Buying an auto insurance policy can be confusing. There are many different types of car insurance coverage, and it can be difficult to know which type of coverage is right for you. Liability insurance is the bare minimum, and comprehensive and collision coverage comprise what’s known as “full coverage.”

Keep reading for a breakdown of the key aspects of auto insurance coverage and tips for figuring out which type of coverage you need. 

Key Highlights
  • Liability coverage is mandatory in most states.
  • Other coverages like collision and comprehensive are optional, although your lender might require you to carry them if you don’t own your vehicle outright. 
  • Carrying the minimum level of coverage can be risky because it probably won’t cover all the damages if you’re at fault in an accident. 

Liability coverage

There are two major types of liability coverage:

Most states require you to carry at least a minimum level of liability coverage. But most drivers should consider purchasing more coverage than the state minimum. 

If you get in a crash and are at fault, you will be held legally responsible for damages that exceed the dollar-amount limits of your coverage, says Rick Kautzer, associate director of personal lines product management for Dairyland, a Stevens Point, Wisconsin-based insurer.

“This can include another driver’s medical costs or the repair costs to their vehicle,” he says. 

What does it cover?

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 another’s property, such as fences.

How much do you need?

Following are a few recommendations for coverage from CarInsurance.com editors to protect your finances adequately in case of an accident.

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.

In a worst-case scenario – such as if you are driving and badly injure or even kill someone –  having the proper amount of liability coverage can save you from financial ruin. 

Collision coverage

Collision coverage reimburses damages when your vehicle collides with another car or object. Collision coverage also protects you if your car flips in a single-vehicle crash. 

Collision coverage is not mandatory in any state. However, your lender may require you to carry this protection if you finance your auto purchase.

Drivers who own their cars outright and no longer have a car loan can decide whether to continue to pay for this coverage. You might consider dropping collision coverage if your vehicle is old and not worth much. 

However, if you do, you will have to pay out of pocket to repair damages associated with these types of crashes. 

What does it cover?

  • Damage to your car from a collision.
  • Damage to your car if it flips or rolls over.

How much do you need?

Collision coverage is optional in all states. It’s typically 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 has a deductible, the amount you pay before insurance kicks in, and pays out up to the cash value of your car.

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 your car

Comprehensive insurance

This type of insurance reimburses you for damages to your car that result from something other than a collision. Comprehensive coverage helps to pay for the repair if someone vandalizes or steals your car or a flying object dents the car during a windstorm. 

As with collision insurance, this coverage is optional, but a lender may require you to carry it. Also, some drivers drop this coverage when the value of their car drops to a low level. 

How much do you need?

Coverage recommendations:

  • If your car is less than 10 years old, you should consider buying a comprehensive.
  • If your car is more than 10 years old, buy comprehensive if your car is worth more than $3,000.
  • 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 take out a loan to purchase your car or lease a car. Comprehensive coverage has a deductible, the amount you pay before insurance kicks in, and pays out up to the cash value of your car.

What does it cover?

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

Medical payments insurance

If you or a passenger are injured in a crash, medical payments insurance (MedPay) can help cover your healthcare bills. There is a dollar limit on this type of coverage, and any expenses you incur above this limit are not covered. 

This type of coverage is sometimes required and is not available in every state. Many drivers with good health insurance may skip this coverage, but it still can provide a benefit. For example, medical payments coverage may help to cover the cost of your deductible, copay and other fees associated with your health insurance.

What does it cover?

This type of coverage can help pay for everything from doctor and hospital services to ambulance fees, X-rays and nursing services 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.
  • Funeral expenses.
  • Injuries if hit by a car or bike while walking (in some states).
  • Injuries as a passenger in another driver’s car.

How much do you need?

MedPay pays out, up to your limit, for each individual in the accident. It is usually available for up to $10,000.

  • If you have health insurance that covers car accidents, MedPay isn’t a must-have.
  • MedPay can work with your health insurance to cover costs for an accident, and it’s very affordable, so it’s 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.

Personal injury protection coverage

This type of insurance provides coverage when you or a passenger are hurt in a crash. 

Personal injury protection (PIP) coverage also can help cover other expenses, such as lost wages, funeral expenses and the cost of services such as housekeeping that you may not be able to perform on your own after an injury. Some types of PIP coverage will even cover your health insurance deductible. 

What does it cover?

Coverage 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 (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.

How much do you need?

Sometimes called “no-fault insurance,” you must carry PIP insurance if you live in one of 15 states. Each state has its own minimum requirements for this type of coverage. If PIP is optional in your state, buying PIP coverage is a good idea if you have little savings to live on if you’re injured and lose your income.

“Living in a no-fault state makes personal injury protection a requirement, not an option,” says Noah White, founder of Ark Insurance Group. “Personal injury protection protects and covers medical expenses, hospital expenses and sometimes accidental death, depending on the policy.”

Uninsured/underinsured motorist coverage

Some drivers carry inadequate insurance or illegally drive without insurance coverage. In fact, 1 in 8 drivers does not have insurance, according to the Insurance Information Institute. In some states, 20% of drivers are uninsured 

Uninsured and underinsured motorist coverage protects you when you are hit by a driver who lacks proper insurance coverage. 

“If you’re in an accident caused by another driver who doesn’t carry insurance – or enough of it – uninsured and underinsured motorist insurance can help cover your losses,” Kautzer says. 

What does it cover?

Uninsured motorist coverage pays your medical bills and those of passengers when an uninsured motorist is at fault. It might also reimburse you for lost wages. 

Uninsured motorist property damage (UMPD) pays for damages to your vehicle or property that are the fault of an uninsured motorist. 

Underinsured motorist coverage helps reimburse you when you suffer damages due to a driver who has insurance, but not enough coverage to reimburse your claim fully. 

How much do you need?

Some states require you to carry this type of coverage, while others make it optional. 

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 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). Typically, personal injury protection limits in no-fault states are 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.

In a tort state (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. And, it’s 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 paying out of pocket or resorting to litigation.
  • If you have PIP coverage and no collision, it will only cover medical expenses – not property damage – so you need uninsured motorist property damage to make a claim for your vehicle’s damage.

Other types of car insurance

Several other car insurance categories are optional: 

  • Gap coverage: Cars depreciate quickly, and you can easily find yourself with a car that’s worth less than what you owe. Gap insurance covers the gap between what your car is worth at the time of a total loss and the amount you owe on your car loan. 
  • Rental car reimbursement: Rental reimbursement coverage reimburses you for the cost of using a rental car when your car is damaged in a covered claim and needs repairs that will take some time to complete. 
  • Towing/roadside assistance: This type of coverage can reimburse expenses such as jumping a dead battery to towing it to a garage. 

Resources & Methodology

Sources:

  1. Allstate. “Personal injury protection (PIP) Coverage (AKA no-fault insurance).” Accessed October 2022.
  2. The Hartford. “Personal Injury Protection (PIP) Car Insurance.” Accessed October 2022.
  3. Insurance Information Institute. “Auto Insurance Basics.” Accessed October 2022.
  4. Insurance Information Institute. “Does auto insurance cover a rental replacement car after an accident?” Accessed October 2022.
  5. Insurance Information Institute. “Protect yourself against uninsured motorists.” Accessed October 2022.
  6. Insurance Information Institute. “What is an umbrella liability policy?” Accessed October 2022.
  7. Insurance Information Institute. “What is covered by a basic auto insurance policy?” Accessed October 2022.
  8. Insurance Information Institute. “Gap insurance” Accessed October 2022.
  9. Progressive. “Does car insurance cover towing?”  Accessed October 2022.