8 Types Of Car Insurance Coverage Policies and Options

You have a lot of car insurance options. We break it down in detail into the 8 different types of car insurance coverage policies and options so that you can figure out exactly what you need.


Car keys sitting atop a car insurance form

There are not many things more exciting than buying a car. The feeling of elation when you first get behind your brand-new set of wheels, however, can quickly turn to horror if you manage to ram it into someone else’s property. That’s why it is incredibly important that you spend as much time picking out the right type of car insurance policy as you do when you are picking out your vehicle.

Without the right type of insurance, a car accident or theft can set back your finances significantly. Below are some of the most important types of car insurance policies. One of them is bound to be right for you.

Types of Car Insurance Plans

Liability Insurance

Tiny pink car in hand with blue sky in backgroundLiability insurance is required in most U.S. states and they have a minimum requirement for the amount of coverage a car owner must have. Liability coverage can help you pay for property damage and any injuries resulting from a car accident, which is due to your actions.

This type of car insurance comes with several benefits and covers the repair/replacement of the damaged third-party property. It also covers the bills for medical treatment and hospitalization of any injured persons and compensation for accidental death of a third-party. Most states make it mandatory for drivers to buy a minimum liability insurance policy. However, if you can afford it, it is recommended that you apply for a liability insurance that is above your state’s mandated requirement. If you are at fault for an accident, this higher sum will ensure that your policy limit is not exhausted and your damages are covered by the insurance company.

Collision Insurance

This type of insurance policy covers any damage to your car after collision with another vehicle by repairing or replacing it. If your car is damaged in a crash, the insurance company will pay for its repair. If your car is totaled or becomes non-repairable, collision insurance will pay for a new car.

In some cases, the car can be fixed but the total cost of its repair exceeds its current market value. In this case, the collision coverage will pay you the market value of the vehicle.

The age of the car also plays a factor in collision insurance. If you car is very old and depreciated, its collision cover may be very low and it may not be worth carrying it. However, a new car definitely warrants a collision insurance policy and can even guarantee your car is back to the condition it was before the crash happened.

Additionally, you need to buy collision cover if there is a lien on your car.

Third-Party Property Insurance

Man talking on phone in front of broken down carThis is the most basic form of optional car insurance and helps cover for damages caused by your car to property, like another car, caravan or boat, rather than a person. It will also provide you with financial cover if you become involved in legal proceedings because of the accident.

However, it doesn’t cover any damage or replacement to your own car, except under limited, special circumstances through a few insurance companies.

Comprehensive Coverage

Collision of two toy cars against blank white backgroundA comprehensive coverage provides insurance that is above and beyond the scope of liability, collision and third-party property insurance. It not just provides extra leverage in case of an accident involving another car, it can also cover damages sustained due to fire, flood and other weather-related events. Moreover, it provides financial aid if your car hits a deer on the road or if it is stolen.

Because of the comprehensive coverage, this insurance is quite costly. Tracking devices, anti-theft technology and other security gadgets installed in your car can help in decreasing the insurance premium. Comprehensive coverage is not strictly necessary, especially if your car is very old and can be replaced easily. However, if you can afford it, a comprehensive coverage is a great way to secure the safety and health of your car.

This coverage is required if your car is on lien.

Personal Injury Protection Car Insurance

The personal injury protection coverage is one of the best ways to pay for medical expenses for you and the passengers in your car, as well as loss of income, if you are involved in a car accident. It is also called no-fault insurance because it covers your injury, no matter who caused the accidents. Depending on your insurance plan, a personal injury protection can provide as much as 80 percent of financial aid for medical bills, resulting from an accident. This can include hospitalization costs, X-rays, surgical procedures and more.

Beyond hospital expenses, this insurance also provides compensation for loss of income, childcare service expenses and funeral cost, in cases which result in death.

The personal injury protection coverage is not available in all states. In at-fault states, where insurance companies look into who is at fault, a victim of a car accident will have to file a claim or lawsuit against the party at fault. This is a very long-drawn and exhaustive process and more so for people who do not have high incomes.

No-fault injury protection also has a higher premium rate because insurance companies have to give out benefits, regardless of who is at fault.

Uninsured/Underinsured Motorist Protection

Woman talking on phone and looking at form in front of broken down carUninsured and underinsured motorist protection often come hand-in-hand and can protect you and your vehicle from hit-and-run accidents from uninsured or underinsured drivers.

Although state laws mandate that all drivers have the minimum required liability insurance, unfortunately there are still 12-25 percent drivers in the United States who have no car coverage. In another case, a driver may have liability insurance, but the coverage is so low that it may not be sufficient to pay for all the damages incurred in a car accident.

In both of these cases, there is a high risk that the victim either won’t receive any pay offs from the driver at fault, or would receive only a lesser amount. You can choose to sue the uninsured driver, but chances are they may not have enough assets to pay you, even then. These are the situations which warrant uninsured/underinsured insurance policies.

These types of insurance plans are very critical and low-cost and can help bridge the financial gap between your claim and what the at-fault driver can afford. What’s more, they not only cover accidents but hit-and-runs as well as vehicle thefts.

Gap Insurance

Cars depreciate very quickly and in just three to five years, may be less than half their original market price. If your car is damaged in an accident, totaled or stolen, your insurance company may give you a settlement that is based on the vehicle’s actual cash value. If your car was on lease, the payment might not be enough to cover the cost you still owe for the vehicle.

In this case, gap insurance is an option that can help you quickly and easily provide coverage. Typically, this feature is often added to your comprehensive insurance policy and may pay off the difference between what your insurance company is willing to give you and what the actual remaining dues on the vehicle are. Without this type of coverage, the gap can be substantial and for working class families with single income source, even insurmountable.

Classic Car Insurance

Man standing with a black classic vintagecarA car is deemed a classic or a collectible if it is at least 15 years old and has enough historical interest that it is worth preserving, instead of scrapping. The great thing about classic cars is that their value actually increases over time.

If you have a modern car, which is a couple of years older, your insurance company can give you a settlement of its actual cash value minus the depreciation cost, in the event it is totaled or gets stolen. However, the case is opposite for classic cars.

Classic car insurance covers your collectible vehicle for a mutually agreed upon or “guaranteed” value by the insurance company and car owner. The settlement amount is based upon credible car valuation services, like Hagerty, an appraisal by a car collectible professional or some documentation. For example, the 1966 Ferrari 330 GTC would be worth a whopping $605,000 today, according to Hagerty. This means the insurance company will have to compensate you the full $605,000 for the Ferrari, if it is totaled or stolen.

Should You Upgrade Your Insurance Plan?

If you are currently enjoying an insurance policy of third-party property damage or limited insurance, these are unlikely to cover you enough if your car is involved in a serious accident. In this case, you should definitely consider going for an update.

If you have a brand-new car, a comprehensive insurance can offer you bumper-to-bumper cover, which will enable your vehicle to be repaired or replaced to its original market value, in case of an accident. If you have a luxury sports car, it is even more imperative that you cover them comprehensively as they are extremely expensive and their price can run from hundreds of thousands of dollars into millions. Even though your premium rate will also be very high for this type of car, it is still important you purchase this option.

Is Comprehensive Car Insurance The Right Plan For You?

Before settling on one insurance policy, you should understand the pros and cons of all types of car coverage. This will help you make an informed decision.

In many cases, getting a comprehensive car insurance plan is not the best deal. If you are buying a used car, you need to assess several of its aspects, including its value, the extent of coverage you want for the car and its premium.

If your car is very old and not in a great condition, you can just go for minimum coverage, like the liability or third-party property coverage. You can additionally buy a personal injury protection plan, in case you or the passenger in your vehicle gets injured. Another option is to add some features to your basic coverage, like engine replacement coverage, zero depreciation coverage or other elements that can reduce the risk of financial loss if your car is totaled or stolen.

Final Thoughts

Man standing in front of car with thumbs upA car insurance policy is used to protect you and your vehicle from financial stress. As the owner, it is your job to make sure you make an informed decision when picking insurance coverage for your vehicle that decreases its risks but maximizes its benefits. In this case, there is no one-size-fits-all.

However, there are some points you should keep in mind. The make and model of your car, its usage, your state and other factors, all factor into your car insurance purchase decision. If you have a nice new car, a basic, state-mandated liability insurance is not enough protection, though it may be the most affordable option. However, if your car is old and depreciated, a third-party property or liability insurance with a few added features, as described, above, should be sufficient.

Happy Driving!