Most motorists buy one of two types of car insurance policies, depending on the value of their automobiles, budget, risk preferences, individual circumstances and other factors that affect automobile insurance rates. Ordinarily, people are expected to make a decision based on cost-benefits analyses. However, all sorts of reasoning influence people’s policy choice. Let’s explore what types of auto insurance are there available to you?
Different Types of Auto Insurance Coverage
Every vehicle owner must at least buy minimum car insurance coverage to comply with their state’s insurance requirements. In addition, you can buy protection for various risks relating to driving and owning an automobile. Each additional cover will increase your premium cost. Occasionally, you may be lucky to get them as free extras or very cheap.
You can find detailed description of all these vehicle insurance coverage options in various posts throughout the site. They are also explained further down the post. Here is a list of different types of car insurance coverage available to you.
- Bodily Injury Liability
- Property Damage Liability
- Personal Injury Protection
- Collision Coverage
- Comprehensive Coverage
- Uninsured or Underinsured Motorists Insurance
- Rental Car Reimbursement
- Accident Forgiveness
- Business-Use Insurance
- Roadside Assistance
- Towing & Labor
- GAP Insurance
- Medical Payments
- Mobility coverage
- Custom Parts & Racing Equipment
- Custom Equipment (wheelchairs, business equipment etc)
Types of Car Insurance Policies
Usually, buying a standard auto insurance policy is cheaper and less complicated. That is why most motorists would go with one of these widely available policy options and they are Liability and Full Coverage automobile Insurance. When these policies don’t meet your requirements you start looking for the third option and that is specialist or nonstandard policy. Let’s have a look at them closely.
=> Liability Automobile Insurance Policies
These policies are designed to offer third party car insurance that pays for damages and injuries of other people. They usually have two or three essential parts depending on which state you live in. Bodily injury liability pays for injuries you cause and property damage liability pays for other physical damages to other people’s cars and property. If you live in a no fault state you need to buy personal injury protection for your own and your family’s injuries. You are liable when you cause an accident that result in injuries to drivers and passengers of other vehicles or pedestrians and property damages. Every state has a minimum liability coverage requirement. However, most drivers want to buy much more coverage than stipulated by their states. Furthermore, most insurers sell policies that provide better liability cover.
Uninsured/underinsured motorist coverage may be included as part of your liability coverage up to your own limits, as it is required by over 20 states. Uninsured motorist coverage pays for your medical expenses and damages if you’re in an accident with an at-fault driver who doesn’t have liability insurance. Otherwise, the insurers include it as it makes it easier to sell the policy. Alternatively, you can ask your insurer to add it and pay the additional premium.
One important point to remember is that liability only car insurance policies don’t insure physical damages to your car or injuries to you or your family. This post explains further as to what does liability car insurance cover?
=> Full Coverage Vehicle Insurance Policies
Motorists with valuable enough automobiles will need to buy physical damage auto insurance to protect their investment on it. This is possible with full coverage policies that include Collision and Comprehensive coverage on top of liability. Collision coverage pays for damages that occur as a result of a crash with another vehicle or object while comprehensive coverage pays for other damages to your vehicle like fire, theft, storm and falling objects. Having these three components is enough to call a policy full coverage.
Various other coverage options may be packaged together by insurers to make their policies more attractive. For example, qualifying drivers can have accident forgiveness coverage for free or at a marginal cost so that their first accident won’t increase their premiums. A few companies like to offer rental reimbursement coverage that pays for a rental car if yours is being repaired due to an insured damage, either at a reasonable cost or for free with their standard full cover policies.
Most of the other coverage options listed above can be added onto a standard full coverage policy if they are not already included. In a way, these policies are highly customizable. Generally, standard ones are designed to offer value for money and custimizations can increase the premium a lot.
You can read in depth analysis of full coverage vs liability car insurance to make a choice in between. Liability policies are naturally cheaper as they don’t provide protection for your automobile. However, you can find cheap full coverage auto insurance quotes these days as a result of fierce competition in this segment of the market. That is why you shouldn’t buy a basic liability policy before checking the price of full coverage.
Standard liability only and full coverage policies are the most popular types of car insurance policies in the US. Most people will choose one or the other type of auto insurance policy. About 72% of motorists buy full coverage.
=> Non Standard Auto Insurance Policies
These days you can find several different types of auto insurance policies to meet your needs. There are a few specialty and high risk insurers that offer different solutions. For example, you can insure your classic car at a reasonable price with one of the specialty insurers. Essentially, a classic car policy would be a variation of a full coverage or liability only policy with mileage limitations and additional provisions like “agreed value” vehicle cover.
In addition, there are partly restrictive policies that can answer the need to find affordable coverage under difficult circumstances. For example, named driver insurance polices would only allow the drivers listed on the policy to drive the insured vehicle. This may seem like a burdensome restriction but they allow motorists to exclude a high risk driver in their household from their policies and this in turn let the insurer offer cheaper coverage. Another option is bundled policies that cover both your home and auto under one policy. More and more different types of vehicle insurance coverage are becoming available on the market that you may be able to find various policy combinations or policy types depending on your circumstances.
What Type of Car Insurance Do I Need?
The answer to this question can be pretty straightforward at times and for some people. For example, you would definitely want to buy a full coverage policy when you have a fairly new automobile to make sure it has collision and comprehensive coverage. Also, this may not be a choice for you when you used auto loan to purchase it because your lender would want full coverage plus GAP insurance to protect the underlying security for the loan (the vehicle). Then, you will need to decide what other extra coverage options you need to add to your policy.
You may be alright to buy a liability only policy if you own the insured vehicle outright, it doesn’t have much value and you have enough savings as a back up. Insurers are generally flexible in the way you can tailor polices. For example, you can drop collision insurance if your vehicle isn’t going to leave its garage for a while. You can discuss your specific requirements with your insurer or agent either at the time of purchase or even at a later stage to make adjustments to an existing policy.
We have another post that answer the question of how much auto insurance do I need? As you will see there, your protection needs will change with the changes in your life. Brokers, agents and posts like this can only help you to a point. The only person who knows best what you need is yourself. That is why you need to consider benefits of buying additional coverage against its costs and make a decision that doesn’t hurt your wallet too much while allowing you to have a worry-free sleep at night.