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CAR Insurance
CAR INSURANCE INSIGHTS

Car insurance is a necessary expense for most people, as it protects them in the event of an accident. In this guide we will take a look at the different types of car insurance available to you.

Car insurance is a legal requirement in almost every state. However, it’s not a one-size-fits-all. There are several types of car insurance that you can purchase. Some types of auto insurance are mandatory, while others are optional. Understanding the different types of car insurance can help you figure out which policies are right for you. Keep reading - we can help!

KEY TAKEAWAYS
  • Liability insurance protects you when you are legally responsible for causing an accident.
  • Collision and comprehensive insurance cover your vehicle’s repairs after an accident, or a non-collision incident, like theft or fire.
  • Gap insurance pays off your lease or loan if your car gets totaled and you owe more than it is worth.
  • Uninsured motorist coverage pays for your medical expenses if you are involved in an accident with a driver who is uninsured.
  • Personal injury protection and medical payments coverage helps cover the cost of treating your injuries after an accident.
Types of Car Insurance

5 Major types of car insurance

There are several main types of auto insurance coverage. These are the major coverage options you’ll be offered when you purchase a new policy. Pretty much every car insurance company will offer these types of coverage. Here’s what they include.

Liability insurance

What does it cover?

If you cause an accident, liability insurance covers the other driver’s vehicle repairs and medical expenses. It also protects you in a lawsuit when you're at fault in an accident, and the other driver sues you for their losses.

Who should buy it?

Every driver should have personal liability insurance. Plus, it’s a legal requirement in every state where car insurance is mandatory.

Other factors to consider:

If your state requires car insurance, you must purchase a minimum amount of liability coverage to register your vehicle and legally drive. However, the minimum amount of coverage may not be adequate.

It’s a good idea to raise your liability coverage limits for more protection. Otherwise, you risk paying out-of-pocket in a lawsuit. To be confident you are sufficiently covered, Insurance.com Senior Consumer Analyst Penny Gusner recommends you get limits of 100/300/100, known as full coverage.

What does liability insurance cost?

The nationwide average cost for state minimum liability coverage is $526, but if you purchase more coverage, your rate will be higher.

Comprehensive and collision insurance

What does it cover?

Collision and comprehensive insurance cover vehicle repairs.

Collision pays for your car’s repairs after an accident, and comprehensive pays for your car’s repairs after a non-accident situation, like fire, theft, vandalism and hail. Both policies have a deductible that comes out of your insurance payout.

Who should buy it?

You should purchase collision and comprehensive insurance if you have a loan or lease your vehicle. Most lenders will require you to have it. It’s also a good option for anyone who couldn’t afford to pay for their vehicle repairs out-of-pocket if something were to happen. 

Other factors to consider:

You typically can't buy collision coverage without also buying comprehensive. In some cases, you may be able to buy comprehensive coverage alone, which is a good idea if you live in a theft- or disaster-prone area.

What does comprehensive and collision insurance cost?

The average annual cost for collision insurance is $526, and $192 for comprehensive insurance, according to a rate analysis by Insurance.com. Choosing a higher deductible may save you money, but it should never exceed an amount you can pay easily.

Gap insurance

What does it cover?

If you lease or finance your vehicle, gap insurance pays off your remaining loan balance if your car is totaled and you owe more than it is worth.

Who should buy it?

Anyone who leases or finances their vehicle. You can buy gap insurance (or loan-lease payoff coverage) through your lender. It’s also available through standalone gap providers and many insurance companies.

Other factors to consider:

You must have comprehensive and collision coverage to also buy gap insurance. To use the coverage, the car must be a total loss, and you must pay your deductible before gap insurance will pay the difference on the loan.

What does gap insurance cost?

Gap insurance is about $41 per year, Insurance.com rate data shows. It's typically cheapest through your current insurance company if they offer it.

Uninsured/underinsured motorist insurance

What does it cover?

Uninsured/underinsured motorist coverage pays for your vehicle repairs and your medical expenses if you get into an accident with a driver who doesn’t have car insurance or doesn’t have enough car insurance to cover your losses in full.

Who should buy it?

Some states require one or both coverages, so it’s not always optional. If your state doesn’t require uninsured or underinsured motorist coverage, it can provide additional peace of mind, especially if you don’t have a full coverage policy.

Other factors to consider:

Typically, your uninsured motorist bodily injury coverage limits cannot be greater than the amount of liability insurance you have. We recommend buying uninsured and underinsured motorist bodily injury limits that match your liability coverage if you don’t have health insurance. We also recommend buying property damage if you do not carry collision coverage.

What does uninsured/underinsured motorist insurance cost?

The cost of uninsured and underinsured motorist coverage is about 5% of your current insurance premium. On average, uninsured motorist coverage costs $90 a year and underinsured motorist coverage costs $58 a year.

Personal injury protection and medical payments insurance

What does it cover?

Personal injury protection and medical payments insurance pay for the cost of treating injuries that you, authorized drivers or your passengers suffer in a car accident when you are at fault.

Who should buy it?

If you live in one of the 12 “no-fault” states, personal injury protection is required. In a no-fault state, each driver’s insurance company pays for their own injuries, no matter who causes the accident. Delaware and Oregon also require it.

Medical payments coverage is usually optional and comes with a full coverage policy. It’s only mandatory in Maine and for insured drivers in New Hampshire, where insurance coverage is not required.

Other factors to consider:

If personal injury protection or medical payments coverage is optional in your state and you have health insurance already, we recommend that you buy enough to cover your deductible. If you do not have health insurance, we strongly recommend you buy at least $10,000 in personal injury protection or $5,000 in medical payments coverage.

What do personal injury protection and medical payments insurance cost?

The average cost of personal injury protection is $198 per year. For medical payments insurance, the average rate is $22 per year.

Other types of car insurance coverage

When you purchase minimum or full coverage car insurance, you’ll also have the option to get other auto insurance coverage types. Some are standalone policies, and others are endorsements. Here are several additional car insurance coverage types that you might consider adding for extra protection.

Rental reimbursement insurance

What does it cover?

Rental reimbursement insurance will cover the cost of a replacement vehicle if your car is damaged in a covered peril and needs to get fixed. Some insurance companies offer this coverage for free, but not all.

Who should buy it?

Having rental reimbursement insurance is a “nice to have.” If you want to avoid any out-of-pocket costs in the event of a claim (minus your deductible), it’s a good idea to purchase this type of car insurance coverage.

Other factors to consider:

Usually, rental car reimbursement insurance only pays up to a certain daily limit. Another thing to consider is that your rental car will probably be comparable to the car you own. So, if you drive a sedan, you probably can’t rent a sports car while yours is in the shop.

Rental car reimbursement cost

The cost of rental car reimbursement insurance depends on your insurance company and the amount of coverage you choose.

Emergency roadside assistance

What does it cover?

Emergency roadside assistance also called towing and labor coverage will get your car back on the road if it breaks down. It typically covers things like fuel delivery, battery replacements, flat tire changes, extrication and towing (up to a certain mileage).

Who should buy it?

If you don’t already have roadside assistance through your vehicle’s manufacturer or a service like AAA, you might consider purchasing it through your insurance company. If you drive often or travel far away from home, roadside assistance can be a good buy.

Other factors to consider:

Roadside assistance can be a lifesaver, but it’s usually limited to minor mechanical repairs when attached to an auto insurance policy. If your car breaks down and the mechanic can’t fix it on the spot, your car will have to be towed. Plus, you’re responsible for the cost of repairs.

Emergency roadside assistance cost

The cost of roadside assistance varies. It can cost as little as $5 per month or as much as $100 per month. Pricier plans tend to offer more (and better) coverage.

Mechanical breakdown insurance

What does it cover?

Mechanical breakdown insurance will pay for certain vehicle repairs, even if your car isn’t damaged in a covered peril. It typically covers mechanical issues related to the transmission, engine, fuel system, brakes, air conditioning, and power system.

Who should buy it?

If you want to avoid paying for unexpected mechanical issues out-of-pocket, mechanical breakdown insurance is a good solution, especially if you own a vehicle that is expensive to fix.

Other factors to consider:

Before you buy mechanical breakdown insurance, know that it doesn’t cover everything. For example, it won’t pay for routine services like oil changes or new tires. You still have to pay for those things yourself. Additionally, this type of auto insurance has a deductible.

Mechanical breakdown insurance cost

The cost of mechanical breakdown insurance varies based on the insurance company. Expect it to cost between $30 to $100 per year.

SR-22 insurance

What does it cover?

SR-22 insurance isn’t actually a type of insurance. It’s a certificate the proves you carry the minimum amount of auto insurance required in your state.

Who should buy it?

SR-22 isn’t optional. You are required to get an SR-22 if your license has been suspended or following a major traffic violation, such as a DUI/DWI, negligent driving or driving without insurance. The certificate stays on your record for several years.

Other factors to consider:

Not all states require SR-22 insurance. In Florida and Virginia, drivers are required to purchase FR-22 insurance as an alternative.

Another thing to consider is that having an SR-22 on your driving record will cause your car insurance premium to increase significantly. It essentially shows that you have a history of unsafe driving, and therefore pose a greater risk to your insurance company.

SR-22 insurance cost

Because SR-22 insurance is not a true insurance policy, there is no premium. Most insurance companies charge a one-time filing fee of about $25.

Umbrella insurance

What does it cover?

An umbrella insurance policy raises your personal liability coverage limits to help pay for legal expenses if you cause an accident and get sued by the other driver.

Who should buy it?

If you have a high net worth or assets that could be at risk in the event of a lawsuit, you might consider purchasing an umbrella liability policy. If your personal net worth is greater than your standard liability coverage limit, getting umbrella insurance is a good idea.

Other factors to consider:

Not everyone is allowed to purchase umbrella insurance. Your insurance company probably won’t allow you to get this type of insurance unless you already carry the highest liability coverage limit that’s offered.

Umbrella insurance cost

The cost of umbrella insurance depends on your coverage limit. For example, if you have $1 million in coverage, the average premium is between $150-$300. On the other hand, a $5 million policy will run you between $375-$525.

Pay-as-you-go insurance

What does it cover?

Pay-as-you-go insurance or pay-per-mile insurance is a type of usage-based car insurance that you pay for based on miles traveled, rather than a flat monthly premium. It’s usually available with minimum and full coverage policies.

Who should buy it?

This type of insurance is best for infrequent drivers who want to save money. If you drive less than 10,000 miles per year, this type of coverage might be right for you.

Other factors to consider:

Pay-as-you-go policies usually require drivers to install a telematics device in their vehicle or use a mobile app to track distance. These devices may also pick up on driving behavior, so you could lose your savings if the device tracks unsafe behaviors, like hard braking or speeding.

Pay-as-you-go insurance cost

The cost of pay-as-you-go insurance depends on a lot of factors. Typically, enrolling in a pay-as-you-go program can help you save between 10%-30% on your car insurance premium.

Non-owner insurance

What does it cover?

Non-owner car insurance is a way to get car insurance if you don’t own a vehicle. It’s also required for drivers who don’t have a car but need to purchase liability insurance to keep their driver’s license.

Who should buy it?

You only need non-owner car insurance if you don’t own a car but occasionally drive other people’s cars, or if you committed a serious violation while driving a borrowed vehicle, and your driving privileges are at risk.

Other factors to consider:

Insurance companies often have rules around who can buy non-owner insurance. In addition to a valid driver’s license, you must prove that you don’t own a vehicle. Some insurance companies also require you to verify that no one in your household has a car, and that you don’t have regular access to one.

Non-owner insurance cost

The average cost of a non-owners policy is $474 per year, which is cheaper than a personal policy.

New car replacement insurance

What does it cover?

New car replacement insurance is an endorsement that will pay to replace your vehicle with a similar new one if your car gets totaled in a covered peril.

Who should buy it?

If you drive an expensive vehicle, new car replacement might be worth it. Although your collision or comprehensive insurance will also help pay for the cost of a new car, depreciation will be factored in, which lowers your payout.

Other factors to consider:

To use new car replacement coverage, your insurance company must determine that your car has been totaled. So even if you believe that your car is a total loss, it might not be damaged enough to warrant a new car. 

New car replacement insurance cost

The price of new car replacement insurance depends on your insurance company, and the make, model and year of your vehicle.

Classic car insurance

What does it cover?

As the name states, classic car insurance is a policy specifically designed to cover classic and collector cars. It covers the car’s agreed-upon value if the vehicle is totaled, rather than the actual cash value, which includes depreciation.

Who should buy it?

You should consider getting classic car insurance if you own an antique vehicle. Although some classic cars can be insured with regular car insurance, a classic car insurance policy is usually much less expensive.

Other factors to consider:

Your vehicle usually must meet certain requirements before you can get classic car insurance. Many insurance companies require the car to be at least 20 years old, kept in a garage full-time when not being driven and must be in good condition. There may also be mileage restrictions, so you can’t get classic car insurance if it’s still your daily driver.

Classic car insurance cost

Like regular car insurance, the cost of classic car insurance can vary based on several factors. According to Hagerty, one of the leading classic car insurance providers, the average cost of classic car insurance is roughly 36% cheaper than regular insurance.

Frequently asked questions

How do I know how much coverage I need?

The amount of coverage you need should be based on the minimum requirements in your state. If you’re purchasing optional policies, you get to choose how much coverage you buy. Everyone has different car insurance needs, so choose coverage limits that you feel provide sufficient protection for your situation and fit within your budget.

How much liability insurance do I need?

For liability insurance, your coverage limit should be based on your personal assets. If you have investment accounts, savings, real estate or other assets that could be seized in the event of a lawsuit, it’s a good idea to raise your policy limits accordingly.

What is liability-only insurance?

Liability-only insurance is also called a minimum coverage policy. It means that your policy only includes bodily injury and property damage liability insurance, which apply if you hit another driver. Liability-only insurance doesn’t offer any coverage for your vehicle or your medical expenses after an accident.

Can you get car insurance without a license?

It’s possible to get car insurance without a driver’s license, but it’s not easy. Your best option is to purchase a policy and list yourself as an excluded driver. Having a license is not a requirement to get insurance, but you won’t be able to drive the insured vehicle.

Should I adjust my coverage when adding a teen driver?

If you’re adding a teen driver to your car insurance policy, it is a good idea to consider raising your coverage limits. Data shows that drivers between the ages of 16-19 are more likely to get into an accident than any other age group.

However, keep in mind that adding a teen to your policy will cause your rate to increase. If you’re planning to add a teen driver to your policy and raise your coverage limits, make sure you’re taking advantage of all the discounts you qualify for.

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