Different Types of Car Insurance: What They Are and What You Need

It’s important to understand the different types of car insurance so that you can make an informed decision for your family’s needs. Here’s a breakdown of the most common types of car insurance, along with examples and explanations to illustrate the differences:

 

1. Liability Insurance

 

If you are determined to be at fault for an automobile accident, the liability insurance on your car will cover the other person’s injuries and damages, up to your insurance policy limits. Liability insurance has two components:

 

• Property Damage Liability, which overs the repair or replacement of the other person’s property, such as his or her vehicle, fence, or mailbox.

 

 

• Bodily Injury Liability, which covers the other person’s physical injuries and the damages that result, such as medical bills, lost wages, pain and suffering, etc.

 

Liability insurance is mandatory in Alabama. While it always smart to purchase more insurance than the mandatory minimum, Alabama requires all drivers have at least $25,000 in per-person coverage and $50,000 in per-occurrence coverage for both Property Damage Liability and Bodily Injury Liability.

 

Example:  You unfortunately rear-end another vehicle that has a driver and two passengers. If you have minimum insurance limits on your car, your insurance will cover up to $25,000 for the property damage to the other person’s car, and up to $50,000 for the three injured peoples’ medical bills, lost wages, and pain and suffering. If the victims’ damages are more than those insurance limits, then you might be sued for additional damages.

 

2. Uninsured/Underinsured Motorist Coverage (UM/UIM)

 

This coverage protects you if you are hit by a driver who has no insurance or insufficient insurance to cover your damages. It typically covers medical costs and sometimes property damage.

 

Due to rising insurance costs and more people electing to only purchase minimum liability insurance coverage, uninsured/underinsured motorist coverage is one of the most important types of insurance you can purchase. Indeed, distracted driving—primarily because of cell phone use—has drastically increased the number of impact-collisions on our roads, which often results in serious injury or even death. If the at-fault party only has minimum liability insurance, you could have significant medical bills, lost wages, and pain and suffering that is not covered by the at-fault driver’s insurance. Uninsured/underinsured motorist insurance is there to step in and help cover your damages. It is always smart to purchase the most UM/UIM insurance that you can afford.

 

Example:

 

• An uninsured driver runs a red light and hits your car, resulting in $20,000 in medical bills. Your uninsured motorist coverage pays these costs, ensuring you are not left with the financial burden.

 

 

• A driver with minimum limits runs a red light and hits your car, resulting in $20,000 in medical bills and $10,000 in lost wages. The at-fault driver’s insurance covers $20,000 in medical bills and $5,000 in lost wages, and your underinsured motorist insurance covers the remaining lost wages and compensates you for your pain and suffering, ensuring you are not left with the financial burden.

 

3. Collision Insurance

 

Collision insurance pays for repairs or replacement of your car regardless of who is at fault. It covers collisions with other vehicles, objects like trees or poles, or single-car accidents like rollovers.

 

Example: You hit a patch of ice, lose control, and crash into a guardrail, causing $8,000 in damages to your car. Collision insurance covers the cost of repairs after you pay your deductible (e.g., $500).

 

4. Comprehensive Insurance

 

Comprehensive insurance covers damage to your vehicle that is not caused by a collision. This includes theft, vandalism, natural disasters, fire, accidents involving animals, etc.

 

Example: A tree branch falls on your parked car during a storm, causing $3,000 in damage. Comprehensive insurance would cover the repairs after your deductible is applied.

 

5. Personal Injury Protection (PIP)

 

Personal Injury Protection, also known as no-fault insurance, covers medical expenses and lost wages for you and your passengers, regardless of who is at fault in an accident. PIP is not required in Alabama, and therefore is usually not sold.

 

Example:  You are in a car accident and suffer minor injuries, requiring $2,500 in medical treatment. PIP pays for your medical bills, even if the other driver caused the accident.

 

6. Medical Payments Coverage (MedPay)

 

Medical Payments Coverage is similar to PIP but less comprehensive. It only covers medical expenses for you and your passengers, regardless of fault, and does not include lost wages or other non-medical expenses.

 

Example:  You and a passenger sustain injuries in an accident, with hospital bills totaling $1,500. MedPay covers these expenses up to the limit of your policy.

 

7. Gap Insurance

 

Under Alabama law, an at-fault driver is only liable for the difference in the fair market value of your vehicle immediately before the car wreck and immediately after the car wreck. If your vehicle is totaled, it’s possible that the value of your vehicle is less than what you owe on it, and the crash will leave you without a vehicle and still owing on your loan. Gap insurance covers the difference between the value of your car and the amount you owe on your loan or lease if your car is totaled.

 

Example:  Your car is rear-ended while you are sitting at a red light. The fair market value of your car is $25,000, but you owe $30,000 on your loan. The at-fault driver’s insurance pays $25,000, and gap insurance pays the $5,000 difference between the car’s value and what you owe.

 

8. Rental Reimbursement Insurance

 

Rental reimbursement insurance pays for a rental car while your vehicle is being repaired due to a covered claim, such as an accident or vandalism.

 

Example:   Your car is in the shop for a week after an accident. Rental reimbursement insurance covers the $300 cost of a rental car.

 

9. Roadside Assistance Coverage

 

Roadside assistance provides services such as towing, battery jump-starts, flat tire changes, and lockout assistance when your car is disabled.

 

Example:  Your car breaks down on the highway, and you need a tow to the nearest repair shop. Roadside assistance covers the cost of towing up to your policy’s limit.

 

10. Non-Owner Car Insurance

 

Non-owner car insurance is designed for people who drive vehicles they don’t own. It typically includes liability coverage and sometimes other types of coverage, such as uninsured motorist protection.

 

Example: You occasionally borrow a friend’s car and accidentally cause an accident. Non-owner insurance pays for the damages you are liable for.

 

11. Classic Car Insurance

 

Classic car insurance is tailored for vintage or collectible cars. It often includes agreed-value coverage, where the insurer and owner agree on the car’s value, which is paid out in case of a total loss.

 

Example:  You own a 1965 Ford Mustang valued at $50,000. Classic car insurance ensures you receive the agreed value if the car is stolen or destroyed.

 

12. Ride-Sharing Insurance

 

Most personal automobile insurance policies will exclude coverage on your vehicle while you are driving for Uber or Lyft. As a result, Uber and Lyft will provide you with liability coverage while you are transporting a customer, but that coverage may not include other insurance coverages, such as uninsured/underinsured motorist insurance. Ride-Sharing Insurance bridges the gap between personal auto insurance and the commercial coverage provided by the ride-sharing company.

 

Example:  You are driving for Lyft when an uninsured motorist runs a red light and hits you. Ride-sharing insurance with uninsured/underinsured motorist coverage can cover your damages and injuries that occur during the trip.

 

Key Differences Between the Types of Car Insurance

 

 

Choosing the Right Coverage

 

The type of insurance you need depends on factors like your car’s value, driving habits, state requirements, and personal financial situation. For example:

 

• If you drive a new car with a loan, gap insurance may be essential.

 

 

• If you frequently travel in high-traffic areas, uninsured/underinsured motorist coverage offers added protection.

 

By understanding these types of insurance and how they apply to real-life situations, you can select the coverage that best fits your needs and protects you from financial risks on the road. Contact one of our personal injury lawyers if you have been in a car accident and need help making an insurance claim.