How Many Types of Auto Insurance are There?

If you’re on the verge of getting auto insurance, it can be quite confusing to decide which type of auto insurance to go for. Depending on the state that you’re currently residing in, there are laws that mandate you to purchase a particular type of auto insurance.

But the problem with state mandated insurance is, the minimum, or the standard coverage limit is quite inadequate, especially if your vehicle’s repair, and maintenance cost exceeds the coverage limit.

On top of that, if you’re seriously injured in an automobile accident then your medical bills may exceed the minimum coverage limit. Plus, there can be additional consequences if the other driver claims hefty compensation for an accident for which you’re partially or totally at fault.

To deal with each of these critical situations, it would be wise for you to choose the right type of auto insurance. You can either upgrade your current insurance plan or go for a more compact insurance type that safeguards you from such financial burdens.

So, to help you distinguish and decide this article focuses on discussing 15 different types of auto insurance, and what could be the best type of auto insurance for you.

15 Types of Auto Insurance

Based on our research, we have found 15 types of auto insurance that you can purchase based on your needs. There are some auto insurances that are legally mandatory, which means you must acquire them.

However, if you want more extensive coverage, you can go for another type of auto insurance either with the state mandated insurance, or with an additional subscription.

Also, there’s one thing to keep in mind, among the 15 different types of insurance, some of them are typically add-ons. This means you can consult with your insurance provider and add it to supplement your existing insurance coverage.

Don’t worry, while you go through each type of insurance, you will get to know the type of insurance that are required, optional, and ones that you can purchase as add-ons.

Liability Insurance

Liability insurance is only applicable to compensate the other driver, and the passengers of that vehicle. It does not cover your vehicle damage, property damage, or bodily injuries.

In Michigan, liability insurance is termed PLPD, abbreviated as Personal Liability, and Property Damage.

If you’re looking for a PLPD Insurance Agency in Michigan, you might be interested in what we have to offer. 

Having liability insurance is legally mandatory in 48 out 50 states in the USA except New Hampshire, and Virginia. The liability insurance has a standard and minimum coverage limit that’s set by the federal government in each state.

The liability insurance has two components which include bodily injury liability and property damage liability. 

Bodily Injury Liability: If you’re found responsible for an auto accident which leads to bodily injuries of the other driver, and the occupants of that vehicle, then based on your insurance policy you will have to compensate their medical bills for up to 3 years.

Generally, the standard coverage limit in the USA is $25,000 per person, and $50,000 per accident in most US states. Your insurance will basically compensate the medical bills of up to $25,000 for each person, and a total of $50,000 for the accident. Bodily injuries are typically covered in split limits.

Example

So, let’s say the driver and his passenger got injured. The driver got a medical bill of $27,000. So, your insurance company will cover $25,000 for the driver’s medical care, and you will have to pay the rest of it from your own pocket.

And the passenger got a medical bill of $20,000, your insurance company will then cover the $20,000, and if it’s required, they would cover max $25,000 for the passenger.

Property Damage: If you have damaged the other driver’s vehicle, or property which can include their building, fences, and trees then you will have to compensate according to your insurance policy.

Generally, the property damage coverage in most US States is $25,000. Property damage is covered as a single unit.

So, whether you’ve damaged the other driver’s property or their vehicle in an auto accident in which you’re at fault then your insurance will cover up to $25,000 for the damages.

Personal Injury Protection Insurance (PIP)

Personal Injury Protection, commonly abbreviated as PIP is a mandatory insurance policy in no-fault states.

PIP insurance specifically covers the medical bills of you and your passengers after an auto accident. It also covers lost wages, rehabilitation costs, children care, funeral, and burial expenses based on the coverage limits in your insurance policy. 

Just to clear, regardless of whoever is at-fault the PIP insurance is designed to compensate the policyholder, and the passengers of that vehicle.

There are 12 no fault states where having PIP is a requirement, which includes Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dokata, Pennsylvania, and Utah.

Apart from the no-fault states, there are 3 states that require having a PIP insurance which includes Delaware, Maryland, and Oregan. PIP is optional in Arkansas, Connecticut, District of Columbia, Texas, and Washington.

Medical Payments Coverage (MedPay) Insurance

Medical Payments Coverage Insurance, which is commonly called MedPay. MedPay is an optional insurance coverage that’s available in every state in the USA.

MedPay is specifically designed to cover your medical bills regardless of whether you’re the driver, passenger, or pedestrian in an auto accident. Typically, it is used as an add-on insurance to supplement other insurance policies like liability insurance, and PIP insurance.

Liability insurance particularly covers the medical expenses of the other driver, and their passengers in an at-fault auto accident. If you get injured, then you may have to pay your own medical bills from your pocket, which can be a huge financial burden.

To ensure an extra layer of financial safety, it would be wise to have a MedPay insurance. Even if you have PIP insurance which will pay for your medical expenses, what if your medical bills exceed its coverage limits? In that case MedPay insurance will work as an excellent backup.

Plus, unlike PIP insurance, MedPay insurance also covers the medical costs of pedestrians. Also, if you are riding the vehicle as a passenger whether it's a car, bus, or any other vehicle, this insurance will have you covered. So, to stay on the safe side it would be ideal to get MedPay insurance.

Collision Coverage Insurance

Collision coverage insurance compensates for an auto accident regardless of who’s at fault. This insurance applies when your vehicle gets damaged by hitting another vehicle, or object which can include a building, fence, guardrail, tree etc. It also includes covering your vehicle if it gets damaged by bumping into a pothole.

Collision coverage insurance is an optional plan, it is required especially when you are purchasing a new vehicle, particularly to ensure you are covered for any vehicle damage that is caused due to collision.

The biggest advantage of getting collision coverage insurance is, unlike many other insurance policies, it does not have a written limit. Your coverage will be determined based on its actual cash value, which is your vehicle’s price after depreciation.

The disadvantage is it will only cover your vehicle damage. But that’s good enough, as it’s an optional insurance policy with no definitive limit.

Example

Let’s say you bought a vehicle for $50,000, and after using it for 2 years, its ACV (actual cash value) is $35,000. Then you will get a coverage limit of $35,000.

So, if your vehicle ends up crashing, and even if it’s totaled, if the repair or replacement cost is anything within $35,000 then it will be covered by your auto insurance company. Of course, any additional expense will come from your deductibles.

Comprehensive Insurance

Comprehensive insurance will cover your vehicle damage in random events, or unforeseen incidents that are beyond your control.

To be more precise, if your vehicle gets damaged due to poor weather conditions like snowfall, heavy rain, hailstorm, flood, earthquake, or any other natural disaster then your insurance policy will cover the repair costs.  Apart from harsh weather conditions, you will also get compensation from your insurance company if your vehicle has been stolen, or if it gets vandalized. Plus, if it accidentally flips and gets damaged, or if it’s burned down in a fire hazard.

Also, if you accidentally hit a large animal like a buffalo or a deer, comprehensive insurance will have you covered for vehicle damage.

When it comes to its coverage limit, it’s like collision insurance, it is an optional insurance plan, and its coverage is determined based on your vehicle’s actual cash value.

Basically, it covers all sorts of vehicle damage, apart from a collision. That’s also the reason comprehensive insurance is usually purchased with collision insurance, which are technically the key components of full coverage insurance.

Underinsured Motorist Coverage (UIM)

Underinsured motorist coverage will cover the medical expenses for you, and your passenger, along with your vehicle damage in the event of an auto accident in which the other driver is at-fault.

Typically, underinsured motorist coverage is applicable when other driver’s insurance coverage isn’t sufficient to compensate for your medical expenses, vehicle damage, loss of income, and funeral expenses.

According to Insurance Information Institute, it is a legal requirement to have underinsured motorist coverage in 20 states which include Connecticut, District of Columbia, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Vermont, Virginia, West Virginia, and Wyoming. Aside from these 20 states, it is optional in other states in the USA.

The minimum underinsured motorist coverage limit varies depending on the state you’re located in, but in most US states it’s $25,000 per person, and $50,000 per accident.

If you are living in the optional states, your insurance company will recommend you purchase it along with your liability insurance, but you can choose to reject it with a written note.

But it’s best to get this insurance, it can save you from financial burdens and provide additional funds to pay for hefty medical bills, and vehicle damages.

Uninsured Motorist Coverage (UM)

Uninsured motorist coverage is almost the same as underinsured motorist coverage. The main difference is that the other driver does not have any liability insurance to compensate for the at-fault accident.

Similarly, like underinsured motorist coverage, this one also covers your medical bills, vehicle damage repair costs, lost wages, and funeral expenses.

The unique thing about the underinsured motorist coverage is, it covers compensations for hit and run accidents. Or, if the other driver refuses to compensate for the auto accident in which they were at-fault.

So, having uninsured motorist insurance is an additional financial safety net to cover high medical bills, and vehicle repairs. Usually UM, and UIM insurances are bought together due to the similarities in the insurance policies, and because it’s almost the same.

Just like UIM insurance, UM insurance is also legally required in 20 states. The minimum coverage limits are the same depending on the state that you’re residing in.

Rental Reimbursement Auto Insurance or Extended Transportation Expenses Coverage Insurance

Rental Reimbursement Auto Insurance, or Rental Coverage Insurance, also known as Extended Coverage Insurance, is an optional auto insurance plan to facilitate the daily cost of renting a vehicle. This insurance coverage is only provided when your vehicle needs some time to repair or replace.

So, let’s say your vehicle is at the auto repair shop, and is currently being repaired, and it would take at least a week to fix it. In that case you can claim the rental coverage insurance to get another vehicle on rent.

As good as it sounds, there are limitations here too. On average insurance companies provide a daily compensation of $30 to $75 per day, that’s the range of the average daily limit.

The maximum coverage limit is $900 to $2,250 on average, depending on the state that you reside in, and how much the insurance company charges for it. Oh, and the maximum timeframe for providing this coverage is a maximum of 2 weeks.

Rental coverage insurance may also be very useful if your vehicle gets towed by the police after the accident, and it’s stuck in the impound lot. Not to mention, it’s a great add on insurance to get another vehicle while your one’s stuck in the repair shop or impound lot.

Towing and Labor Insurance

Towing and labor insurance covers the emergency towing, and repair expenses when your vehicle suddenly breaks down on the road. This includes dead batteries, flat tires, fuel leaks, and sudden engine failure.

Towing insurance is an optional insurance coverage, and it’s typically an add-on that you can purchase with other auto insurances.  In case your vehicle gets impounded by the police, the towing insurance coverage will pay the fee for getting your car out of the impound lot.

However, if you parked your vehicle somewhere illegally, and if gets impounded for that, then your insurance company will not compensate the fee for getting your vehicle out of the impound lot.

Insurance companies usually provide towing insurance compensation of up to $500, but that can vary depending on the company and its policies.

Roadside Assistance Insurance or Emergency Road Service Insurance

Roadside Assistance Insurance, or Emergency Road Service Insurance will cover the expenses of emergency auto repairs when your vehicle is stuck on the road.

It will typically cover small repair expenses to get your vehicle running again which includes tweaks to get the engine started, along with refueling the vehicle, or any service provided on spot by an emergency auto mechanic.

A lot of people confuse roadside assistance insurance with towing insurance, although they’re similar but the policies have significant differences.

Roadside assistance insurance is applicable to bear the cost of getting the vehicle moving again with quick repairs, whereas the towing insurance covers quick repairs, and getting your vehicle transported to a garage or auto repair shop.

Roadside assistance insurance is an optional insurance, and it’s a great add-on for saving up minor costs for emergency auto maintenance.

Telematics Insurance

Telematics insurance is a usage-based auto insurance which helps you get lucrative annual discounts on your auto insurance premium. On average telematics insurance policies provide 25% to 40% discounts on auto insurance.

The main purpose of telematics insurance is to limit the possibilities of an accident. If you don’t go beyond a certain speed limit, and if you don’t hit the hard breaks often then there’s a high chance that you’re less prone to car accidents. Also, by limiting your annual mileage, you’re significantly less likely to get involved in an auto accident.

But here’s the biggest clause, and that is, if your annual mileage crosses the limit on your insurance policy then you will no longer be eligible for claiming this insurance, nor get the offered discount.

On average, if you drive below 7500 miles each year, you can take advantage of the telematics insurance, but if you drive longer distances, it won’t be suitable for you.

To track your mileage, speedometer, and brake frequencies you will have to install either a plug and play tracker on your vehicle, or an app on your phone, or use a bluetooth tracking device.

Using the mobile app can lead to a misleading count, as it will record your mileage even when you’re traveling as a passenger. So, it’s best not to go for the mobile app tracker if you purchase this insurance.

Gap Insurance

Gap insurance is an optional insurance that applies when your vehicle is totaled or stolen. This is typically an add-on insurance which compensates for the gap amount between your vehicle’s actual cash value, and the amount that you owe for a credit, or loan payment.

It’s specifically designed to cover the extra finance that you require for paying off the outstanding amount that you owe your auto retailer.

For example, if you’ve bought a car on loan 3 years ago for $30,000, and now its actual cash value is $20,000, and you owe a remaining outstanding amount of $25,000. Your gap insurance will pay for the outstanding gap of $5,000.

Usually, it is required to get a collision, and comprehensive insurance especially when you are purchasing a car on credit. If your car gets totaled, or if it gets stolen then your insurance company will compensate you for that depending on insurance policies.

So, let’s say, your car gets totaled, and you get a collision insurance compensation of $20,000, you will still need $5,000 more to pay off your loan. The gap insurance will pay for the remaining $5,000 that you owe the retailer, or bank.

You can only have gap insurance as an add-on to your collision, and comprehensive insurance. If you have bought your car on credit, then it is crucial to get gap insurance to save yourself from a sudden financial burden.

New Car Replacement Coverage Insurance

New car replacement coverage is an optional insurance that covers the expenses for getting a new car by replacing your existing one.

Your auto insurance provider will assess the actual cash value of your car by deducting the deprecation cost and compensate you for the current value of your car.

For example, if you bought a car two years ago for $50,000, and today if its actual cash value is $35,000, then your auto insurance company will compensate you to $35,000 to replace your existing vehicle in exchange for a new one.

If you’re replacing it with a new car that exceeds $35,000, then you will have to pay the rest from your deductibles. So, if the price of the new car is $40,000 then you pay $5,000 from your deductibles.

But here’s one clause here, the new car replacement coverage is not applicable for vehicles older than 3 years. Plus, this insurance is an add-on, so you will have to purchase it with a collision, and comprehensive insurance coverage.

New car replacement insurance also applies if your vehicle gets totaled, or if it’s stolen. You will still get to replace it with a new car based on its actual cash value.

Ride Sharing Coverage Insurance

Ride sharing coverage insurance is a specific auto insurance policy designed to compensate drivers who work for riding sharing companies like Uber, Lyft, Doordash etc.

Although riding sharing companies like Uber and Lyft do have a commercial auto insurance policy for its drivers which includes liability insurance, under or uninsured motorist coverage, collision, and comprehensive insurance coverage.

Regardless of having this insurance there are certain times when they may not apply for you. For instance, if you go offline, their commercial insurance will no longer cover you.

Plus, their commercial insurance policies have very limited coverage, and a high deductible of up to $2500. So, in case their coverage limit runs out you may have to pay a hefty out of pocket expense.

Also, if you don’t inform your auto insurance provider that you’re earning with a ride sharing company and using your vehicle for a commercial purpose of extra income, then it may violate the terms and conditions of your personal insurance.

So, despite having personal auto insurance you won’t be able to use it to pay for your vehicle repair, or medical expenses. On top of that, if you get involved in an at-fault accident, then you may also have to compensate the other driver out of your pocket.

Therefore, if you’re riding sharing, or if you deliver food using your vehicle, it’s highly recommended to have ride sharing insurance just to be on the safe side.

According to Uber, the coverage for ride sharing insurance is $50,000 per person, $100,000 per accident for injuries, and $25,000 in property damage per accident.

Classic Car Insurance

Classic car insurance is a special insurance policy for car owners with luxury vehicles, sports cars, and other types of super expensive collectible cars.

When it comes to determining the value of your car, it won’t be based on actual cash value which is typically evaluated by calculating the depreciation cost.

For classic car insurance, the car owner will have to announce the value of the car, and based on that there will be a discussion with the insurance company in which they will mutually agree to a certain value. The agreed value can be anything between $10,000 to $100,000 or more.

Also, unlike most standard auto insurance policies, the value of the classic car will increase with each passing year. Not to mention, your car needs to be at least 25 to 30 years old to be eligible for the classic car insurance policies.

So, if you own a fancy Mercedes, BMW, Ferrari, or any other top-notch vehicles then you may want to consider getting classic car insurance. This is essentially because the spare parts, and maintenance cost of exotic cars, and luxury vehicles are usually a lot higher than regular sedans.

But if you get this insurance then you will have to ensure keeping your car in a secure and fully enclosed garage space. Plus, you cannot use it for daily commute, nor exceed the agreed mileage which should be below 7500 miles a year. And most importantly, you can’t use it for racing with other cars.

If you violate these conditions, then you won’t get any compensation for vehicle damage, repairs, and routine maintenance.

What’s the Best Type of Auto Insurance?

The best type of auto insurance will basically vary on a range of different factors which includes

1. Budget
2. How often auto accidents happen in your state or region
3. Local state laws
4. Price of your vehicle and its current value
5. Driving records
6. Insurance history
7. Credit score
8. Age

Auto insurance costs can significantly vary based on these factors, plus when it comes to buying the right insurance you need to be sure of the ones that suit you.

You need to ensure that you have liability insurance, personal injury protection insurance, underinsured, and uninsured motor insurance especially as they’re legally mandatory across various states in the USA.

Apart from that, you should also consider getting the collision, and comprehensive car insurance especially to avoid heavy repair, and replacement costs of your vehicle.

If you’re buying a car on credit, or if you have a car that you have bought on loan, then it would be wise to get gap insurance with it, just to stay on the safe side.

Regardless, the final decision to determine the right type of insurance ultimately comes down to your budget, and of course your own priorities. So, the best types of auto insurance would be the ones that fulfill your needs.

Final Remarks

With so many types of auto insurance, it can get confusing especially when you don’t know which combination of auto insurance you may need. So, that’s why it is crucial to first understand the value of each of these auto insurances.

Once you’re fully aware of the auto insurances that are mandatory, and the ones that are optional, it will be easier for you to determine which types of auto insurance are adequate for you.

Yet again, it can still be quite overwhelming so if you need any help to understand and determine which types of auto insurance are best for you, then you can contact us.

As an auto insurance company operating in Michigan, we have industry experts who can help you determine the best auto insurance plan tailored to your needs, and budget.

FAQ

How many types of auto insurance are there in the USA?

There are 15 types of auto insurance available in the USA which includes liability insurance, personal injury protection insurance, medical payments coverage insurance, collision coverage insurance, comprehensive insurance, underinsured/uninsured motorist coverage insurance, rental reimbursement insurance, towing and labor insurance, roadside assistance insurance, telematics insurance, gap insurance, new car replacement coverage insurance, ride sharing coverage insurance, and classic car insurance.

Which types of auto insurance are mandatory in the USA?

Mainly liability insurance, personal injury protection, and under/uninsured motor vehicle insurance are mandatory across various states in the USA.

What are the most common types of auto insurance in the USA?

There are 6 common types of auto insurance in the USA which include liability insurance, personal injury protection insurance, collision insurance, comprehensive, uninsured/underinsured motorist insurance, and medical payment coverage insurance (medpay).

Can I have multiple types of auto insurance?

Yes, apart from mandatory auto insurance, you can purchase the optional auto insurance and include add-on insurances. For example, you can buy liability insurance, and include optional insurance policies like collision, and comprehensive insurance. You can also add gap insurance, and new vehicle replacement insurance with these two option insurance plans.