Car insurance is required by almost every state in the United States, but it isn’t always clear to drivers just what coverage they should have. When you go to a car insurance agency, you are most often presented with a list of packages that range in price, with coverage options listed – but do you really know how liability differs from uninsured motorist coverage or the difference between collision coverage and comprehensive coverage? And why should you bother with gap insurance, whatever that is? We’ve put together this guide to help you understand the many types of insurance so that you can easily create the policy that you truly need with Freedom National.
In most states, the bare minimum that all drivers are required to carry is insurance that covers the costs for other people if you cause an accident. There are two types of insurance that are usually lumped under the umbrella of “liability insurance”:
This covers the medical bills and lost wages of another person that is injured in a car accident that you cause.
This covers the damage caused to any property that isn’t yours, in an accident that you cause. This could be a car, or a fence, building, light pole, or even a tree.
If you don’t carry this type of insurance in all but two states (New Hampshire and Virginia) and are caught driving without it, you face suspension of your license and hefty fees. Even in those two states that don’t require liability insurance, you are still legally responsible for paying the costs associated with an accident you cause – which can run into the tens or hundreds of thousands of dollars depending on the severity of the injury or damage caused.
Together with liability insurance, the next three types of insurance are often lumped into plans that are commonly called “full coverage insurance.” This basically means that you have liability insurance to cover injury and damage done to others, and coverage to take care of injury or damage done to your own property or yourself. Here are the three types of insurance that you should consider purchasing to protect yourself:
This is insurance that basically acts as a safety net in the event that you are in an accident with someone who caused the accident but either doesn’t have insurance at all or doesn't have enough to cover your damages. Normally their insurance would take care of this, but since they either don’t have it or don’t have enough to cover all the costs, your own policy would kick in and take care of some of the costs. Depending on the state, these coverages may be sold together or separately, and they may be mandatory.
This type of insurance pays for any medical bills for you or any passenger in your car, who is injured in a car accident where it is not your fault.
In some states, medical payments coverage is replaced by a coverage called Personal Injury Protection (PIP), which covers your medical bills and extra expenses like lost wages and funeral expenses, up to a set limit regardless of who was at fault for the accident. If you see the term, "no-fault insurance," it's usually talking about PIP.
The types of insurance listed above are the most basic types that cover injury and property damage to a third party, and they are the ones that most people are familiar with. However, there are many other ways to protect your car that you may find very important if you travel often or rely on your vehicle to get to work. Here are some of the most common types of insurance that are used to protect your vehicle itself:
This coverage will pay to fix your car when there is a collision with anything, such as a tree, a power pole, or a parked car.
This covers any damage to your car that is not caused by a collision. This means that if your car is stolen, or a tree branch falls on it, or a flood sweeps it away, or anything along those lines, the insurance company will either pay to repair the vehicle or pay you its actual cash value if the cost to repair is more than it's worth or it's stolen.
This type of insurance is very important for anyone leasing or financing a car. If your car is totaled, the insurance company is likely only to pay you what the car is worth according to standard estimations – such as the Blue Book value. But what if you owe more on the car than what the insurance company determines it is worth? Gap insurance covers the gap between what you owe and what insurance pays you for the totaled car, so that you aren’t stuck making payments on something you no longer have. Many leasing companies require drivers to carry gap insurance before they will lease them a car.
There are a few more types of specialized car insurance that some drivers look into. Those may include:
This type of insurance pays for you to have a rental vehicle in the event that your own car is in the shop following an accident. It usually has a daily maximum, and that may not cover the entire cost of the rental – but it will help you better afford a rental while you wait for your car to be fixed. This coverage usually comes with a towing reimbursement coverage in case your car needs to be towed from the scene of an accident.
This type of insurance covers the cost of a towing service or a repair service that comes to you on the side of the road. This is different from the rental and towing coverage outlined above because it doesn't just cover you in case of an accident - it can help if you get a flat tire, if your battery dies, or if you lock yourself out of your car.
This type of insurance covers the cost of repairs to, or replacement of, your windshield or other windows if there is damage that is not caused by a collision. For example, if a rock flies up and hits your windshield, this type of insurance would pay to repair the crack or replace the window. Glass coverage typically has no deductible or a very small one.
When considering what kind of auto insurance policy you need, it’s important to think about what is legally required, and what situations you are most likely to face based on your driving habits. In just about every state, liability insurance is required to operate a vehicle legally, and many professions or leasing situations require additional coverage. If you drive long commutes daily or live in areas where traffic is hectic and fast-paced, you likely need more insurance than a person who drives less frequently in less populated areas. At Freedom National, we strive to make it easy and fast to get the policy you need. We also work to protect your budget as well, so that you can afford the coverage you truly need. Get a fast and easy quote right here.