The Different Types of Car Insurance Coverage
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UPDATED: Jul 19, 2021
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Before we delve into how to tell a good policy from a bad one, you need to understand that insurers are regulated on the state level, so there’s no national standard for policy terms or types of insurance. Most auto insurance coverage companies use similar terms to refer to similar products (i.e. “Collision” coverage typically refers to the same coverage for most insurers) but there is no standardized terminology, so be sure to check your policy’s Definitions page to make sure a term means what you think it means.
Every auto insurance company is a little different, and that extends to how insurance premiums are calculated. An auto insurance company may check your credit score, marital status, driving record, and more when setting your auto insurance rates. These factors are all about managing risk, and high-risk drivers pay the most for auto insurance. Shop around to find the best insurance quote and ask an insurance agent about any discounts you may be entitled to.
What is a policy contract?
- Most companies provide an auto insurance policy in the same way a restaurant provides a menu. The policy contract can be thought of as the menu from which you can look at all they have to offer.
- Like a menu, just because it’s listed doesn’t mean you’ve ordered it or have it as part of your contract.
- Check with your insurer’s customer service department to know what coverage you have been paying for to make sure you have all the types of auto coverage options you need, or that you’re not paying for something you don’t want
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What are the types of insurance coverage and policy add-ons?
Let’s look at common types of auto insurance coverage. These types of coverage pay for:
- Personal Injury Protection: Personal injury protection (PIP) covers medical expenses for you and/or passengers in your vehicle up to a certain limit per accident and/or per passenger. This is similar to medical payments coverage (MedPay).
- Liability Insurance: Pays to repair damages you cause to other vehicles or property up to a certain limit per accident. This is one type of coverage that is mandatory for drivers to carry even though laws vary by state. This liability car insurance includes property damage liability and bodily injury liability coverage. Liability coverage is included in most states’ laws for minimum requirements. However, states will vary in the liability limits they require. Check the legal requirements for the minimum level of coverage needed in your state.
- Collision Coverage: Collision insurance repairs damages to your own car. You can use collision coverage even when someone else causes the accident, and your insurer will pay for your damage and then pursue the other driver’s insurance for reimbursement.
- Comprehensive Coverages: his coverage pays for damages related to incidents not involving a collision, such as weather/natural disaster damage/ acts of nature or vehicle theft.
- Uninsured Motorist Coverage/ Underinsured Motorist Coverages: Damage to your vehicle caused by a driver with too little insurance coverage, or no insurance coverage.
- Rental Car Reimbursement: Rental car insurance will pay for the cost of a rental vehicle up to a certain limit per day, typically $25 or $50 per day.
- Transportation Reimbursement:
- The cost of taxi or bus fare from the scene of the accident to your home and/or rental car agency, and sometimes hotel expenses if you are involved in an accident far from home.
- Mechanical Breakdown Assistance: This optional coverage will provide towing to a nearby shop, battery jump-start and sometimes replacement, and service for lockouts or key replacement for older vehicles.
- “GAP Insurance” Coverage or Auto Loan Protection: If your car is totaled and you owe more on the loan than the car is worth, this coverage pays for the balance of the loan beyond the value of the car. Most creditors offer this with the loan, but some auto insurers offer it, too. If you’re still paying off your car, invest in GAP coverage.
- Uninsured Motorist Property Damage: This type of coverage will pay the cost of repairs for damages to your vehicle caused by an uninsured driver.
- Classic Car Insurance: Specialty coverage for a classic car.
How about other terms?
Deductible: The amount you pay towards damages in the event of a claim filed using your own insurance coverage; also called a “co-pay”.
Loss: Refers to the damages arising from an accident.
Covered Loss: Damages and expenses that qualify for payment by the insurer, such as hail damage (if you have comprehensive coverage).
Non-covered Loss: Damages that the insurer has excluded from the policy, such as alien invasion or damage to CD’s and tape cassettes in your car.
Claim: Typically refers to the “circumstance” arising from a specific accident, and encompasses all losses and damages arising from that accident. Sometimes qualified as “auto property claim” or “personal injury claim”, etc.
Adjuster: The person assigned to handle all or part of a given claim, also called a “claims handler.”
Insured: The person or people covered under the insurance policy.
Covered Driver: The policy holder, vehicle owner, or other person authorized to drive an insured vehicle. Most often covered drivers are insured on the policy and customers pay premiums based on the number of drivers who use the vehicle, however a friend borrowing your car will often be considered a covered driver.
- Non-covered Driver: A driver who is not on the policy and who your insurer has excluded from coverage. e.g.: If you loan your car to your friend and they crash it, your insurer might require you to either add them to the policy and pay additional premiums, or else any damage they cause will not be covered in the event of an accident.
- First-party: Refers to a customer’s own insurer and benefits paid to a customer during a claim, typically using collision, comprehensive, or underinsured motorist coverage.
- Third-party: Refers to an insurer paying victims of an auto accident for damages or injuries being paid using a driver’s liability coverage.
- Arbitration or Dispute Resolution: Refers to methods for resolving disputes between insurance companies and their customers using low-cost arbitration or mediation, as opposed to hiring attorneys and going to court. Customers typically use this when disputing the value of a vehicle or the necessity of medical claims or medical payments coverage.
- Exclusions: These are types of loss that are specifically not covered or excluded from the auto policy. Most insurance policies exclude coverage for custom car modifications or upgrades beyond $1,000, and exclude payment for damage arising from racing events, criminal activity, off-roading, use of explosives, transportation of illegal materials, war, and alien invasion.