The Complete Guide to the Most Common Types of Auto Insurance

Although auto insurance can cover a variety of accident-related expenses, this depends on the coverage you have purchased. Everyone, including veterans, has their choice between the six main types of auto insurance types, liability, comprehensive, collision, personal injury protection, uninsured motorist, and gap insurance, but you have to know how each works to ensure you’re financially protected in the event of an accident. 

We’ll explain the common types of auto insurance coverage and how each can benefit veterans.

The Six Types of Auto Insurance

The common types of auto insurance include liability, comprehensive, collision, personal injury protection, uninsured motorist, and gap insurance. We’ll explain each type of auto insurance coverage in further detail. 

What is liability insurance for auto insurance?

Liability auto insurance is designed to protect you financially by covering bodily injury and property damage expenses for other drivers and passengers involved in an accident you caused. Depending on your location, this type of insurance is mandatory for all drivers to legally operate a vehicle within the state.  

Liability insurance is expressed as three numbers, with each representing a coverage limit. For example, if you see 25/50/20, your liability insurance will cover $25,000 bodily injury liability per person, $50,000 bodily injury liability per accident, and $20,000 property damage liability.

What is collision insurance?

Collision auto insurance insurance pays for damage to your vehicle following a collision with another vehicle or object, such as a guardrail, building, or telephone pole. States do not require drivers to carry collision insurance, but it is often required by lenders and dealerships when someone has leased or financed a vehicle. 

With collision, drivers pay a deductible before their auto insurance picks up the rest of the repair bill. So let’s say your deductible is $500, and your property damage expenses total $2,000. Once you pay your deductible, insurance pays the remaining balance of $1,500. However, if the vehicle is totaled, the policyholder receives a payout equal to the value of the vehicle minus the deductible. 

What is comprehensive insurance?

Comprehensive auto insurance covers property damage that isn’t caused by a collision, such as:

• Theft
• Vandalism
• Fire
• Natural disasters
• Hitting an animal

Similar to collision insurance, comprehensive insurance isn’t required by states, but it may be required if you leased or financed your vehicle. Additionally, drivers must pay a deductible before their auto insurance covers the cost of repairs or pays out the value of the vehicle if it is totaled. 

What is personal injury protection (PIP) insurance?

Personal injury protection (PIP), also known as no-fault insurance, covers medical expenses for the policyholder and their passengers regardless of who is at fault for the accident. Injured parties can also get lost wages, funeral expenses, child care, and other replacement services covered by personal injury protection.

Not all states require personal injury protection, but a minimum coverage amount applies in those that do. For example, in Florida, the minimum coverage amount for personal injury protection is $15,000. This means if a veteran were involved in an accident, their personal injury protection would cover up to $15,000 of their accident-related expenses, not including property damage. 

It is possible your personal injury protection may carry a deductible, so before the insurance covers anything, you must pay your deductible. 

What is uninsured motorist coverage?

Uninsured/underinsured motorist insurance covers bodily injury and, depending on the state, property damage expenses if you’re involved in an accident with an uninsured or underinsured motorist. It is not required by all states, but it is good coverage to have if you live in a state where drivers tend to have the minimum amount of coverage or no coverage at all. 

What is gap insurance?

Gap insurance fills the gap in coverage between your remaining loan balance and vehicle value. If your vehicle was totaled, you’d file a claim with insurance and receive a payout equal to the value of your vehicle. Unfortunately, this amount may not be enough to cover the remaining balance on your loan or lease. This is where gap insurance would come to pay the difference.  

For example, if your vehicle is worth $4,000, but your remaining loan balance is $6,000, gap insurance pays the $2,000 difference. 

What is an auto insurance policy?

Your auto insurance policy is an agreement between you and the auto insurance company. You pay a premium, and your auto insurance company agrees to cover accident-related expenses. 

What are the different components of an auto insurance policy?

Auto insurance policies can be difficult to understand. If you want to ensure you have the right type of coverage and your limits offer you enough protection, you need to know the different components of the policy. 

Here are the main components of an auto insurance policy veterans need to understand.

• Premium: Amount paid to the auto insurance company for coverage. 
• Deductible: Out-of-pocket fee paid by the insured in exchange for the auto insurance company paying for the repair or replacement of the insured’s damaged vehicle. 
• Coverage type: The type of insurance coverage you are agreeing to pay for, such as liability, comprehensive, and collision. 
• Coverage amounts: The amount your auto insurance company agrees to pay for accident-related expenses. 

In addition to understanding the components of an auto insurance policy and the six main types of coverage, veterans should know about other auto insurance coverage options that can offer additional protection. 

What are the different coverage options available for auto insurance?

In addition to liability, comprehensive, collision, personal injury protection, uninsured motorist, and gap insurance, veterans have a few additional coverage options that can offer them more protection. 

• Medical payments: Pays for medical expenses if you or your passengers are injured in an accident you caused. 
• Roadside assistance: Pays for emergency roadside services, including flat-tire change, tow, jump-start, and fuel delivery.
• Personal umbrella policy: Covers liability above and beyond your auto policy’s liability underlying limits.
• Car rental reimbursement coverage: Pays for a rental vehicle or other transportation while your vehicle is in the shop being repaired.
• New car replacement: Pays for a new vehicle of a similar make and model after yours is damaged in an accident. 

These optional coverages vary by the insurance company, so you want to ensure the insurance company you choose offers you the coverage options you need and want. 

Read more: How Much Is GAP Insurance?

How to choose the right coverage options for your auto insurance policy?

Since nearly all states require a minimum amount of auto insurance coverage, you’ll want to determine if and what coverage is required in your state and the coverage limit. 

You’ll also want to assess your individual needs, such as budget. If you were involved in an accident, how much could you afford to pay out of pocket? For many, purchasing collision and/or comprehensive coverage would be a good idea if you can’t cover your own property damage expenses. Just remember, the more coverage you have, the higher the premium. And you’ll also have a deductible to worry about. 

Even if you live in a state where insurance is mandatory, drivers don’t always have auto insurance, and if they do, the minimum coverage amount isn’t always enough, so you’ll want to take that into consideration.

Underinsured/uninsured motorist and personal injury protection can offer you added protection in case other drivers don’t have the coverage needed to fully cover you following an accident they caused. 

The Bottom Line: The Right Auto Insurance Protects You Financially

You never know when an accident might occur, so it is important to be prepared. Your state may dictate the minimum amount of coverage all drivers must carry, but there are other things to consider when purchasing auto insurance. Not only do the six main types of auto insurance offer veterans a lot of protection, but there are also additional insurance options that can be purchased for those who want a little extra financial protection.