Types of Auto Insurance

Auto insurance is designed to protect your financial assets in case of an accident. It can also help pay for repairs to your car or other damages caused by another person.

Most states require drivers to have certain amounts of liability coverage and other types of car insurance. These limits are often referred to as “minimums.”


Liability insurance is the most basic type of auto coverage. It protects you if someone files a claim against you because of an accident that was your fault.

Your liability policy has dollar limits that apply to bodily injury (BI) and property damage (PD) claims. The dollar limit is the maximum amount that your policy will pay out, minus your deductible.

Bodily injury liability covers medical bills and lost wages for people who are hurt in an accident you cause, while property damage liability pays to repair or replace things on other people’s cars or other property that were damaged by you. Generally, minimum liability limits are set by state law.


Comprehensive insurance is designed to cover damage to your car caused by non-traffic-related incidents like fires, vandalism and falling tree branches. It also pays to replace your vehicle if it’s stolen.

It’s optional, but most lenders require you to have it if you’re financing or leasing your car. You may also need it if you have a high-value vehicle that could be difficult to repair or replace.

Your comprehensive coverage limit usually is based on your vehicle’s actual cash value (ACV) — the replacement cost minus depreciation. So if your car is older, it may be cheaper to drop comprehensive than to pay the premium for this type of coverage.


Collision insurance pays for repairs or replacement of your vehicle when it’s damaged in a car accident. It’s an optional coverage that’s not required by law, but may be required by your lender if you finance or lease your car.

The cost of collision insurance depends on the type of vehicle you drive, your age and your location. The value of your car also affects costs.

A deductible is the amount you must pay out-of-pocket before your collision coverage kicks in. Choosing a high deductible can increase your monthly premiums, but it can save you money on repairs in the event of an accident.

Uninsured/Underinsured Motorist

Uninsured/underinsured motorist insurance (UM/UIM) pays for your injuries and property damage if you’re hit by someone who doesn’t have auto insurance. It can also help if you’re hit by a hit-and-run driver or a driver who doesn’t have liability coverage.

A significant number of drivers — as many as one in eight — don’t have insurance. This can make filing a claim a challenging process.

Luckily, most states require drivers to carry at least the minimum amounts of liability insurance. However, that might not be enough to cover all your expenses if you’re in an accident with a negligent driver who doesn’t have adequate insurance.

Medical Payments

Often referred to as Med Pay, medical payments coverage protects you and your passengers in the event of an accident. It pays medical expenses up to your policy limit regardless of who was at fault for the crash.

You can purchase this add-on to your auto insurance policy in states that allow it. It’s an optional coverage, but can provide significant protection for the low cost.

If you’re involved in an accident, medical expenses can quickly add up. Whether or not you’re at-fault, you’ll want to know how to cover those costs with insurance and other financial resources.

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