The Different Components of Car Insurance

The Different Components of Car Insurance

January 29, 2021

Whether buying car insurance for the first time or reviewing your current policy, consumers need to understand the different types of automobile insurance coverage. Auto insurance policies consist of a variety of different elements, and ultimately, the right options depend on your unique situation. To help you become a savvy consumer, here’s an overview of the essential components of car insurance.


Most states require drivers to obtain liability coverage to legally drive a vehicle. If you cause an accident, liability covers bodily injury and property damage to the other driver. For instance, if you hit a pedestrian or run into another vehicle, liability coverage is designed to cover the person’s medical bills and car repairs up to the monetary limit on your policy. Liability typically does not cover the cost of your own medical bills or repairing your vehicle.

Uninsured and Underinsured Motorists

Generally, if another driver causes an accident, their liability coverage should cover your damages, but what happens if the other driver doesn’t have insurance or their coverage is not enough to cover the costs of your damages? Coverage for underinsured and uninsured motorists is available to help cover these costs; however, this coverage is optional. Lenders in some states may require it. To help determine if you need this type of coverage, you may want to investigate the number of uninsured or underinsured drivers in your area.

Collision Coverage

When you cause an accident, collision coverage is the type of coverage that, in many cases, covers the cost of the damages. Collision coverage not only applies to vehicle accidents, but it also helps if you hit a fence, a tree, or any stationary object. Again, this coverage is optional, but most lenders require it if you obtain a car loan.


Many kinds of issues can cause damage to your vehicle that are unrelated to a collision. Comprehensive coverage offers financial protection from many kinds of damages. This type of coverage should provide coverage if, for example, the vehicle suffers hail damage, is hit by a wild animal, or is stolen, vandalized, or burned. In other words, collision helps provide financial protection from many threats related to acts of nature and crime. Like collision, comprehensive is optional, but your lender may require it.

Medical Payments Coverage

If you or your passengers are injured in a car accident, medical payments coverage can help with medical bills. Typically, this type of coverage includes a limit per person and per accident. Generally, medical payments coverage is optional, but some states require it. If you don’t have health insurance or your insurance has a high deductible, you may want to consider this type of coverage.

Personal Injury Protection

Abbreviated as “PIP,” personal injury protection also helps many people pay for medical bills after an accident. However, this type of coverage goes a step further to offer assistance with other expenses. For instance, PIP may cover childcare costs incurred for medical appointments after an accident or for the cost of wages caused by missing work. Like medical payments coverage, PIP is required in some states, but not in others.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

“Auto Insurance Basics.” Insurance Information Institute, Inc.

Content Provder: WriterAccess

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