Car Insurance Coverage Types: Plain English

Liability Coverage

The standard, most important car insurance type, this covers your financial obligations for the injuries, damages, or death that you cause to others. If there is a collision and the authorities say you are at fault, you will need Liability coverage to pay. In the event of a lawsuit, you will be provided for a legal defense.

In tort states, you will need both Bodily Injury Liability coverage and Property Damage Liability coverage.

Personal Injury Protection

This is the No Fault state's answer to Liability coverage. Since No Fault states demand that each person is liable for their own injuries, no matter who causes the accident, you need Personal Injury Protection coverage to guarantee you have money for medical expenses. This covers all people in the insured vehicle. The minimum amount required depends upon state laws.

Collision Coverage (Comprehensive Collision)

This coverage will pay for the repairs or replacement of your vehicle if there is any sort of crash or collision. Fault does not matter. The car insurance provider must pay out to the limit set in the policy.

Comprehensive Coverage (Comprehensive Other than Collision)

This coverage makes sure the car insurance company pays for any damage to your vehicle that results from non-driving incidents. The covered scenarios vary, but usually include:

• Natural Disasters and Weather Damage
• Wildlife Damage
• Hit-and-Runs
• Arson
• Theft

Gap Coverage

The price you pay for your vehicle is no longer what it is worth once you have driven it. If it is a new car, it loses 1/3 of its value the second it leaves the dealer lot. Now, say you total your shiny new car a week after it leaves the lot. You will have the money from the insurer to get a new car, right?

Wrong. The insurer only has to pay the market price of the vehicle, which is only 2/3 of what you paid. Two-thirds of your loan! You could be paying more money for car a year from now than what it is worth.

Gap Coverage makes sure that you get the full price of the new vehicle. It makes up the difference in sticker price and market value for a set amount of time after you purchase the vehicle.

Medical Payments Coverage

Liability coverage pays for the people in the other vehicle, but what about those in your car? Medical Payments coverage makes sure that the driver of your vehicle and any passengers get the medical treatment they need without falling into debt for the rest of their lives. It provides a set amount of money per person in the collision, as well as a total maximum for the whole collision. It even covers funeral costs.

This is essential unless your entire family has top-of-the-line health insurance.

Uninsured/Underinsured Motorist Coverage

Everyone should have car insurance, but unfortunately many many people don't. Even more people have too little car insurance, since the state minimum is generally less than drivers should have. Who does this hurt most? Law-abiding, responsible drivers who are the victims of crashes.

This coverage pays for your needs when the at-fault party does not have the car insurance.