Types of car insurance: A guide

If you want to buy the right car insurance for your situation, you need to understand what each type of coverage handles. Here's a look at the different types of car insurance:

• Liability insurance
• Comprehensive and collision
• Gap insurance
• Uninsured motorist
• Personal injury protection and medical payments

Liability insurance

Liability insurance stands between you and a lawsuit when you're at fault in an accident.

No house and little or no savings?

We recommend you purchase at least $25,000 per person/$50,000 per accident bodily injury coverage and at least $25,000 for property damage (usually expressed as 25/50/25). Some states require less. However, less coverage will rarely cover all the bills.

California, for example, requires just $5,000 for property damage liability, and most cars are worth more than that. You’re responsible for anything left over. But if you really can't afford anything but bare-bones coverage, your state minimum liability requirements will at least allow you to drive legally.

Own a house and have some savings? Leased your car? The more liability insurance you buy, the cheaper it gets. You’ll find that moving up to 50/100/50 for bodily injury and property damage coverage costs only a few dollars more a month. If you lease a car, you’ll be required to carry even higher levels, usually 100/300/50. And to be confident you are sufficiently covered, Insurance.com Senior Consumer Analyst Penny Gusner recommends you get 100/300/100. 

Consider the following, based on Insurance.com’s analysis of rates from up to six major insurers for nearly all ZIP codes:

• The nationwide average cost for state minimum liability coverage is $526
• Increasing that coverage to $50,000/$100,000/$50,000 averages only $561. So, you only pay another $35 a year by increasing your coverage.
• If you increase that to $100,000/$300,000/$100,000 with comprehensive and collision and a $500 deductible, that average goes up to $1,350, which is $824 more per year or $69 per month.

If a teen driver is on your policy or if you have large investments, such as multiple homes, buy the highest limits available from your carrier, usually 250/500/100. Consider an umbrella liability policy on top of that if your net worth exceeds the highest available liability limits.

To give you an idea of how much common coverage levels cost, see our average yearly rate table below:

Methodology:

Insurance.com commissioned Quadrant Information Systems to field rates from up to six major insurers in nearly every ZIP code of the country for three coverage levels. We’ve averaged rates here for state minimum liability limits and for $50,000 per person injured in an accident; up to $100,000 per accident, with $50,000 in property damage and for $100/$300/$100 with a $500 deductible, by state, for the driver profile of a 40-year-old male, 2016 Honda Accord, with good credit and no accidents.

Comprehensive and collision

Collision and comprehensive pay to repair or replace your car after an at-fault accident, theft, fire or other covered peril, minus your deductible.

If you have a loan or lease your vehicle, your lender or leasing company will require you to buy collision and comprehensive.

If you own the car outright, the decision to drop comprehensive and collision is yours alone.

More than 90% of owners keep comp and collision on cars less than eight years old; that drops to less than 50% at 12 years old. We recommend you drop comp and collision when you would no longer make a major mechanical repair, such as a new engine or transmission, getting rid of the car instead, but there are many different rules of thumb.

Deductibles can range from $0 to $2,500, but most drivers choose $500, an amount we recommend. A higher deductible may save you money, but it should never exceed an amount you can pay easily. Your car won’t be repaired until you’ve kicked in your share.

You typically can't buy collision coverage without also buying comprehensive. You may be able to buy comprehensive coverage by itself -- a good idea if you live in a theft -- or disaster-prone area and drive an older car.

The average cost for collision per year is $526, comprehensive is $192, according to rate analysis by Insurance.com.