What are the Basic Types of Auto Insurance Coverage?

It would be nice if automotive insurance were as simple as “buy a policy, and you are 100% covered for any situation”. Sadly, insurance is rarely that simple, and that fact is especially true for vehicle insurance. There are many different types of coverage which may or may not pay out claims depending on what happens to your car. So, let’s go through the most common types of automobile insurance coverage one by one – that way, you’ll be better prepared when it comes time to alter your policy or purchase a new one.

Automobile insurance coverage is generally divided into two different categories: bodily injury, and property damage. The former covers any injuries sustained by you or anyone else involved in an accident (along with medical costs stemming from those injuries). It may also pay out legal fees or, in severe cases, funeral costs which can be directly attributed to the accident.

Type of CoverageWhat It Pays For
Bodily InjuryDamages/injuries sustained in an accident that you cause (or someone driving your vehicle causes)
Personal Injury Protection (PIP)Injuries, medical costs, and lost wages you sustain as the result of an accident (regardless of fault)
Underinsured MotoristDamages/expenses which the culpable driver’s insurance policy cannot sufficiently cover; also covers car, pedestrian, bicycle, and hit-and-run accidents
Uninsured Motorist (Bodily Injury)Identical to Underinsured Motorist, but only applies if the culpable driver has no insurance coverage. Sometimes sold separately from Underinsured Motorist coverage

The second category, Property Damage, insures your vehicle against physical damage which results from an accident. Property Damage coverage comes in the form of:

Type of CoverageWhat It Pays For
CollisionPhysical damage to your vehicle from colliding with another vehicle or object. Requires a deductible payment before your insurance pays out your claim
ComprehensivePays out claims for damage sustained from theft, vandalism, or Acts of God (fire, weather damage, etc)
Gap InsuranceIf your car is totaled in an accident, Gap Insurance pays the difference between the Fair Market Value of your vehicle and the remaining balance on your car loan
Property Damage LiabilityPays for vehicle repairs, property damage repairs, and legal expenses when you (or someone driving your vehicle) are found at fault in an accident
Uninsured Motorist (Property)Pays for repairs to damage sustained by your vehicle from an uninsured driver. Can be a cost-effective alternative to paying a high Collision deductible

Note: your auto insurance policy covers Property Damage and Bodily Injury for you and your vehicle. But when someone else drives your vehicle and gets into an accident, your policy only covers Property Damage – unless that person is also on your car insurance policy. For someone who borrows your vehicle but is not on your policy, their automotive insurance policy (and the vehicle insurance policy of the at-fault driver) will be responsible for covering their Bodily Injury expenses.

For added liability coverage (in the event you are found at-fault in a truly devastating accident) you can purchase an Umbrella Policy. These policies provide extra amounts of coverage when the limits of your Liability Coverage have been exhausted.