-economic damages (for example, pain and suffering) when another driver is at fault.

If you're involved in a minor fender-bender and have no-fault insurance, you don't need to file a claim with the at-fault driver's insurer--your own company takes care of your injury-related expenses, subject to applicable deductible, co-payment and coverage limits.

No-fault car insurance states
Why no-fault car insurance exists
How does no-fault auto insurance work?
Advantages of no-fault car insurance
Saving on no-fault auto insurance

No-fault car insurance states

What does it mean to be a no-fault insurance state? There are three approaches that states use to incorporate no-fault auto insurance:

  1. True no-fault states. No-fault states require you to purchase no-fault insurance. This is also called Personal Injury Protection (PIP) insurance. True no-fault states also restrict your ability to sue an at-fault driver.
  2. Optional or "choice" no-fault states. Drivers in optional no-fault states can go with the no-fault system or opt out and choose a traditional tort-liability policy. If you've opted in, you abide by the same rules as drivers in true no-fault states, meaning your ability to sue another driver is limited. At the same time, other drivers can't sue you for minor collisions either.
  3. Traditional liability with PIP states. Some states allow you to add no-fault (PIP) coverage to your traditional liability coverage. In these states, your insurer covers your injury damages regardless of fault, but there are no restrictions concerning lawsuits.

No-fault insurance in Michigan: A special case

According to Michigan’s Department of Insurance and Financial Services, the state requires drivers to purchase no-fault auto insurance that includes the following:

  1. PIP. This is intended to cover all your medical costs, pays up to 85% of your lost income for up to three years (up to $5,398 per month) and can pay your family a death benefit in the event you die. PIP benefits include up to $20 per day to purchase household service providers that you must hire due to injury.
  2. Property protection. Your no-fault auto insurance must pay up to $1 million for damage your car causes to property owned by others.
  3. Residual liability. Insured people are protected from being sued except in special situations.

An overview of coverage, lawsuit restrictions and average premiums is available below:


Why no-fault car insurance exists

No-fault insurance was proposed back in the 1930s by a group from Columbia University, but the idea got no traction until the 1960s, when lawmakers and the public became concerned about the costs associated with minor injury accidents. Massachusetts approved the first no-fault legislation in 1970, followed by similar laws in a host of other states. At its peak, the no-fault concept was established in 24 states.

In true no-fault states, only accidents in which the medical expenses reach a certain threshold or the injuries meet the state's legal definition of "serious" can be the basis of a lawsuit against the at-fault party. No-fault insurance systems were implemented in an attempt to achieve the following:

• Quicker payment of claims
• Victim's reimbursement not split with lawyers
• Lower insurance rates
• Fewer lawsuits to defend and reduced legal costs to insurers
• No subsidizing uninsured motorists

States created a variety of approaches, with varying degrees of success. In some cases, no-fault systems failed to contain costs, and even resulted in higher costs for several reasons:

• Fraudulent medical claims
• Litigation did not decrease - instead of suing at-fault drivers, many accident victims switched to suing their own insurers for denied or insufficient reimbursement
• High coverage limits led to exorbitant payouts
• Bad drivers were not punished sufficiently to change behavior

Today, only a dozen states and Puerto Rico are still considered no-fault. Other states modified their laws or returned to traditional tort liability systems. Use the Insurance.com car insurance coverage calculator to determine your optimal auto insurance coverage.

How does no-fault auto insurance work?

No-fault insurance only kicks in when you're injured in an auto accident. You don't need to contact the other driver's insurer, file witness statements and police reports, or wait for the other company's decision to pay (or worse, NOT pay). The no-fault process works like this:

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1. You are injured in a car accident.
2. Regardless of who is at fault, you file a claim with your insurer for expenses related to your injuries.
3. Your insurer reviews your claim and researches the accidents’ circumstances.
4. Benefits to which you are entitled are paid by your insurer.
5. You may not sue the at-fault party and he/she may not sue you, unless criteria are met for “serious” damages.

It’s important to note that no-fault is for injuries, not property damage. If your car is damaged by another driver in a no-fault state, you can still make a claim with the at-fault party’s property damage liability insurer.

What does no-fault insurance cover?

Your policy benefits generally cover your:

1. Pain and suffering
2. Inconvenience
3. Minor disfigurement
4. Punitive damages*

*Punitive damages are intended to punish another party who behaves irresponsibly.

To be compensated for property damage, such as repairs to your car and other property, you must file a traditional liability or collision claim, and the insurers will investigate and determine who was at fault and who owes whom. If you're not at fault, the other driver's liability policy should cover your damages; if you caused the accident, your own collision coverage should pay. (Note: collision insurance may not be required if you own your car outright; if you want this coverage, you have to purchase it as an option.)

No-fault restrictions on lawsuits

No-fault laws make it harder to sue for non-economic damages, such as pain and suffering for seemingly minor injuries. If you get a whiplash, for example, you're unlikely to meet the threshold for a lawsuit--soft tissue damage is not considered a serious injury.

Some states specify the types of injuries that allow you to step outside the no-fault system and file a lawsuit; these are called "verbal" states because the allowed injuries are described in words. Other states set their thresholds at certain levels of medical costs ("monetary" states) or length of disability.

Paying medical costs in a no-fault state

Some states require that you use your PIP benefits to pay medical costs first, then have your health insurer pick up the rest; other states require you to use your medical insurance first, then use PIP to cover deductibles and non-medical expenses.

In some states, the funds are paid directly to medical providers, while in others, the check goes directly to you.

Will your insurance rates go up if an accident wasn't your fault?

In a no-fault car accident, the term "no-fault" does not mean that no-one cares who's responsible for causing an accident. It just means that injury benefits are paid by each party's insurer without regard to who is at fault. However, both insurers do investigate and assign blame.

Cheap car insurance companies name

If the investigation determines that you did not cause the accident, your rate is unlikely to increase. Michigan, for instance, rates drivers by the number of tickets and at-fault accidents on their records.

In some states, even if you're at least partially to blame for an accident, your rates may not increase, if you have not filed any claims during the past few years.

Advantages of no-fault car insurance

Most of the advantages of no-fault car insurance are connected to the limitations on lawsuits. In Southern California, for example, staged accidents happened so frequently that they actually got a name--the "swoop and squat.” Scammers zip in front of an innocent driver and hit the brakes before the victim can create a safe following distance. Then there's a claim for soft-tissue damages and a lawsuit for pain and suffering.

The real pain, though, was being felt by the victim -- a big settlement and a substantial premium increase the likely outcome. Not to mention the risk of injury to the victim caused by the scammer. In no-fault states, it's nearly impossible to sue after a minor mishap, making the whole exercise less attractive for crooks.

In addition, a Rand Corporation study concluded that no-fault insurers reimburse victims at a higher rate. Researchers characterized no-fault as a more "victim-friendly" approach. The study also found that no-fault systems do process claims faster and that consumers were more satisfied with the process.

Saving on no-fault auto insurance

It's vital to understand that just because your state government mandates no-fault insurance coverage, and regulates what insurers charge, it doesn't mean there's no competition for business among auto insurers.

Car insurance discount turning 25 funnyIt's your responsibility to compare insurance quotes from several companies when choosing insurance coverage. In addition, mandated coverage may not be enough to meet your needs. If you have assets to protect, you may need liability insurance coverage that goes beyond your standard policy, provided by an umbrella policy. If you own your car free and clear, and it's not a pile of junk, consider collision coverage to get it repaired if you're the at-fault party.

"No-fault" doesn't mean "no responsibility." Drive carefully.

­­­­­­­­­Additional reporting by Gina Pogol.

Find affordable auto insurance now >


The cost of even a small repair makes car insurance nice to have. When we start adding in the medical expenses that can go with a car accident, insurance becomes downright necessary. In many states, insurance is even a legal requirement before you can drive your car out on the road. But a wide variety of options are available when it comes to insurance — there are actually seven different types of car insurance you can choose from in most cases — and it can be difficult to decide just what type of auto insurance is the best choice for you, your vehicle and your budget. Here is a list of the seven types and what you need to know about each one.

1. Liability Insurance

When your state requires that you carry some sort of insurance for your car, they’re usually looking for liability insurance. In the event that you are in a car accident and the police decide it is your fault, liability insurance covers the cost of repairing any property damaged in the crash (such as cars or buildings), as well as the medical bills from resulting injuries. Most states have a minimum requirement for liability insurance coverage that you absolutely must have.

However, it usually makes sense to go beyond that minimum requirement if you can afford the payment. That’s because you are personally responsible for any claims that exceed your coverage’s upper limit. In the event that you are in an accident, you don’t want to run the risk of having to pay a significant amount of money out of your own pocket. How much liability insurance you need depends on whether you have a lot of assets to protect, as it is more important to have higher levels of coverage just in case of a catastrophe.

2. Collision Insurance

The biggest problem with carrying only liability insurance is that if there is an accident, you may wind up without the money to repair your own vehicle. A collision insurance policy makes it so that someone else — your insurer — will pay for the repairs to your car. If your car is totaled in an accident, a collision insurance policy will pay out the value of your car. While the payout won’t cover for a brand new vehicle, the sum will equal approximately what the car was worth before the accident.

Collision insurance isn’t a must-have, as far as insurance goes. If your car is older, it may not be worth paying for insurance, especially if you can work on saving up enough to replace the car if necessary. If you have a good-sized emergency fund, you may be safe without collision insurance. If you’ve chosen a more expensive car or your car is relatively new, however, collision insurance can help you sleep much better at night.

3. Comprehensive Insurance

Liability and collision insurance policies exclusively cover car accidents. If something else happens to your car — weather damage, theft, an animal collision — you won’t be able to get your insurance company to address the problem. With a comprehensive insurance policy, however, your insurer will handle just about any situation that comes up.

A comprehensive insurance policy is one of those things that are nice to have. However, coverage can be pricey and may not be worthwhile if your car would be relatively easy for you to replace, if you had to. Note though that you can bring down the price of this policy if your vehicle has an anti-theft and tracking devices installed.

4. Uninsured Motorist Protection

Just because the law requires everyone to have insurance doesn’t actually mean that’s the way things work out. Even if a driver has a liability insurance policy, most states have relatively low minimums that may not cover all of the expenses that can go along with an accident. One of the worst things that can happen is that you get stuck with the bills in an accident that wasn’t even your fault.

The decision to get a policy that covers damage by an uninsured motorist isn’t as clear cut as other policies. In theory, even if a driver doesn’t have enough insurance to cover damages during an accident, he will still have an obligation to cover the costs out of pocket. It’s only when the person at fault doesn’t have any money that there can be problems.

5. Medical / Personal-Injury Protection

The costs associated with treating injuries after a car accident can be astronomical. In order to cover those costs, medical and personal-injury protection is available. No matter who is at fault, such protection will cover your medical bills along with those of your passengers.

If you have a good health insurance plan, however, it’s far less likely that medical and personal-injury protection will be useful to you. And considering how much more a general health insurance policy covers, it should be your first choice.

6. No-Fault Insurance

So far, no-fault insurance is available in twelve states. This option covers injuries and property damage, no matter who is ultimately responsible for a given accident. The decision to choose no-fault insurance really depends on what other insurance options are available to you and at what price. Some no-fault policies can be expensive, making it more cost-effective to choose other options, especially if your car is inexpensive to replace.

7. Gap Insurance

If you are still making car payments, gap insurance may be a good choice. It’s meant for drivers who still owe money on their cars and need to pay off the vehicle if it is totaled in an accident. It’s generally a good choice if you owe more on your car than you could easily pay off on short notice.

Gap insurance is especially worthwhile if you owe more on the car than you could get for it if you sold it today, since many insurance policies will only cover the value of the car, rather than the cost to replace it. Some lenders may require you to have gap insurance or something similar until you pay off the vehicle, so you may already have it whether you know it or not.

Tagged as: Budgeting, Car Insurance, Expenses, Insurance

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