Understanding The Types of Car Insurance

When you need coverage for your car, choosing between the various types of car insurance can be overwhelming. Between collision, comprehensive, liability, uninsured/underinsured motorist, and personal injury protection, it can be challenging to know what you need. However, an agent can work with you so you can pick the best types of auto insurance that will give you the protection you need within your budget.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP® Joel Ohman

UPDATED: Feb 16, 2022

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Here's what you need to know...

  • There are five main types of car insurance to choose from, including comprehensive, collision, and liability
  • The right insurance for you would give you the protection you want for your car, keep you street-legal, and fit your budget
  • On top of the five main types of insurance, there are multiple add-ons you can purchase for your policy

Understanding the different types of insurance coverage for your vehicle can be confusing, especially if it’s your first time buying a policy. From comprehensive car insurance to state-required minimum liability, choosing the best insurance can feel overwhelming.

However, understanding car insurance coverage types are integral to getting the right policy for your needs. Several factors should go into your decision when you’re in the market for car insurance. Taking your unique situation into account will help you pick the best coverage for your needs.

One of the most important steps to understanding the types of car insurance and choosing the right one for you is to compare quotes with different companies. Enter your ZIP code to see what rates might look like for you.

What are the five types of car insurance?

There are five main types of car insurance, which you can find at just about any insurance company. These are liability, collision, comprehensive, underinsured/uninsured motorist, and medical payments/personal injury protection.

There are several factors to consider when choosing the right coverage for you. First, all states have laws about what type of coverage you need. If you are unsure of what your state requires, ask your insurance agent or check with your state’s DMV page.

One of the biggest factors is your budget. In an ideal situation, you’d buy the maximum amount of coverage for your car, so it would be protected against everything. However, car insurance can get expensive.

Understanding what each type of insurance offers can help you make the most of your budget. Weighing the benefits of each type of coverage against the cost is a great way to decide what you can skip and what you can’t live without.

Your insurance needs will likely change based on your car, too. For example, someone with a car loan will need more coverage than someone who owns their vehicle outright. If you have a luxury car, you’ll probably want more coverage.

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What is liability car insurance?

Liability insurance has two sides: property and bodily. Property liability covers damages you are responsible for, while bodily pays for injuries. Most states require a minimum amount of liability coverage.

Liability is the most common form of insurance because it’s legally required in most states. However, it’s recommended that you buy more than your state minimum if your budget allows for it. State minimum insurance generally has lower limits, which means your insurance might run out before everything is paid for.

If you reach the limit on your policy, you’ll be responsible for paying for whatever is left over out of your own pocket.

Liability is one of the cheapest options for car insurance, especially if you choose the state minimum.

CompanyMonthly price
GEICO$56
Farmers$80
Allstate$76
State Farm$44
Progressive$74
American Family$53
Nationwide$76
USAA$36
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Although it’s cheap, keep in mind that liability does not cover any of the damage to you, your car, or your passengers. You’ll save money on your insurance bill, but repairing or replacing your vehicle after an accident can cost thousands.

What is collision car insurance?

Collision insurance will help repair your car after an accident, no matter who is at fault.

If you don’t own your car outright, meaning you either have a loan or you’re leasing, your lender will probably require that you have collision insurance.

Collision is a little more expensive than liability, but it could save you thousands of dollars if you’re ever in a car accident.

CompanyMonthly price
GEICO$160
Farmers$210
Allstate$196
State Farm$109
Progressive$170
American Family$146
Nationwide$177
USAA$98
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While it does add to the price of your monthly insurance, collision is a good idea if you can’t afford to replace your car. Also, keep in mind that the prices above are for full coverage, meaning liability, comprehensive, and collision in one price.

People don’t usually buy collision or comprehensive on their own, which is why prices are usually combined in quotes.

What is comprehensive car insurance?

There are many ways that your car can be damaged outside of an accident, and comprehensive covers most of them.

Comprehensive pays to repair your car after it’s been damaged from weather, vandalism, animal contact, and even theft. It costs more than liability, but it’s a good investment if your car has a high value and you want to keep it safe.

Comprehensive and collision added to a liability plan gives you full coverage, a term you’ll probably hear when speaking with an insurance agent. Most loan lenders or leasers require full coverage on a vehicle you don’t own.

Outside of car loans, it’s also a good idea to get comprehensive if you live in a high-risk area. High-risk areas have extreme weather, high crime rates, or higher chances of running into an animal.

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What is uninsured/underinsured motorist car insurance?

Although most states require drivers to have some form of insurance coverage, not every driver follows the law. Uninsured/underinsured motorist protects you from drivers with inadequate coverage.

Coverage limitUninsured motoristUnderinsured motorist
$25,000$11$2
$50,000$14$12
$100,000$15$25
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Some companies include uninsured/underinsured motorist in their definition of full coverage. Additionally, your lender might require you to have this type of insurance on top of collision and comprehensive.

While most states don’t require uninsured/underinsured motorist coverage, a little less than half of the country does. Even if it’s not required, uninsured/underinsured is still a good idea since it can save you thousands if you’re involved in an incident.

What are medical payments and personal injury protection insurance?

Medical bills grow quickly, and the last thing you want to worry about when you’ve been injured in a car accident is how much it’s going to cost. Personal injury protection (PIP) and medical payments help protect you from an outrageous bill.

PIP covers medical expenses for you and your passengers. The most obvious part of this coverage is that it will pay for your medical bills, but it also covers lost income, child care bills, and even funerals.

Medical payments insurance offers additional coverage in case you’re injured in an accident. It covers you, your passengers, and the people in your household. Not only does it cover medical bills, but you can also use it to pay copays and deductibles for your health insurance.

DeductiblePersonal injury protectionMedical payments
$0$136$36
$250$124$36
$500$117$36
$1,000$114$36
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Twelve states require PIP, while medical payments is required in Maine and New Hampshire. Even though most states don’t require medical protection, it’s still a good idea to get it if you can afford it. If you or your passengers are injured in an accident, these coverages can save you thousands.

Are there other car insurance options?

While it depends on the types of car insurance companies you look at, most providers offer additional coverage for you to add to your policy. You can find some of the most popular options below.

  • GAP coverage. GAP — or Guaranteed Asset Protection — protects you from an upside-down loan. If you total your car and owe more on your loan than the vehicle is worth, you’ll be stuck paying the difference. GAP insurance pays the rest of your loan off instead.
  • Rental reimbursement. If your car is stuck at the mechanic’s shop when you’ve made a claim, rental insurance will pay for a temporary ride for you. Make sure to check with your agent before you use this, though, since companies have different limits.
  • Roadside assistance. A million little things can go wrong, and roadside assistance will help you get back on the road when they happen. From locking yourself out to a dead battery, roadside assistance can be a lifesaver.
  • Usage-based insurance. While the coverage is the same as liability, comprehensive, and collision, usage-based insurance lets your insurance monitor how much you drive. The less you drive, the less you pay.
  • Mechanical breakdown insurance. Think of this as a warranty for the mechanical systems in your car. Rather than pay one hefty price upfront, you add a small amount of money to your monthly bill.
  • SR-22 insurance. This isn’t insurance, but some companies offer this service. Some states require an SR-22 form to prove that you have insurance if you’re a high-risk driver. Some companies provide this form and will even submit it to your state DMV for you.
  • Non-owner insurance. If you don’t have your own car, but you drive someone else’s regularly, this gives you additional coverage if you get in an accident.

This is just a sample of the insurance options available for purchase. You can find unique types of auto insurance with some of the top companies in the country. If a wide selection of products is important to you, make sure to look at your options when you get car insurance quotes.

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Find the Best Type of Insurance for You

With so many options for car insurance, it can be easy to feel overwhelmed with choices. However, you don’t have to make a decision by yourself — an insurance agent can help you determine what type is best for your lifestyle.

When you’re ready to choose from the available types of car insurance, make sure to compare quotes from as many companies as possible to get the best price. Enter your ZIP code into our free tool to see what rates might look like for you.

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