Understanding car insurance types is a confusing decision for car owners. After six months of buying auto insurance, realize your car insurance policy doesn’t cover all car damages. This hazardous situation forces you to pay money from your pocket.
In this inflation era, saving money is becoming challenging day by day. Therefore, a proper understanding of vehicle insurance types can relieve financial stress.
Are you suffering from inflation but love cars? Then this article is for you. This blog article thoroughly analyzes every term & concept related to Kinds of car insurance.
Let’s start with the following:
- Selecting the right car insurance can save you from a financial burden.
- Before buying any auto insurance, first estimate the risk factor of your car.
- Each type of vehicle insurance could vary depending on coverage limit & car model.
- Some car insurance covers others damage & some cover both.
- There is no single sign to determine which type of insurance suits you. Instead, it is determined based on location, driving history & many other factors.
- In the US, some car insurance is required by law & some are optional.
- Basic car insurance is liability insurance that covers bodily injury & property damage.
What is car liability insurance coverage?
Liability insurance is a type of car insurance that covers others’ property damage & bodily injury. Liability insurance helps you pay for others’ damage if any accident happens due to your fault. The insurance provider will not give you or your family member any compensation to recover bodily injury or car damage.
Say, Liam had an accident with Olivia’s car, injuring her & damaging some car property. Olivia’s medical bill comes in total $40,000 & car damage bill is $25,000. Liam has a maximum liability limit of 100/300/100 (The insurance company uses this type of number in insurance car declaration paper), where 100 represents $100,000 for bodily injury for one person, 300 indicates $300,000 for bodily injury of multiple persons, & last 100 means $100,000 for others property damage.
In this case,
- The insurance company will pay $40,000 to Olivia on behalf of Liam because this amount falls under the $100,000 limit.
- The insurance provider will pay $25,000 for car damage to Olivia because this amount doesn’t cross the maximum limit of $100,000.
But it is also possible that more people were injured in the accident, so what would be the coverage amount?
Consider another scenario: The medical cost of bodily injury for Olivia & her parents is $150,000 & car damage is $120,000.
In this case,
- The insurance company will pay $150,000 to Olivia because this amount falls under the $300,000 limit.
- The insurance provider will pay $100,000 for car damage to Olivia &, and Liam has to spend the rest of the $20,000 from his pocket.
Are you asking yourself this question? “Does car insurance cover bodily injury? The short answer is yes. Let’s understand it from the following question:
Kinds of liability insurance?
Car insurance has two types of liability insurance: Bodily Injury (BI) and property Damage (PD). In America, both insurances are mandatory in every state. Car insurance liability coverage limits vary based on location, law & what type of policy you have chosen. Still, on average, it ranges for Bodily Injury between $25,000 and $50,000 for one person and $50,000 and $100,000 per accident, where $5,000 and $25,000 for Property Damage.
Let’s understand the kinds of liability insurance in detail:
Bodily Injury Liability: Bodily Injury is a car insurance that pays money to cover the medical bills of others if an accident occurs at your fault.
For example, you hit a delivery van & delivery van collision with another car. You buy a Bodily Injury limit of 25/50.
Below are the accident details:
- Medical bill for delivery van driver is $23,000
- The medical bill for a car driver is $33,000
According to the 25/50 BI policy, the insurance company will cover:
- Entire medical expense for van driver because $23,000<per person limit $25,000
- Up to $25,000 medical expense for car driver because $33,000>per person limit $25,000, remaining $8,000 ($33,000-$25,000) you must give from your pocket or choose higher coverage.
In short, the insurance provider will cover a maximum of $50,000 for one accident, where $25,000 is for a person’s limit.
Property damage liability: Property damage liability is a type of car insurance that pays money to cover damages related to a car or property if an accident occurs at your fault.
Let’s consider the previous example,
- The repairing cost of the delivery van is $22,000
- The repair cost of the car is $35,000
- You have a PD coverage of $50,000
Based on your policy, the insurance company will cover:
- Total repairing cost of the delivery van because $22,000<coverage limit $50,000
- $28,000 car repair cost out of $35,000 because $57,000 ($22,000+$35,000) exceeds the total limit of $50,000. So, you must pay the rest of the $7,000 from your pocket.
Need more clarification on PD & BI? The following question will give you a clear idea of it.
Car liability insurance coverage is?
Car insurance liability coverage covers two types of damages: property damage & bodily injury.
Below, the table gives a detailed analysis of what type of coverage falls under PD & what range falls under BI & what coverages they both cover.
|Legal financial protection||Yes, for property damage||Yes, for bodily injury|
|Expense||Vehicle repair||Medical bill|
|Public damage||Yes, for defense and court fees||Yes, for lost wages|
|Coverage limit||Vary based on states||Vary based on states|
|Limit type||Single||per person/per accident|
|Cost||Cheap||Higher than PD|
|Mainly cover||Vehicle property-related damages include living room wall repair, knocked over tree removal, and personal belongings damages like a laptop and phone in the car.||Physical damages such as Pain and suffering.|
|Rental car damage||Yes/May be based on policy||Yes/May be based on policy|
|Accident at fault||You or policy holder||You or policy holder|
|Own injure or damage||No. For this you need extra coverage||No. For this you need extra coverage|
Car & accident are interrelated terms. So, your next question should be, which insurance protects me against car collisions?
What is collision coverage in car insurance?
Collision coverage is a type of car insurance to pay car damage whether you are involved in an accident. Most states consider it optional in the USA, but you should buy it if you are financing or leasing your car.
Say you have a deductible of $500 & the collision damage of your car is $4,000. First, you must pay $500, and then the insurance company will cover the remaining $3,500.
Want more detail? Then read the below question.
What does collision insurance do?
Collision insurance covers every car damage related to collision or accidents without considering who’s fault.
Below the table, describe what collision insurance does if a collision occurs to your car.
|Coverage details||Collision Insurance|
|Car repair expense after collision||Yes|
|Replacement cost if exceed car value||Yes|
|Collusion with other cars without considering who’s fault||Yes|
|Stationery damages due to single car accident such as trees, lampposts||Yes|
|If your car damage due to hit & run||Yes|
|If your car damage due to parking lot accidents||Yes|
|Car damages for rollover collision||Yes|
|Repairing cost if collision occur for your fault||Yes|
|Damages when collision happen for others fault who doesn’t have enough insurance.||Yes|
|Deductible amount choosing options||Yes|
|Labor expense to repair car after collision.||Yes|
|Towing and Roadside Assistance||Yes|
|Temporary Transportation expense||Yes|
|Car depreciation protection||Yes|
|Paint & bodywork repair cost after car accident||Yes|
|Car’s windows and windshield repair expense.||Yes|
I can understand thatAccident is an inseparable part of driving. But what will happen if my car is damaged due to non-accident events such as theft.
Comprehensive coverage auto definition?
Comprehensive car insurance protects against financial damages if car accidents occur due to theft, vandalism, fire, natural disasters, and animal collisions. Usually, comprehensive coverage belongs to those incidents that do not fall under collision coverage.
For example, you are driving on the sandiest road in Alaska & suddenly hit a deer. This damage will fall under comprehensive coverage because car accident occurs due to animal collisions.
But if you change direction to avoid collision with a deer & hit a tree or fence, it will fall under collision coverage.
Let’s understand it financially: you have a $1,000 deductible comprehensive coverage & car damage due to deer is $16,000.
- First, you have to pay a $1,000 deductible amount to the insurance company.
- Then, the insurance company will pay remaining money ($16,000-$1,000) and $15,000.
You may be a Floridian & looking for details for uninsured motorist insurance. Does it? The following auto insurance type is for you.
Uninsured motorist coverage in Florida?
Uninsured motorist coverage is a financial protection to recover damages when you are hit by a driver who has no insurance to pay damages. In Florida, uninsured motorist coverage minimum limit is 10/20/10, which means a $10,000 maximum limit per person at once, $20,000 for bodily injury, and $10,000 for property damage for one Accident.
Say Isabella has an uninsured motorist coverage limit of $25,000/$50,000. If an uninsured driver hits her & her medical bills total $29,000, the insurance company will pay the full amount because it falls under maximum coverage limits. If this damage occurs among multiple persons, a maximum of $50,000 will be distributed equally.
Feeling boring? You may know what uninsured insurance is & you read this article to understand its financial benefits. Cool! By reading the following analysis, you can make crucial car insurance decisions.
Do I need uninsured motorist coverage in Florida?
No, but recommended. Uninsured motorist coverage in Florida is not mandatory or required by law. In Florida, about 75% of driver has Uninsured motorist coverage & 25% drive without uninsured motorist coverage. This data indicates that you have a 75% chance of 100 to be involved in an accident with an uninsured driver in Florida.
Let’s understand it mathematically: Kaylee was involved in a car accident with an uninsured driver in Florida.
The accident details are:
- Medical expense is $20,000
- Property damage is $7000
- Kaylee has a policy 25/10
- Expense without uninsured motorist coverage:
If Kaylee doesn’t have health insurance, she must pay the total medical bill from her personal funds.
In this case, total expense= Medical expense + Property damage
If Kaylee has health insurance, then
Total expense= Medical expense + Property damage
Expense with uninsured motorist coverage:
Since Kaylee has a $25,000 bodily injury coverage, the insurance company will pay full coverage. Then, car damage of $7,000 is also covered by the insurance company because it falls under the $10,000 limit.
In this case, total expense= Medical expense + Property damage
So, Kaylee has to pay $0 from her pocket.
You belong to the highest car accident state & want to know details on underinsured car insurance. Aren’t you?
Underinsured motorist coverage in Texas?
Underinsured motorist coverage is auto insurance that pays you if you are hit by a driver with partial insurance to pay some damages. Underinsured motorist insurance is not required by law in Texas, & minimum coverage limit is 30/60/25. In this policy, the driver will spend partial coverage & the insurance provider will pay the rest of the expenses.
For example, Isabella was involved in a car accident while driving in Houston city.
Below are the accident details:
- Hospital bill is $40,000
- Car damage is $30,000
- The driver has an underinsured policy 10/20/10
- Isabella has an underinsured policy 30/60/25
In this condition,
- The driver will pay $10,000 for hospital expenses; the remaining $30,000 ($40,000-$10,000) will pay the insurance company because it falls under the maximum $30,000 limit.
- The driver will pay $10,000 for car damage, & rest of the $20,000 ($30,000-$10,000) will pay the insurance company.
Due to underinsured motorist coverage, the insurance company will cover all expenses on behalf of Isabella, which is a significant financial relief.
In this phase, you may be confused to find out similarities & differences between uninsured and underinsured car insurance. Don’t worry; the following question will elaborate on everything.
Explain the difference between uninsured and underinsured?
The main difference between the uninsured and underinsured policies is the uninsured driver has no coverage to pay damages. In contrast, underinsured means the driver has little range to recover damages.
The table below gives details about the differences as well as similarities between uninsured and underinsured:
|Pedestrians and cyclists damage||Yes, if uninsured driver||Yes, if underinsured driver|
|Who should consider purchasing?||Anyone who lives in an area where the uninsured driver rate is high.||Anyone who lives in an area where the underinsured driver rate is high.|
|Bodily injury expense||Yes||Yes|
|Limit options||Flexibility to choose||Flexibility to choose|
|Minimum limit||Not mandatory but recommended||Not mandatory but recommended|
An accident doesn’t always happen while you are in the vehicle. Therefore, every car owner wants to know whether car insurance provides financial protection if I am not in the car. Yes, the following vehicle insurance pays you.
What does pip mean in auto insurance?
PIP means Personal injury protection, also known as No-fault coverage, that pays medical expenses without considering who was at fault for the accident. PIP is not required by law but is available in most states. Under this policy, you will get coverage even if you are not in the vehicle.
Say, Jericho is walking on the road & suddenly a car hits him. Due to accidents, Jericho lost his wages & had to admit to medical.
In this situation, the insurance provider will cover every expense related to the accident, i.e., lost wages & medical bills.
For the opposite event, i.e., if an accident occurs due to Jericho’s fault, the insurance company will also pay money to recover the cost related to the accident.
Car is a fashionable expense that depreciates faster than any other asset. So, what will happen if I have a car loan?
Guaranteed asset protection gap insurance?
Guaranteed Asset Protection insurance, or Gap insurance, pays you to recover a car loan or lease amount if your car becomes a total loss due to any insurable events such as accidents or theft. Gap insurance pays money to fill the gap between your current depreciable value (actual cash value) & auto loan or lease amount.
Let’s see an example of how to calculate gap insurance.
- How to calculate gap insurance?
James buys a car worth $40,000 with 9% loan interest. After 2 years, an accident occurs & it becomes a total loss.
Consider James’s car has a book value of $18,000 because the car depreciated faster in the first few years & sequentially down.
Gap Coverage = Outstanding Loan Balance – Book value
= $18,064.62 – $18,000 = $64.62
So, the insurance provider will pay $64.62 on behalf of James.
The mechanical error of cars on the road is common. I think you are not exceptional in that. So, it is high time to introduce the following types of car insurance.
Towing and labor definition?
Towing and labor coverage insurance, or emergency roadside assistance” or simply “roadside assistance,” is an optional car insurance coverage that provides financial protection when your car breaks down or encounters problems while driving.
- Towing and labor coverage limits:
There is no fixed limit on Towing and labor coverage. In the US, it usually ranges between $50 to $500.
- Cost of towing car:
Sarah is driving the car on a Connecticut highway & in mid-way, her car breaks down.
- Twing distance is 30 miles.
- The cost per Mile for Towing is $7
- Towing and labor coverage $300
Cost of Towing Without Coverage= Twing distance ×Cost per Mile for Towing
=30×7 or $210
For Towing service, Sarah has to pay $210 from her pocket.
Cost of Towing with Coverage = The insurance company will pay the total amount Since Sarah has a $300 coverage limit. Sarah doesn’t need to pay from her pocket.
At this stage, you may be interested to know what towing insurance covers. Right!
What does towing insurance cover?
Towing insurance covers Towing, Tire changes, Jump starts, Lockout assistance, Gas or oil delivery, dead battery, mechanical failure & many more.
Below the table provide detail on towing insurance coverage:
|Coverage Name||Towing Insurance|
|Towing cost after car accidents or mechanical error.||Yes|
|Flat tire repair expense||Yes|
|Jump start or battery change||Yes|
|Fuel Delivery||Yes, small portion|
|Cost of a rental car||Yes|
|Glass repair cost||Yes|
|Replacement cost or stolen car keys||Yes|
|Trip Interruption cost such as meals, lodging, and transport.||Yes|
If you are here, then I appreciate your patience. This article is a long blog post & most of the readers want a straight answer. I am happy that you are not among them & seriously, come here to learn types of car insurance. Get ready for the next car insurance type.
What is rental car reimbursement coverage?
Rental reimbursement coverage is optional car insurance that pays transportation expenses while your car is repairing undercover insurance events such as accidents, theft, vandalism, or mechanical breakdown. But if you want to rent a car to enjoy a vacation holiday or your vehicle has routine maintenance, rental reimbursement coverage will not cover it.
- Let’s understand it mathematically:
- Car rental calculations:
Hazel has rental reimbursement coverage & her car needs repair due to an accident.
Her rental reimbursement coverage details:
Daily Rental Limit: $50
Total Rental Limit: $900
Repair Duration: 15 days
Total Rental Cost= Daily Rental Limit× Repair Duration
Since $750 falls under the total rental limit of $900, the insurance company will pay full reimbursement for the rental expense.
A single question can rebirth many demi inquiries that need deep analysis before making any financial decision. Cool! This statement is a common proverb in the finance profession. Let’s introduce the following car insurance types.
Classic car insurance definition?
Classic, collector, or vintage car insurance provides financial protection for classic, antique, and collector cars.
- Classic car insurance examples:
Mary wants to purchase classic car insurance for a 1969 Ford Mustang GT Convertible. She stores her car in a secure garage when not in use. One day, Mary’s car got into a severe accident while she was driving on the road & became valueless.
- Agreed value: $52,500
- Yearly Premium: $600
- Limit annual Mileage: 5,000 miles
The insurance company will agree to pay the total damage if Mary pays the Premium regularly and never crosses the 5000-mile mileage restriction. If the actual cash value of Mary’s car is less than $52,500, the insurance company will still pay the total damage.
Many car owners only need a car sometimes. These people may be looking into those types of car insurance that charge based on use. Do you belong to these categories? The following vehicle insurance is for you.
What is usage-based car insurance?
Usage-based insurance (UBI), pay-as-you-go insurance, or telematics insurance that tracks your driving data to calculate Premium.
Let’s understand how usage-based car insurance premiums are estimated:
Calculating usage-based insurance car premium:
You sign up for a Usage-based insurance policy from an insurance company that charges based on monthly miles cost.
- The base rate is $200 per month
- Cost per mile $0.07 per mile
- Monthly mileage limit: 15,00 miles.
- You drove 1000 miles.
Cost for Mileage = Miles Driven x Cost per mile
= 1000 miles x $0.07
Total Monthly Premium = Base Premium + Cost for Mileage
= $200 + $70
Your monthly Premium would be $270 for a 1000-mile drive.
The car doesn’t only belong to a family; rather, it is an important part of business personnel. Are you a sole trader or industrialist? If the answer is yes, then the following type of car insurance is for you.
Commercial car insurance definition?
Commercial car insurance is auto insurance that pays money to recover physical damage to commercial vehicles.
Let’s understand it mathematically by applying the commercial auto insurance cost formula.
- Commercial auto insurance cost formulas:
Linda owns a real estate company & some trucks to transport labor & materials to construction sites. She has purchased commercial auto insurance & wants to calculate the annual premium amount based on the following factors:
- Type of vehicle: Truck
- Usage: Labor & material transportation
- Mileage: 12,000 miles per year
- Mileage at once: 900
- Location: City region with moderate accident risk
- Driving record: Clean
- Comprehensive & collision deductible: $700
- Liability limits: $100,000 for property damage & bodily injury
- Cargo coverage: $60,000
- Base premium: $2,500 yearly
- Extra mileage cost: $0.07
- Liability Coverage Cost: $850
- Comprehensive and Collision Coverage Cost: $650
- Cargo Coverage Cost: $450
- Safe Driving Discount:10%
Extra Mileage Cost = (Annual Mileage- Mileage at once) × Extra mileage cost
= (12,000-9000) × 0.07
Safe Driving Discount = Yearly base premium×10%
Total Premium = Base Premium + Extra Mileage Cost + Coverage Costs – Safe Driving Discount
=Base Premium + Mileage Cost + (Liability Coverage + Comprehensive and Collision Coverage + Cargo Coverage) – Safe Driving Discount
No one type of car insurance is the best fit for car owners except liability auto insurance, which is mandatory in every state of the USA. You have to analyze your financial situation and what your car needs. Whether you prefer a brand-new or used car, you must buy car insurance.
Therefore, it is crucial to understand different types of car insurance before financing. Therefore, consider a kind of car insurance that cover the maximum amount of car damages & also provide monetary support in time of emergency.
Frequently Asked Questions (FAQ)
Yes. You can get gap insurance on a used car. Gap Insurance is not mandatory but recommended for the fastest depreciated vehicle, such as a new car. Gap insurance costs comparatively less for used cars than new ones. For gap insurance, your car’s minimum age should range between 2 to 3 years & maximum 10 years.
Minimum 1 day to maximum 30 days. Rental duration depends on how much time mechanics need to repair your car. The insurance provider will pay you based on the mechanic’s estimated repair duration.
It is also possible that your car become valueless after the accident. In this situation, the insurance provider will process your claim & continue to pay you for the rental car until it is finalized. Usually, this claim finishing process takes 24 hours.
$147 monthly or $1764 per annum. However, the cost could be varied based on several factors such as driving history, credit score, deductible, car number, car model, location, & many other factors. Depending on this factor, commercial auto insurance could cost $13 or $200 monthly.
The cost per mile for towing is $2 to $4, with a hook-up fee of $50 to $125. It usually ranges from a minimum of $52 to a maximum of $129.
Any vehicle used for business, commercial, or profit-earning purposes without family or personal use is a commercial vehicle. It is also possible that the same car is used for both purposes, i.e., private & commercial.
For example, you are a sole trader & you don’t need your car all the time. You need your vehicle up to 1 p.m. or only in the morning. For this reason, you rent your car for the remaining time.
In this condition, the insurance company will not consider your car fully commercial & so pay less damage.
The information provided in this article is just the author’s view & only for educational purposes. By reading this, you agree that the information is not car insurance advice. Do your research before buying car. Therefore, FinanceIdeas.org will not be liable for your financial loss.