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Liability Insurance
This is probably the most important type of car insurance, and it's required by most state auto insurance laws. Liability car insurance protects you against the cost of damage and injury that you cause to another in an automobile accident.
It's actually made up of two different policies, bodily injury liability, and property damage liability. As you might guess, bodily injury insurance protects you from the cost of personal injury to others, and property damage insurance protects you from the cost of damage you cause to any physical property.
You've probably seen automobile policies described by three numbers (like 50/100/25). These numbers refer to auto liability insurance.
They're usually called the split limits of liability insurance. Under our example auto liability insurance policy, you'd be covered for up to:
•$50,000 worth of bodily injury caused to another person
•$100,000 for bodily injuries caused to everyone
•$25,000 worth of property damage.
Your state's car insurance laws will require a certain level auto liability insurance. You can find your state's auto insurance requirements here.
Even though it may be tempting to save a few bucks by going with the minimum liability required in your state, it is always worth investing in a little extra protection.
Medical payments insurance
This policy provides for the immediate treatment of injuries caused by a car accident. You, your family members and other passengers in your vehicle are covered, regardless of who is at fault for the accident.
Depending on the specifics of the policy, medical payments coverage may also compensate for lost wages or services of a person injured in the car accident.
PIP, or personal injury protection, is similar to medical payments coverage, but usually provides broader coverage. Many PIP policies provide compensation for lost wages, funeral expenses, and pain and suffering.
Most states that require personals injury protection are "no fault" states, but Maryland, Delaware, and Oregon also do. Again, you can find out your state's auto insurance laws and minimums here.
Underinsured and Uninsured Motorist Insurance
Both of these types of insurance protect you against injury caused in an automobile accident where the at-fault driver's liability car insurance coverage is inadequate. Though they're often lumped together, they're really two distinct policies.
Uninsured motorist insurance is needed when the other driver has no liability coverage.
Underinsured motorist coverage pays for the cost of your injuries that exceed the other driver's coverage maximum.
Most states require neither type of coverage, but some require one or the other, and a few even require both. They're more often required in no fault states.
Fill out just one form, and get fast and accurate quotes from up to five or more insurers in your state.
Collision Insurance
Collision insurance coverage pays for damage caused to your vehicle in an automobile accident, when you are "at fault". A standard collision automobile insurance policy will pay for any repairs up to the fair market value of your car.
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It is important to remember that this value can be significantly lower than the cost of replacing your vehicle (or your loan balance.) If your car is financed or leased, you will need gap insurance to reimburse you for the difference between what you owe and what the car is worth.
Collision coverage usually also comes with an insurance deductible. It's the amount of money you pay toward repairs before your collision insurance kicks in. The higher the deductible you're willing to pay, the less the collision policy will cost.
Collision insurance coverage is not required by law in any state. However, if you're driving a car purchased from a dealership or financed through a lender, you may be required by the dealership or lender to carry collision insurance. (And just to be sure, you should get gap insurance.)
Comprehensive Automobile Insurance
Comprehensive is very similar to collision insurance, the main difference being that comprehensive covers damage caused to your vehicle caused by any unknown party or "act of God".
Vandalism, flood, hurricane, theft, and fire are all events usually covered by comprehensive automobile insurance. (But make sure to read your comprehensive insurance policy for exact coverage details.)
Like collision automobile insurance, comprehensive coverage will pay up to the fair market value of your car (less your insurance deductible.) And although it's not legally required by any state, you will probably need it if your car is financed.
Hot tip: Your collision and comprehensive automobile insurance policies are two places where it can be pretty easy to cut costs. Read our guide to choosing car insurance for money saving strategies!
Automobile Insurance Endorsements
Automobile insurance endorsement is just a fancy term for any of those policy extras like towing insurance, auto glass insurance, daily rental insurance, and emergency roadside insurance.
These policies are never required by any state, but many drivers value the security and convenience they provide.
Here's what you get for your money:
• auto towing insurance pays for (you guessed it) towing your car anytime you need it
• auto glass insurance gives you a lower deductible (or no deductible) when it comes to repairing any broken window on your car.
• daily rental insurance covers the cost of a rental car while your car is being repaired because of a covered event. (So you'll usually need both comprehensive and collision insurance to qualify.)
• emergency roadside assistance covers repairs done on the spot. Changing a flat roadside may be covered, but you'll have to pay for any repairs at the garage. This policy is often combined with auto towing coverage, and called roadside emergency towing insurance.
In some states, medical payments coverage and uninsured/ underinsured motorists coverages are voluntary coverages. In others, they're mandatory.
The contents of your insurance policy
Your automobile insurance policy is a binding legal contract.
But don't let that keep you from reading it, because it's actually very important to do so.
Your personal auto policy, or "PAP", will have five distinct parts (scroll down or click to see the definitions):
• declarations
• insuring agreement
• definitions
• conditions
• exclusions
In most personal auto policy documents, some of these parts will be combined. But they'll all be there. Here's what each section means to you, the insured:
Declarations
This section will likely be the first thing in your auto insurance policy, and it's almost always its own section. Unlike the rest of your policy, it will have been prepared especially for you.
The declarations lists all relevant information about your persaonal auto policy. This includes:
• the year, make,and model of your car
• its VIN (vehicle identification number)
• the name of the insured (you or you and your spouse)
• the dates the policy is effective
• the policy's coverage types and limits
• the policy's cost (your premium)
Sometimes other information is included (like whether you use the vehicle for business or for pleasure). And if your car is financed, the lender who holds the lien on the vehicle will be listed here as the "loss payee". (If the car is "totalled", they'll need to be reimbursed.)
Insuring Agreement
This section is the centerpiece of the personal auto policy. It outlines exactly what the insurance company promises to provide in return for the payment of your premium.
The type and extent of each coverage you've purchased will be described in detail here. This section will also outline exactly who is covered under each provision. It's a long and complicated section, but it's probably the most important part of your auto insurance policy.
Definitions
Want to guess what this section's all about? Yep. All annoying insurance jargon will be clarified here.
Sometimes this section is simply written into the insuring agreement. But in either case, you can be sure that every relevant term will be narrowly defined, so as to cut down on the possibility of a misunderstanding between the you and the insurance company.
Exclusions
This is an important section, because it lets you know what, when and who won't be covered by your policy. The insurance policy exclusions section is really just a list of all possible circumstances that would free the insurer from the responsibility of paying a claim.
An example: most auto insurance contain an exclusion that exempts the insurer from having to pay in the case of intentionally caused damage or injury. (We hope that never happens!) Make sure you understand the exclusions, because you don't want to be caught relying on some kind of coverage that you don't actually have.
Conditions
This will become a very important section should you ever be involved in an accident. It lists your duties and responsibilities as the insured in the event of a claim situation.
This part of an auto insurance policy usually includes guidelines for contacting the insurance company, obtaining a police report, and filing a claim. Information on auto insurance policy cancellation will be outlined here, too.
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