The Different Types of Auto Insurance

In this lesson, I’d like to talk to you about the different types of auto insurance that are available to you, in the hopes of making your life easier. Auto insurance confuses a lot of people, because there are actually multiple components that are combined under a single auto insurance policy. Once you understand the concept of these different components being combined into one policy, the whole process begins to make more sense.

It’s also possible to customize each individual part of an auto insurance policy, which lets you tailor the coverage to your particular needs. So let’s talk about the different types of auto insurance that might make up a policy.

The Primary Types of Insurance

These are terms that you’ll encounter a lot when you’re shopping for coverage, so it’s important to understand how each one works and how it applies to you as the driver.

1. Liability Insurance

Liability coverage is the main part of any auto insurance policy. Basically, this coverage protects you in the event that you cause damage or injury to another person, or that person’s vehicle. For example, if you’re involved in an accident and found to be the one at fault, liability insurance would pay for any car damage or bodily injury to the other driver involved in the accident. This is a big deal, because people can actually sue you for your other assets if you cause them harm in an accident.

Liability insurance is actually a requirement in most states. There’s a good reason for this — it’s a way to protect innocent victims against the actions of another driver. The two components of liability are bodily injury and property damage. You can probably guess what these individual components cover, simply based on their names.

Most insurance companies will describe the level of liability protection as a series of three numbers. For example, you might have a policy with a 40,000/80,000/40,000 type of liability coverage. What does this mean? Well, the first number represents the bodily injury coverage that we talked about earlier. So if you cause an accident, and that accident results in the bodily injury of another person, the first number dictates how much coverage you’ll get toward that person’s injuries. So in this example, there would be $40,000 allotted to the bodily injuries of the other driver involved.

The second number refers to the amount of money the insurance company will pay toward all bodily injuries resulting from the accident you’ve caused. So if you crash into another car, and that accident results in injuries to drivers and passengers in the other car, as well as pedestrians nearby, the middle number tells you how much coverage you’ll have for those combined injuries.

The last number involved with liability coverage pertains to the amount of money your auto insurance company will pay toward property damage of the other driver. Typically, this means damage to the person’s car. But it could also include damage to someone’s house in the event of a driver crashing into a building. Hey, it happens!

2. Collision Coverage

And the next type of auto insurance you may have in your policy is something called collision coverage. This is what pays for damages to your own car in the event that you cause an accident. This component can also be one of the most expensive parts of your policy. In most cases, the maximum amount to be paid is limited to the actual value of the car — for obvious reasons.

3. Comprehensive Coverage

Comprehensive coverage is another piece of auto insurance that covers your car, but in this case it protects the vehicle against things other than an actual collision. For example, comprehensive can reimburse you for loss or damages caused by fire, vandalism, auto theft, natural disasters, and things of that sort.

4. Uninsured Motorist

The last type of auto insurance I want to cover in this article — but not the only type — is something called uninsured motorist protection. This type of coverage protects you and the passengers who are in your car against damages or injuries caused by an uninsured motorist. It usually protects against damages resulting from hit-and-run drivers as well.

So there you have them, the main types of auto insurance coverage that can be combined within a single policy. You can think of the policy itself as an umbrella, under which many different types of coverage can be placed. Once you understand this concept of how car insurance works — that is, the “umbrella” concept — the whole puzzle begins to fall into place.

There are other types of coverage we didn’t talk about in this article, such as medical payments and personal injury protection insurance (or PIP), but I will leave those for a future article. In this lesson, I wanted to cover the primary parts of an auto insurance policy, and that’s what we’ve talked about above.