Types of Car Insurance: Mandatory and Optional Coverages Explained
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- Uninsured and underinsured motorist
- New car replacement
- Rental reimbursement
- Towing and labor cost
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With car insurance, one size does not fit all. Your coverage limits, personal profile, car type, and vehicle usage all factor into which types of auto insurance you must purchase.
In total, there are 13 different types of car insurance. Here’s what you need to know about the many mandatory and optional coverages, and where to shop for car insurance quotes online.
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Liability car insurance
Auto liability insurance helps pay for the costs of the other driver’s property damage and medical injuries after an accident when you are at fault.
- Bodily injury liability pays out for other people’s injuries sustained in an accident where you’re at fault.
- Property damage liability applies when someone else’s property or vehicle has been damaged in an accident where you’re at fault.
Aside from New Hampshire and Virginia, all states require you to carry minimum amounts of liability insurance.
Minimum coverage can be as little as $10,000 in bodily liability insurance and $10,000 in property damage liability, as it is in Florida, though most states have minimums at least twice that high.
Comprehensive car insurance
With a name like this, you’d think comprehensive insurance would cover any situation where you might encounter a loss.
But that’s not precisely the case. Comprehensive coverage only pays for repairs or replacement if your vehicle is damaged due to something other than a traffic accident.
If you have a car loan, your lender will almost certainly require you to carry comprehensive coverage for the duration of the loan. If you own your car outright, it’s up to you whether or not you purchase optional comprehensive coverage.
Rates for this kind of car insurance vary depending on each driver, but on average comprehensive insurance is around $134 per year.
Of all the different types of car insurance, the only one that pays for repairs to your vehicle in a collision with another car or an object is collision coverage.
Collision coverage is usually required by your lender if you have a car loan. If your car is badly damaged or declared a total loss from an accident and you are uninsured, their collateral—your car—has little to no value. With collision coverage, their asset is protected.
Expensive vehicles tend to have higher premiums for collision coverage, as do drivers who are at higher risk of getting in an accident in the insurer’s eyes. The deductible amount you choose also ties into the cost.
On average, collision coverage costs $290 per year.
Uninsured and underinsured motorist coverage
Uninsured and underinsured motorist coverage are similar but different types of car insurance.
They can help cover lost wages, hospital stays, vehicle repairs, and property damage associated with an accident where the other driver either does not have car insurance, or does not have enough to cover your expenses.
In nearly half of the country, either uninsured motorist coverage (UM), underinsured motorist coverage (UIM), or both have minimum limits you must carry in addition to mandatory liability insurance.
In states that have a minimum amount of required UM and UIM, the cost is built into your base car insurance premiums. However, most car accidents exceed the minimum amounts of coverage, and you could still be held responsible for excess costs.
Increasing the limit comes at a cost, albeit minimal. For example, quadrupling your minimum UM and UIM coverage may increase your premiums by $55 to $80 annually.
Medical payments coverage (MedPay)
Your minimum car insurance may not cover all of the medical-related expenses that you or your passengers incur, so medical payments coverage (also called Medpay) is available.
Unlike liability insurance, MedPay covers your expenses, not the other party’s, regardless of who is at fault.
It can take care of insurance deductibles and co-pays, medical appointment costs, surgery, emergency transportation costs, or care after an accident while you’re recovering.
It also provides coverage for you if you’re injured while riding in someone else’s car during an accident, and you suffer an injury that their insurance doesn’t fully cover.
In Maine and Wisconsin, you’re required to carry minimum amounts of MedPay of $5,000 and $10,000, respectively. In all other states, it’s one of the optional types of car insurance coverage.
MedPay is one of the most affordable types of auto insurance that you can add to your policy. For most drivers, the cost could be $20 per year for as much as $10,000 in coverage.
Higher limits of up to $100,000 are available, also with only a small increase in costs.
Personal injury protection (PIP)
In some states, called no-fault states, the cost of injuries that are sustained in an accident are covered by personal injury protection coverage, or PIP.
Rather than the at-fault driver being saddled with the costs associated with the accident, injuries are charged to your own insurance policy, no matter who is to blame.
The benefit of PIP coverage in no-fault states is that payments are made in a timely manner.
PIP coverage takes care of expenses such as medical bills, lost wages, and even funeral expenses for you and your car’s occupants.
It also goes a step further by providing you with coverage for injuries you sustain as a passenger or bystander if you’re hit by a car.
All no-fault insurance states require that you carry a minimum amount of PIP insurance. They include:
PIP is also mandatory in the following five at-fault states:
You can purchase optional PIP coverage in an additional six states:
PIP coverage is usually included in your base insurance rate. If you top up your PIP coverage, it can range from $50 up to $200 per month or more, depending on the limits you choose.
Gap insurance, also known as guaranteed auto protection insurance, covers the “gap” when you have negative equity in your car and get in a car accident.
Gap pays the difference between your outstanding loan amount and the actual cash value of the vehicle at the time of the loss.
As with many different types of car insurance, gap insurance is optional in all states. It is usually capped at a dollar amount like $5,000 or $10,000.
You can usually get gap insurance for $20 to $40 annually on your policy. Keep in mind that you only need gap insurance while your loan amount is higher than your car’s actual cash value.
New car replacement coverage
Another optional car insurance coverage you may want to consider if you’ve purchased a new vehicle is new car replacement insurance.
In the event of a total loss, new car replacement insurance pays you enough to purchase the same make and model in the current model year, and you just pay the deductible.
New car replacement coverage is limited by location and insurance provider, and it isn’t the kind of car insurance that’s universally available. In some cases, it’s available only during the first year. There may also be mileage limits placed on the coverage.
You can usually add new car replacement insurance for around five percent extra on your premiums, where it’s available.
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Rental reimbursement coverage
If you’ve been in an accident, your car might need to be in the repair shop for several days. Most automobile insurance policies don’t provide a temporary replacement while you await repairs unless you’ve purchased rental reimbursement coverage.
If you count on your vehicle to commute to work, transport kids to school, or for any other consistent transportation, rental reimbursement is probably a good idea.
It’s relatively inexpensive as well, averaging around $35 to $60 annually for a basic rental.
Towing and labor cost coverage
Towing and labor cost coverage can pay for some of the common inconveniences you may encounter, such as spare tire installs, battery jump-starts, gas or oil delivery, lockout help, and towing.
There are usually limits to how many times you can use towing and labor cost coverage in a given time frame.
Some insurers will include towing and labor cost coverage as part of your comprehensive coverage.
Adding it as optional coverage is a minor expense, normally just $5 to $15 per car per year.
Most types of car insurance apply only to personal use. So if you’re a ridesharing driver, you aren’t covered by a normal insurance policy while you use your car for business.
And while state laws usually require that ridesharing companies like Uber and Lyft provide their drivers with insurance, additional rideshare insurance can help protect you.
Rideshare insurance is particularly important since a gap exists between the time you become available to hire and the time you accept a ride request. In that period, you may not be covered by either your personal insurance or the insurance from the rideshare company.
Ridesharing insurance can also help lower the high deductibles on the rideshare provider’s plan, which can be as high as $2,500.
The cost of rideshare insurance is dependent on the limits you choose. It can start as low as $6 per month.
Classic car insurance
Classic car insurance is commonly used for classic cars, antique vehicles, heavily modified cars, and other replicas and variations that put a car outside the norm.
In most cases, there are limits to how much you can drive a classic car to insure it in this way, such as 7,500 miles per year. Other criteria may also apply.
In general, classic car insurance is less expensive than other common types of car insurance. However, the higher your classic car’s value, the more your insurance premiums will be.
Sound system coverage
Car insurance companies sometimes offer sound system insurance for upgraded aftermarket stereo systems.
You’ll need proof that your car’s stereo has been upgraded in order to make a claim.
For every $1,000 of stereo system equipment you want to insure, sound system coverage can cost as little as $40 annually.
MORE: Collision coverage
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