Types of Insurance

If you are not an insurance professional the nomenclature of insurance may leave your head spinning. So, here is a brief description of the various common types of
auto insurance and what they actually do. And there are additional specialized types of insurance beyond what is shown here.

1. Liability Insurance - This is the big one and it has two types:

    Bodily injury liability (BIL) covers injuries to other people (but not you) after an accident where you are responsible.

    Property damage liability (PDL) covers damage you cause to other vehicles and property like houses, fences, etc.

After an accident your insurance will pay for damage and injury you caused up to the limits of your policy.  This point is important.  The liability insurance required by state law is a minimum.  In today's "sue me sue you" culture you would be well advised to get more than the minimum coverage.

2. Collision Coverage - This does just what it sounds like, it covers damage to your car after an accident even if it was your fault. With collision coverage there is usually a deductible, which is what you have to pay out of pocket before the insurance starts paying.  As a general rule the higher the deductible the lower your premiums will be. Although not required by law, if you lease your car or financed its purchase the lessor or bank will usually require it.

3. Comprehensive Coverage - Covers damage not caused by a collision.  This could be anything else like theft, vandalism, weather damage or natural disasters.     Frequently comprehensive coverage is paired with collision coverage in what is called a full coverage policy.  And again, a newer car that is leased or financed will likely be required to have this coverage by the lessor or lender.

4. Uninsured/Underinsured Motorist Coverage - Also just what it sounds like. This covers damage from an accident caused by a driver who has either no insurance at all or not enough insurance to fully pay for whatever damage they caused. Over 20 states require this insurance but, it is a good idea to get it even if your state doesn't require it.

5. Personal Injury Protection - Also known by its abbreviation PIP, this insurance covers your injuries, and possibly lost wages, pain and suffering and even funeral     expenses, regardless of who was at fault in the accident.  It is also known as no-fault insurance and is required by a number of states.

6. Medical Payments Coverage - Another type of coverage that pays for your injuries after an accident.  Unlike PIP this is usually optional coverage and has lower limits.     However, unlike health insurance there are no deductibles.  While only required by a couple of states this is not a bad option if you have doubts about whether your     health insurance will cover accident injuries, or if you don't have health insurance.

7. Rental Car Reimbursement - This pays for the cost of a rental car if your vehicle has to be taken out of service for repairs after an accident. From personal experience     I can tell you that if you only have one car you should have this coverage or you could be hit with a big bill if your own car is out of action more than a few days.

8. Roadside Assistance Coverage - While many people are already covered for roadside assistance through AAA or similar programs, if you do not belong to a roadside     assistance program adding it to your auto insurance is an inexpensive way to get this protection.

9. Gap Insurance - You usually see this with a newer car that is leased or financed. If your car is totaled the insurance will normally only pay the actual cash value of the     car, which is the current value after depreciation. This will often not cover what you still owe on your lease or loan. Gap insurance will pay the difference because who    wants to make payments on a car that's been totaled.