How the 6 Types of Car Insurance Coverage Can Affect Your Wallet

There are many types of car insurance to keep you safe on the roadway. Some coverage is mandatory and is determined by the state where you live. Other types are required by lenders, and cover the costs of damage to your car. Here’s how each kind of car insurance coverage can affect your wallet.

Bodily Injury Liability

Almost every state requires this type of insurance coverage for the drivers in their state. Bodily injury liability covers the costs of bodily injuries that you cause in a car accident.

“Bodily injury liability is coverage paid out by the insurance carrier on your behalf if you are found at fault in an accident. It covers medical expenses, lost income, pain and suffering, legal fees and funeral costs if the accident results in death,” says Colleen Parsons, a client advisor at World Insurance Associates.

How much bodily injury liability coverage you are required to get varies by state. These state liability minimums may not cover the costs of a serious accident, and you could be left paying for the remainder out of your own pocket.

“Each state has their minimum limit, for example in New York State it’s $25,000 per person/$50,000 per accident if more than one person is injured in an accident,” Parsons says. “Having these extremely low limits offers very little protection and opens you up to having to pay these expenses out of pocket, especially if there is a lawsuit.”

Property Damage Liability

Like bodily injury liability, almost every state requires property damage liability. This type of insurance covers damage to property that you cause with your car, including damage to another person’s vehicle.

The amount of coverage required for property damage liability varies by state, but these minimum amounts are not enough to cover the costs of a major accident.

“Each state has their minimum requirement, which is only $10,000 in most cases. Most of the time this will not be enough to cover for the total amount needed to repair or replace the property damage that was caused by you, leaving you open to pay out of pocket for the remainder of the balance,” Parsons advises.

For greater protection, consider upping the limits on your bodily injury liability and property damage liability. Limits of $100,000 for bodily injury per person, $300,000 for bodily injury per accident, and $100,000 for property damage would cover the costs of a serious and expensive car accident. This is called 100/300/100 liability coverage, and some insurance companies offer discounts of 5% to 10% for selecting this coverage.

In addition to bodily injury liability and property damage liability, many states require you to carry medical payments or personal injury protection (PIP) and uninsured/underinsured motorist coverage.

Medical Payments or Personal Injury Protection

These policies reimburse medical bills for you and your passengers following a car accident. They also cover lost wages.

Medical payments protection covers medical, dental, and funeral expenses, regardless of who is at fault. The amount covered is usually between $5,000 to $10,000, Parsons says.

Personal injury protection also covers medical expenses regardless of who is at fault in an accident.

“Medical payments/personal injury protection covers medical expenses for a driver and passengers regardless of fault,” says Michael Gibson, auto accident attorney at AutoJusticeAttorney.com. “If you don’t have this, you could pay medical bills out of pocket until fault is determined—this may add up to thousands or more in upfront costs,”

Uninsured/Underinsured Motorist

These policies provide protection when an accident is caused by an uninsured or underinsured driver. Uninsured motorist coverage also covers cases of hit-and-run drivers.

Without uninsured/underinsured motorist coverage, you may be waiting a very long time to be compensated for your losses in an accident.

“If the at-fault party can’t pay your related medical bills, the court may award you a high claim amount. But if the at-fault party doesn’t have the money to pay, they may be ordered to pay back one bit at a time — a process that could take years,” Gibson says.

Collision

Collision coverage will reimburse you for any damages to your car from another car or object when you are at fault in an accident.

“Collision is an important coverage because it pays for repairs or replacement to your own vehicle. The higher the deductible, the lower the cost of this coverage,” Parsons says

The premium is the amount of money you pay to an insurance company for coverage. You could pay a premium monthly, annually, or semi-annually. The deductible is the maximum amount of money that you pay out of pocket when a covered insurance incident happens. The higher the deductible, the lower the premium that you pay.

Comprehensive

Comprehensive provides coverage against car theft and for damages other than collision, such as fire, flood, and hail.

“Comprehensive insurance covers non-collision damage like vandalism, weather events, and theft. I know of one person who declined comprehensive insurance and then had to pay $32,000 in repair costs when a tree fell on his parked car. If your vehicle is newer or expensive, you don’t want to skip this,” Gibson advises.

Like collision coverage, comprehensive coverage comes with a deductible. If you lease your car or borrow money to pay for it, you probably will need to add both collision and comprehensive to your car insurance policy.

 “If you leased or financed your car, your lender will likely require you to carry collision and comprehensive, because they want to know that they’ll get the loan repaid in the event the car is totaled,” says Maya Afilalo, managing editor at AutoInsurance.com.

If you have had your car for many years, you may want to drop collision and comprehensive coverages. “If your car is older, has a low value, and is fully paid off, it might make sense to drop these coverages to save money,” Afilalo recommends.

The Bottom Line

Choosing the right level of car insurance is an important part of being a safe driver. Most states require a minimum level of car insurance, but that won’t be enough to cover the costs if you cause a major accident. If your policy limits don’t cover the expenses, you may be on the hook for the rest.

In addition to bodily injury and property liability protection, you might also want to consider collision or comprehensive policies to cover damage to your own vehicle. Some lenders require these policies in order to protect their investment. Keep in mind that the more coverage you have, the more you’ll pay in premiums.