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Types of Car Insurance

There are multiple types of car insurance, and each state has different requirements for drivers. While certain types of car insurance may not be required by law, they can help offset costs in the event of an accident. Here are some coverage types you should familiarize yourself with:

• Bodily injury liability coverage pays for costs associated with injuries to the other party in a collision you caused. It also protects you from additional claims or lawsuits resulting from that collision. Bodily injury liability coverage is legally required in every state but Florida, Mississippi, New Hampshire, New Jersey and Virginia.
• Comprehensive coverage helps pay for damages to your car that result from events other than an accident, such as fire, theft, vandalism, glass breakage, wind or natural disasters. Many lenders require this type of coverage if you’re financing a car.
• Collision insurance helps pay to repair or replace your vehicle in case of damage caused by a collision with another object, such as a car, a tree or an animal. Collision insurance is typically required for drivers who are leasing or financing a car. However, it’s still useful if your vehicle is paid off — especially if its value is more than you can afford to replace.
• Gap insurance helps pay off your loan or lease in the event your car is totaled or stolen. This coverage benefits drivers with longer-term loans, because these cars depreciate more before the loan is paid off.
• Medical payments coverage or personal injury protection (PIP) helps cover the cost of medical bills for you and your passengers if you’re involved in an accident, no matter who is at fault. PIP protection, also known as no-fault insurance, might also include coverage for lost wages due to a resulting inability to work. This type of coverage is optional or unavailable in some states and required in others.
• Non-owner car insurance provides liability coverage against injuries and property damage for people driving a borrowed or rented car in an at-fault accident. This type of coverage kicks in after the car owner’s insurance limits are met — the car owner’s policy is charged first, and the non-owner’s policy makes up some remaining costs. Non-owner insurance might also be required for high-risk drivers to maintain driving privileges and carry a license.
• Personal umbrella insurance is an optional add-on that covers expenses above the limits of your primary auto insurance policy. For example, if you are at fault in an accident and the property damage is more than what your car insurance pays for, a personal umbrella policy takes care of the rest. Some personal umbrella policies also cover legal fees in certain situations.
• Property damage liability is mandatory in all states except Mississippi, New Hampshire and Virginia. It covers damage to someone else’s property caused by a collision for which you are at fault. This includes things like other cars, fences and buildings. Lost business income resulting from the accident might also be covered, along with potential legal fees associated with the claim.
• Special coverages, like rental car reimbursement, roadside assistance and mechanical breakdown insurance are optional. Some providers include roadside assistance as a complimentary service. Rental car reimbursement usually costs little to add to a policy, and it pays towards a car you can drive while your vehicle is getting covered repairs. Mechanical breakdown coverage is typically available for newer cars. It covers repairs to your car’s mechanical components, such as the engine or transmission, in the event of breakdown, similar to an extended auto warranty.
• Uninsured and underinsured motorist coverage helps you avoid paying out of pocket when involved in a collision with a driver who does not have insurance or whose coverage is insufficient. Some companies offer collision, bodily injury liability and property damage liability options with this type of coverage.
• Usage-based insurance, also called pay-as-you-go or pay-how-you-drive insurance, bases the cost of a policy on your driving habits and how much you drive. Insurance companies track your driving habits and vehicle use to determine the rates for this type of policy. Drivers who use their vehicles infrequently could end up paying much less for car insurance with a usage-based plan. Some providers offer discounts for drivers who agree to have an onboard tracking device and give further discounts if they observe safe driving habits.

Average Cost of Car Insurance

Car insurance costs range from about $600 to $3,000 per year for one car. The average policy costs about $1,600 per year, which is around $130 per month. This typically includes coverage for two drivers.

A $500 deductible is common for basic liability auto insurance. Optional coverages, such as collision or comprehensive insurance, have deductibles ranging from $50 to $2,000, depending on the driver’s needs, vehicle value and budget.

The cost of car insurance depends on many factors, including:

• Car type and value: Large SUVs and trucks often cost more to fix than compact cars, so insuring these vehicles costs more. Likewise, luxury, classic and collector cars often require specialty parts and attention, driving up costs even further.
• Driver age: Young, inexperienced drivers are typically the most expensive to insure. Car insurance for teens can cost as much as $3,000 per year. If you have a teen driver in the family, a multipolicy discount might apply if you insure your teen with the same provider you use for other family vehicles. Good grades might also earn a discount on car insurance for teens.
• Driving habits: How much you drive affects the price you pay for car insurance. Cars that are on the road more frequently have higher chances of being involved in an accident, increasing risk for the insurer.
• Driving history: A suspended license on your driving history is a red flag to insurance companies. Expect to pay a higher price on car insurance if you have a driving history that includes suspensions, DUIs or license points.
• Location: Insurance companies consider where you live as part of the calculation of your premium. ZIP codes with higher crime rates, especially property crime, typically have higher car insurance costs.
• Tickets, violations or accident history: Your driving history communicates to the insurance company what kind of risk you pose on the road. Your accident history also stays on record with your insurance company when you are at fault or make a claim, and each accident within a certain time period can raise your insurance premium.

How Much Car Insurance Coverage Do I Need?

First, check your state’s legal minimum insurance requirements. Then, consider adding as much coverage as you can afford. With so many car insurance options available, your goal should be to get the most coverage you can for the lowest price you can.

• Compare quotes and learn about different types of coverage before purchasing a policy.
• Look for discounts and ask agents what discounts apply to you.
• Research what kinds of perks come with a policy.
• Choose a deductible that you can afford.
• Research the company’s reputation, customer service, reviews and claims process.

Insurance is an essential part of driving and owning a vehicle, and it’s a significant part of your budget. Don’t hesitate to shop around and do your research before deciding on a car insurance provider.