Car insurance does not have to be confusing. You need to know what the minimum requirements are in your state, but the good news is that most states have similar requirements. Understanding the basic types of car insurance coverage will help you get the most for your insurance dollar without purchasing insurance that is redundant or unnecessary.
PIP and No-Fault Insurance
Personal Injury Protection, also called No-Fault insurance, is used to provide medical care to you and your passengers if they are injured in an accident. It will also cover other expenses related to injuries. No-Fault insurance is the default type of car insurance required in 16 states and may be purchased as PIP coverage in the rest. One advantage of No-Fault coverage is that your coverage will pay for medical costs right away, and the insurance companies will negotiate fault related responsibility later.
Bodily Injury Liability
Bodily Injury Liability is the coverage that pays for injuries you cause to other people in an accident. This type of coverage is shown on your insurance card as the amount that will be paid for a single person in an accident and the amount that the insurance will pay for all injuries in a single accident. Typically, this may be represented as $20,000/$100,000. No matter what state you are insured in, Bodily Injury Protection will be part of the required minimum coverage.
Property Damage Liability
Property Damage Liability is the coverage that will pay for repairs to other people’s vehicles or property if you damage it with your car. It is property coverage, not car coverage, and can be used for such things as a damaged mailbox, repairing a section of fence, or even replacing a television that was in the person’s car when you hit it. Property Damage Liability is expressed with two numbers the way that Bodily Injury is, such as $5,000/$50,000.
Collision coverage will pay for repairs to your vehicle if you are at fault in an accident. It functions much the same as Property Damage Liability except that Collision insurance is used for your own property instead of someone else’s. This type of car insurance is optional and can be left off your policy if it is unnecessary, such as a car that has a low market value and would be totaled out at or near the same threshold as your deductible.
Comprehensive insurance is optional in most circumstances, and will pay for such things as your car being burglarized or vandalized. If you are financing the vehicle through a dealership, you may be required to carry Comprehensive coverage to protect the finance company’s investment until the car is paid off. Otherwise, damages that would be covered under Comprehensive coverage would be your personal responsibility and must be paid out of pocket.
Insurance Information Institute: Auto Insurance basics
Center for Risk Management Insurance Research: Private Passenger Automobile Insurance