What Are the Different Types of Auto Insurance

Our philosophy is to minimize your exposure to legal risks before something dire occurs. Ever heard the adage, “An ounce of prevention is worth a pound of cure”?

It’s likely you understand why you need auto insurance, but what kind of insurance should you get? How many types are there? What’s right for you? It can get overwhelming fast.

To start with, it’s a good idea to shop around to find a policy that fits you and your circumstances. Check out the insurance requirements for your state as well. It’s better to be over-insured than underinsured—but more on that later. Since Warren Allen specializes in personal injury law, we see a lot of auto insurance claims. It helps us to know that your policy is working for you.

Here are five different types of auto insurance.

  1. Personal Injury Protection

This coverage is near and dear to our hearts. You absolutely should have personal injury protection (PIP). If you’re in a traffic accident, the costs can be catastrophic (such as if there are hospital bills, property damage, and you also must fix your car).

This is what PIP covers, and you’ll really be hurting if you don’t have it when you need it. And with this coverage, not only will your medical bills be paid, but so will your passengers’ bills, no matter who is at fault for the accident.

In Oregon, PIP is available and provides payment for medical bills, lost wages, certain household expenses related to the accident, and funeral expenses. Unfortunately, PIP isn’t required or available for motorcyclists; though, if you were a pedestrian who was involved in an auto accident, you might still be able to use PIP benefits under your own or the other party’s car insurance.

Again, we’d like to emphasize that whether you were or weren’t at fault, you can still make a PIP claim under your own policy, and there will be no penalty against you. The responsible party’s insurance company will reimburse your insurance company when the time comes to tally up the costs.

  1. Liability Insurance/Third-Party Insurance

Unlike other types of policies, liability insurance pays insurance costs to third parties instead of policyholders. This means that if you’re in an auto accident and end up accruing legal fees because you were found to be liable, the insurance will cover those legal payouts and fees. For this reason, sometimes liability insurance is called third-party insurance.

Intentional damage—such as if you use your car for vandalism by running it through a store window—and criminal prosecution are not covered by liability insurance. Each state has a different minimum amount of coverage, so make sure you know what that is before you go shopping for liability insurance. It could be devastating to get into an accident and then have to pay a chunk of change because you exceeded your policy limit.

  1. Comprehensive Coverage

This is the other side of the accident coin. Let’s assume your car is already covered in case of a traffic accident, with either liability insurance or PIP or both. But what if your car goes through an accident unrelated to one of these traffic situations? If you hit a deer, if your car is damaged by weather, or if your car is stolen, you’ll be glad to have bought comprehensive coverage. If it fits in your budget, it’s worth having.

What it comes down to is how valuable your car is to your daily life. If it can be replaced easily, or if you live in a place with good public transit that can hold you over for a while, you might be able to go without this insurance. However, note that if your car has a lien on it, this coverage is required. Also, if you rely on your car, such as if you live in a rural area and have no other way to get groceries, consider purchasing comprehensive coverage.

There is also a rule of thumb here: Consumer Reports recommends that, if the annual auto insurance premiums for comprehensive and collision coverage is 10 percent or more of the book value of the car, you can consider dropping the comprehensive coverage. Under this theory, you can file an auto insurance claim on your stolen or damaged car, but you couldn’t collect more than your vehicle is worth on the market.

  1. Uninsured/Underinsured Motorist Protection

State laws dictate that each driver must be insured, but the reality is that not everyone keeps up their insurance. Maybe their insurance has lapsed and they simply forgot to replace it, or maybe the driver decided they can’t fit it into their budget anymore and they’re willing to take that risk (which gives us sweaty palms to just think about!).

Whatever the reason, if you get into an accident without insurance, you may not receive a payment, or it may be an amount too small to cover the whole cost of the bills and the fees. This type of insurance covers your costs if the driver of the other vehicle is uninsured.

If a driver is underinsured, it simply means that many states have very low minimum coverage requirements, and it may not be enough to cover those fees either. Uninsured and underinsured motorist protection can help in both cases, and it’s worth having. Usually, it’s relatively inexpensive to add this protection to your insurance policy. At the very least, it gives you better peace of mind.

  1. Collision Coverage

This coverage is simply for the repairs to your vehicle covered by the policy. Hopefully, the repairs aren’t extensive, but if the car is completely totaled, collision coverage will pay the value of your car. “Totaled” means the cost to repair your car exceeds the value of the car—in other words, it’s less expensive to just buy a new car.

You may not need this coverage. Consider your vehicle. If it’s an older car, it may not be worth the cost of covering it in your policy because you won’t get much money back even if the car is totaled. However, if your car is new or particularly expensive, this coverage will be especially useful.

The cost of a car can certainly be expensive, but hopefully, these points can help direct you to an insurance policy that takes good care of you and your car and doesn’t break the bank.