types of car insurance

What Types of Car Insurance Are There and What Do I Need?

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Around 13% of motorists drive around uninsured each year. In some states, those rates are as high as 26%.

For many, they feel that they can’t afford insurance. For others, it’s lack of knowledge about what insurance is paying for.

What do you really need? And why do you need it? We’re here to clear up the confusion by addressing both sides.

In this post, we’ll explore the different types of car insurance and what they’re for. Then you’ll better understand what you really need and what you may be able to do without.

Liability Insurance

Most states require that you carry these types of car insurance to avoid tickets and fines. Basically, liability covers the other driver’s damages in the event that you’re considered at fault.

Some of us think we’re excellent and safe drivers and we could never be found at fault. But sometimes fault isn’t so cut and dry.

Let’s say that you and another person are pulling into a lane at the same time and don’t see each other. The fault might come down to a split second difference in timing.

If you’re found at fault and don’t have liability, you could be sued. That’s why, regardless of your skills, you need liability insurance.

It includes the following:

Bodily Injury Liability

These types of car insurance cover the injuries of the other person.

Even in a little fender-bender, there may be injuries. If they pull their shoulder, twist their back or have whiplash, they may need to see a doctor to ensure they’re okay.

X-rays or CT scans may also be needed, which can add to the cost.

Property Damage Liability

This pays for damages to the other driver’s vehicle.

Or, if you lost control and drove across someone’s yard, running over their prized garden or mailbox, this would help pay for those expenses.

Uninsured or Underinsured Motorist

Given how common driving without insurance is, most insurance companies offer uninsured motorist coverage.

Uninsured

This covers you if the other person is at fault, but uninsured.

These types of insurance coverage make sure that you’re paid for your damages.

Underinsured

This covers you in cases where it’s the other person’s fault, but they have a low coverage limit.

If you drive an expensive car and their insurance can’t cover the damages, these types of car insurance will step in to pay the difference.

Comprehensive Coverage

Accidents on the road aren’t the only time that a car could be damaged.

It could catch on fire. It could get flooded during a natural disaster. A thief could take a baseball bat to your windows.

In these instances, comprehensive coverage will typically cover most of your damages. However, you’ll probably have a deductible that you’ll pay before the company will pay anything.

Having a higher deductible will usually lower the cost of insurance. But when something happens, you’ll have more out of pocket expenses.

Evaluate Your Ability to Handle Risk

It’s important to be able to evaluate your own needs. Decide how much risk you want to take on.

Do you have a good chunk of money in savings that you’d be okay with parting with? You might be able to take on more risk than someone who doesn’t have that cushion.

If you’re okay with taking on the risk, you may choose not to get this coverage. Or you might choose a high deductible so that it only pays out if your damage is extensive.

Collision Coverage

This covers your own damages when you’re at fault.

Maybe you side-swiped your mailbox while pulling out of your driveway. Or you could accidentally run a stop sign and hit another car.

This coverage will help repair or replace your vehicle in these cases. But it only covers up to the market value before the car wreck.

How Depreciation Works

Vehicles slowly lose value over time due to wear and tear. This is called depreciation.

The rate of depreciation may increase if:

  • It’s not well-maintained.
  • It gets scratched or stained.
  • It sits outside in the elements.
  • You don’t wash it, especially if it’s exposed to salt.
  • It’s otherwise damaged.

Leaseholder Requirements

This coverage is optional unless you have a car loan. Your lender will usually require you to have this coverage until the loan is paid off.

If you just got a new car and have a car loan close to 100% of the sale price, then insurance may not pay the full loan because you owe more than the car is worth.

In this case, it’s your responsibility to pay the difference.

Evaluate Your Ability to Handle Risk

Since this is optional, you should evaluate your ability to handle risk.

The purpose of insurance is to supplement your own ability to handle risk. In effect, you and your company share the risk that you’ll have an accident. If you can take on more risk, you might opt for less insurance.

This problem is that people who have the least ability to take on risk are often those who think they can’t afford insurance. In that case, it’s important to check your options.

The simple truth is that you can’t afford not to have insurance.

When you click for more information in search engines like Google, you’ll find out how affordable insurance can be.

Medical Payments

These types of coverage cover you and your passengers who may be injured.

Some states require this coverage. Others do not.

Personal Injury

This is only available in some states.

It helps cover incidentals like childcare while you’re at the doctor. It may also cover lost income if you have to take time off work because of injuries.

Types of Car Insurance

All these different types of car insurance may seem complicated.

In reality, though, it boils down to evaluating your own needs and choosing the best option for you.

Want more helpful information about cars? Check out our latest blogs here.


Can't fix your car problem on your own? Ask a live mechanic!