The Different Types of Auto Insurance Explained: What You Need to Know

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Auto insurance is essential for anyone who owns at least one car—be it a new or used car. The only way you can drive without auto insurance is if you leased or rented a car insured by the renter.

Auto insurance is mandatory in most states. The local governments require this insurance from you to ensure the driver can cover the cost of damages in case of any incident.

Most people understand how auto insurance works. What most don’t know is the various types of auto insurance available. 

In this piece, we’ll discuss six types of auto insurance. But first, let’s look at the importance of auto insurance.


Why Auto Insurance is So Important

Most drivers understand the importance of a good auto insurance policy. Here are a few reasons why auto insurance is crucial for any car owner:

  • It provides financial assistance in case carjackers steal your car or the car burns.
  • It covers all expenses in case you damage any property or get any injuries in an accident.
  • It is a mandatory requirement as stipulated by the road traffic act.
  • The police can seize and destroy any vehicle that citizens drive without insurance.

With about 6 million accidents in the US every year, you are better off with an auto insurance policy. What’s more, driving without insurance is illegal, and you can get fined or have your driver's license withdrawn.


What Are the Types of Auto Insurance Policies Available?

When it comes to auto insurance, you have a wide range of options to choose from. Don’t just settle for an insurance plan based on the cost of premiums. Sometimes, low premiums may ultimately cost you more.

The type of auto insurance you settle should depend on your current situation. If you’re in the market for auto insurance, here are six types of auto insurance you could consider.


1. Comprehensive Coverage

Comprehensive coverage, as the name suggests, is pretty comprehensive. These policies cover a lot of incidents. They aren’t limited to a particular event.

Comprehensive coverage insurance covers vandalism, theft, fire, and even hail.  This insurance coverage will cater to any repairs or even fund you the car’s cash value if necessary. 

This insurance policy, however, has a deductible you should always inquire about. This deductible is an out-of-pocket fee you pay before the insurance provider can monetize your insurance claim.

Depending on your insurance provider, this fee can be pretty steep or just pocket change. This auto insurance is usually an optional coverage in many states. Some lenders, however, may require this insurance policy before any loan agreement for your car.


2. Liability Coverage

Unlike comprehensive coverage, liability coverage is a requirement in most states. This auto insurance ensures that you can cover any damage or injury you cause during an accident.

Typical liability coverage usually has two main tenets. These tenets are:

  • Property Damage Liability – Covers the expenses for any damage you cause on any property during your accident. 
  • Bodily Injury Liability – In case you injured someone in your car accident, this insurance covers all the medical expenses on your behalf.

3. Towing and Labor Cost Coverage

Towing insurance, or tow truck insurance, is an optional insurance policy that comes in handy when you need it most. Your car can break down at any moment. When this mishap catches you unaware, you may not have the cash for towing services at hand.

This auto insurance complements other auto insurances and is always a good idea to have. The insurance provider steps in case your cars break down. Think of dead batteries, a burst or flat tire, or when your car just won’t work.

Some of the stuff this insurance covers include towing truck costs, gas deliveries, tire change or puncture repairs, and many other car-related incidences.


4. Collision Coverage

Collision coverage is an optional insurance policy, but we strongly recommend having this auto insurance. This insurance covers costs for any accidents that you, as the driver, were responsible for.

Don’t you hate it when you are the one at fault in an accident? Sometimes, this conclusion may not even be true, but the legal entities find you’re the one on the wrong.

In such incidences, collision coverage will pay for any repair costs to your vehicle, even if you are the one responsible for the accident.

Sometimes when an accident involves another party, a legal battle most probably ensues. This collision coverage takes care of all repairs. In the meantime, your insurance provider will battle it out in court to try to prove your innocence.

Sometimes the court may conclusively establish that the accident was brought about by the other party. If this happens, the other party's auto insurance provider will step in to cover all your repair expenses and any medical expenses if applicable.


5. Physical Damage Car Insurance

When your car is physically damaged, the physical damage insurance steps in. This insurance pays for any repairs or restoration for your damaged car.

Comprehensive and collision covers are under the umbrella of physical damage car insurance. The type of insurance that applies depends on the circumstances of the incident or accident.

This physical damage insurance is separate from your liability coverage. As such, it may require a deductible aside from that of your liability claim. This deductible amount depends on your insurer and isn’t a constant amount.


6. Rental Insurance

Some insurers may extend their covers to your rental cars too. If your insurer does, you don’t need the rental insurance your car rental company tries to sell to you.

Don’t confuse rental insurance with car rental reimbursement insurance. The latter pays for temporary rental cars cost when in the car body shop.


Don’t Skimp on Auto insurance

Hopefully, you now have a firm understanding of the various types of auto insurance. Don’t always settle for insurance policies with low premiums. You may have to dig deep in your pockets when it's time to pay for deductibles. Don’t forget to check out our other articles to expand your knowledge of insurance.