What are the various types of auto insurance?

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Here's what you need to know...
  • Liability insurance covers bodily injury, property damage and extra coverage against uninsured or underinsured motorists
  • Collision insurance covers your car is covered for any damage incurred in an accident on the public roadways
  • Comprehensive insurance is similar to collision except that it covers damage incurred by any event other than an accident on public roadways
  • Travel insurance is a niche product designed for drivers who take their cars into other countries

When our founding fathers wrote the Declaration of Independence, they inserted a line that states that “all men are created equal.” The same cannot be said about car insurance.

There are many different types of car insurance for various drivers and circumstances.

The type of insurance you purchase largely depends on the legal requirements in your state, as well as the value of the car you’re protecting. Below are some of the more common types of insurance available—rest assured there are more that are not mentioned here.

From an insurance company’s point of view, car insurance is all about risk potential versus profit potential. Therefore, most providers offer different levels of coverage at different prices. These coverage are offered just like products in your local supermarket.

The products that cost the insurance company more will carry a higher price tag than those that cost less. Furthermore, those coverage plans that are more in demand will obviously have some of the highest prices.

Your search for affordable car insurance rates can get underway immediately if you enter your ZIP code into the box above.

What is minimum liability coverage?

State-Minimum-Auto-Insurance-CoverageThe most common type of car insurance is basic liability coverage. We consider it the most common because it is required, in one form or another, by every state in the union. Basic liability coverage protects in three ways:
  • It provides coverage for bodily injury suffered by you or passengers in your vehicle
  • It provides coverage for property damage incurred at homes or businesses as the result of an accident
  • It provides extra coverage in case you’re involved in an accident with another driver who is uninsured or underinsured

Most states require that this basic liability coverage be purchased from a licensed car insurance carrier. And since not all car insurance companies are licensed in every state, you may have access to one company that your cousin in another state doesn’t.

There are a small handful of states where an exception to this rule is made. In these states, drivers are allowed to “self-insure” if they can prove they have the financial resources to cover basic liability. In such states, drivers must submit a legal affidavit and provide proof of financial resources.

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What are collision and comprehensive insurance policies?

The next two most common types of insurance are collision and comprehensive. With collision insurance, your car is covered for any damage incurred in an accident on the public roadways.

Collision insurance will pay to repair your car, if the insurance company deems it financially viable, or replace it if the insurance company declares it totaled. Collision insurance does not pay for personal property inside the vehicle that might have been damaged in an accident.

Comprehensive insurance is similar to collision except that it covers damage incurred by any event other than an accident on public roadways.

For example, let’s assume a powerful thunderstorm rolls through your neighborhood and knocks a utility pole onto your brand-new luxury sedan. Since that damage occurred while the car was parked in your driveway, comprehensive coverage pays for damage rather than your collision coverage.

Comprehensive coverage also does not cover personal property stored in the vehicle.

What is travel insurance?

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Travel insurance is a niche product designed for drivers who take their cars into other countries. Most commonly this would apply to Canada and Mexico. In Canada, it’s not required by law to purchase travel insurance if you plan to drive there only for a short amount of time.

Both the U.S. and Canada have reciprocity agreements allowing your primary insurance to cover you during short visits. When it comes to Mexico, however, things are significantly different.

According to Mexican law, U.S. auto insurance is not valid in that country. If you were to drive across the border without travel insurance, and then have an accident, you would be minimally responsible for paying your portion of the damages out of pocket.

If you encounter an especially ornery Police Department, you could be arrested and imprisoned for a time. For this reason, there are plenty of travel insurance brokers stationed along the border between the U.S. and Mexico.

There are some lesser-known types of insurance coverage dealing with things like fire, theft, guest drivers, and so forth.

Most of us will be fine with basic liability coverage, as well as collision and comprehensive if we still have outstanding loans.

For these other types of insurance, you should consult your provider as to whether or not you need to carry them.

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