Types of auto insurance: What coverage do I need?

Young woman sitting in car, thinking about what types of auto insurance she should getImage: Young woman sitting in car, thinking about what types of auto insurance she should get

In a Nutshell

Having the right auto insurance policy can protect your finances by helping to cover any costs associated with lawsuits, injuries or property damage. The type of auto insurance coverage you need depends on your financial situation, your state’s requirements and whether your vehicle is paid off.
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Shopping for car insurance can be overwhelming. But a little research can go a long way in finding the right policy for your needs.

Your car insurance coverage may look different from someone else’s, depending on factors like where you live and whether you lease or finance your vehicle. Overall, there are six common types of auto insurance, plus a few additional types of auto coverage you may want to consider.

Knowing what’s required and considering your financial situation are key to choosing a policy that’s right for you.

What does a basic car insurance policy include?

There are six types of auto insurance that are commonly required. Here’s what they’re all about.

1. Liability coverage

Liability coverage is required in every state except New Hampshire and Virginia. In Virginia, if you don’t get liability coverage, you must pay an uninsured-motorists vehicle fee.

This type of insurance usually includes two types of coverage — bodily injury liability coverage and property damage liability coverage — both of which can protect you financially against other people’s claims in the event of an accident.

If you caused an accident, your bodily injury liability insurance would help protect you against the cost of the other driver’s claims for damages, including medical expenses and lost wages. Your property damage liability insurance would help cover the cost of any damage you caused to the other person’s property, including their vehicle.

While costs vary by state, the average liability premium nationwide was around $650 in 2019, according to the 2022 Auto Insurance Database Report — the most recent data from the National Association of Insurance Commissioners, or NAIC.

2. Uninsured/underinsured motorist coverage

Your liability insurance may also include uninsured or underinsured motorist coverage. Unlike the two types of liability coverage mentioned above, this type of insurance protects you directly from other drivers. It pays you if you’re injured in a hit-and-run accident or by a driver who either doesn’t have liability insurance or doesn’t have enough to cover your damages.

Uninsured motorist coverage is required in more than 20 states and the District of Columbia. Minimum coverage requirements vary by state, so be sure to check your state’s financial responsibility laws to be sure you have enough coverage.

3. Personal injury protection

You may have heard the terms “no-fault insurance” or “no-fault states.” In states with no-fault laws, every driver involved in an accident must file a claim with their own insurance company, no matter who caused the accident.

In these states, all drivers are required to carry personal injury protection, or PIP. PIP helps cover expenses like medical bills, lost income and funeral expenses for you and any passengers in your car.

4. Medical payments coverage

Similar to personal injury protection, medical payments coverage helps pay for the medical and funeral expenses for you or any passengers in your car. This insurance may also cover you if you’re hit by a car as a pedestrian.

Medical payments coverage is usually an alternative to PIP and may not be available in no-fault states, or states where you can buy PIP coverage. Unlike PIP, medical payments coverage is usually optional.

Medical payments coverage may cover many of the same expenses as your health insurance, so make sure you’re not duplicating your insurance coverage. 

5. Collision coverage

Collision coverage helps pay to repair or replace your car if it’s damaged after colliding with another object, like another car, tree or guardrail. This type of coverage is usually required if you lease or finance your car.

If your car is paid off, collision insurance is usually optional. But if you don’t buy it, you could be on the hook for expensive car repairs or — worst case — replacing your vehicle.

The cost of collision coverage varies by state and insurer, and depends on the deductible you choose. The average collision coverage premium nationwide was around $381 in 2019, according to the NAIC.

6. Comprehensive coverage

Comprehensive coverage helps pay for damage or loss that results from something other than a collision. This includes theft, vandalism, fire, falling objects, earthquakes, windstorms and hail. It can also protect you against damage from animals like birds or deer.

Like collision coverage, comprehensive insurance is usually optional if you own your vehicle but will likely be required if you lease or finance your car.

The average comprehensive coverage premium in 2019 was about $172, according to the NAIC.

Other types of auto insurance

Depending on your needs and financial situation, you may want to add other optional coverage to your insurance policy.

Rental reimbursement coverage

Rental reimbursement coverage helps you pay for alternative transportation, like a rental car or public transportation, while your vehicle gets repaired. This type of insurance won’t cover your routine maintenance work or a car rental while traveling — it kicks in after your car is damaged in a covered accident.

Rental reimbursement coverage usually comes with a daily and total maximum, such as $20 per day, up to a total of $600.

Towing or emergency road service coverage

This optional add-on may cover the costs commonly associated with roadside breakdowns, such as dead batteries, flat tires, lockouts or towing your vehicle to a repair shop after an accident. This coverage is sometimes automatically included in your policy — make sure to check to avoid buying protection you may already have.

Gap insurance

If you’re at risk of owing more on your car loan than your vehicle is actually worth, you may consider adding gap insurance to your policy. Gap, or guaranteed asset protection, helps cover the difference between what your insurance will pay if your car is totaled — usually the current cash value of your car — and what you owe on your auto loan.

Gap insurance is usually optional for all drivers, but may be required if you lease a car.

What coverage — and how much — should I get?

A number of factors determine the types of car insurance you should carry. These include your state’s minimum requirements, your financial situation, and whether you finance or lease your vehicle.

When considering how much coverage to buy, here are a couple of things to think about.

Coverage limits

When choosing your coverage limits, consider the minimum amount of coverage required by your state. Then, consider your financial situation. The cost of your premium increases as you choose higher coverage limits. But before you buy the minimum amount of coverage to keep your monthly premium cost down, weigh the premium you can afford each month against how much you could realistically pay out of pocket if you were in an accident.

Your deductible

The same goes for deductibles. A higher deductible will generally lower your premium. For example, a policy with a $1,000 deductible will typically cost less than one with a $500 deductible. But if your car needed repairs, would you have $1,000 on hand to cover the deductible?

What’s next?

Take the time to figure out exactly the types of auto insurance — and how much — you need. Visit the website for your state’s transportation agency or insurance commissioner’s office to learn which types of coverage are required or optional in your state, along with any minimum required amounts of coverage.

Once you’re ready to look, be sure to shop around and compare car insurance quotes from several insurance companies to help find a policy that best fits your unique needs.

About the author: Sarah Sidlow is a freelance writer and editor based near Detroit. She has a master’s degree in journalism from Georgetown University. Sarah’s work has appeared in Luxembourg’s national newspaper, Washington City Paper… Read more.