The four types of car insurance, and what each one covers

Most states require you to carry at least two types of car insurance: liability and uninsured motorist coverage. Beyond those legal minimums, you can add collision and comprehensive coverage to protect your own vehicle. Which combination you need depends on whether you own your car outright, whether you have a loan or lease, and how much damage you could afford to pay out of pocket.

If you financed or leased your car, your lender or leasing company will require you to carry collision and comprehensive coverage as a condition of the loan or lease agreement. If you own the car outright, those two are optional — but the risk of paying thousands in repairs falls entirely on you if you skip them.

Key Takeaways

  • Liability coverage pays for damage or injuries you cause to other people and their property, and is required by law in every state.
  • Uninsured motorist coverage protects you if you are hit by a driver who has no insurance, and is required in most states.
  • Collision coverage pays to repair or replace your car after an accident, regardless of who was at fault.
  • Comprehensive coverage pays for damage to your car from theft, weather, vandalism, or other events that are not collisions.
  • If you have a car loan or lease, your lender will require you to carry collision and comprehensive coverage.

Liability coverage: what the law requires

Liability coverage pays for injuries and property damage you cause to other people when you are at fault in an accident. This includes medical bills, lost wages, pain and suffering, and damage to their vehicle or other property. Every state except New Hampshire requires you to carry liability insurance before you can legally drive.

States set minimum liability limits, but those minimums are often too low to protect your personal assets. For example, your state's minimum might be $25,000 per person and $50,000 per accident for bodily injury, and $25,000 for property damage — written as 25/50/25. If you cause an accident that injures three people and their medical bills total $100,000, your $25,000 per-person limit covers only one person fully. The other two injured parties can sue you personally for the remaining $75,000.

Most insurance agents recommend carrying limits of at least 100/300/100 or higher, depending on your assets and income. The cost difference between a state minimum and a higher limit is usually $10 to $30 per month, but the protection is substantially greater.

Uninsured motorist coverage: protection against drivers without insurance

Uninsured motorist coverage (sometimes called UM coverage) pays your medical bills and lost wages if you are hit by a driver who has no insurance. It also covers hit-and-run accidents where you cannot identify the other driver. This coverage is required in most states, though a few allow you to decline it in writing.

Uninsured motorist coverage comes in two parts: bodily injury coverage, which pays your medical expenses, and property damage coverage, which pays to repair your car. Some states require both; others require only the bodily injury portion. Your uninsured motorist limits should typically match your liability limits — if you carry 100/300/100 liability, you should carry 100/300 uninsured motorist coverage.

About 13% of drivers nationwide carry no insurance, though this percentage varies significantly by state and region. In some areas, the rate is as high as 25%, making uninsured motorist coverage a practical necessity rather than an optional add-on.

Collision coverage: paying for accidents you cause or that are your fault

Collision coverage pays to repair or replace your car after any accident, regardless of who caused it. If you hit another car, a telephone pole, a guardrail, or roll your vehicle, collision coverage covers the damage to your own car. You pay a deductible — typically $500 or $1,000 — and your insurance pays the rest.

Collision coverage is optional if you own your car outright, but required if you have a loan or lease. The cost varies based on your car's age and value, your driving record, and your deductible choice. A newer car with a $500 deductible might cost $80 to $150 per month for collision coverage, while an older car with a $1,000 deductible might cost $20 to $40 per month.

To decide whether collision coverage makes financial sense, compare the monthly cost against your car's current value. If your car is worth $5,000 and collision coverage costs $100 per month, you would break even in 50 months (about four years) if you had one accident. If your car is worth $2,000, the math tilts toward skipping collision coverage and self-insuring — meaning you would pay out of pocket if an accident happens.

Comprehensive coverage: protection from theft, weather, and vandalism

Comprehensive coverage pays for damage to your car from events other than collisions: theft, vandalism, weather (hail, flooding, wind), animal strikes, and falling objects. If a tree branch falls on your car during a storm, or your car is stolen from a parking lot, comprehensive coverage pays for the damage or replacement, minus your deductible.

Like collision coverage, comprehensive is optional if you own your car outright but required if you have a loan or lease. Comprehensive coverage is usually cheaper than collision coverage — often $30 to $80 per month depending on your car's value and your deductible. The cost is lower because comprehensive claims happen less frequently than collision claims.

Comprehensive coverage does not cover damage from accidents, wear and tear, or mechanical failure. It also does not cover theft of items inside your car — that would fall under a separate coverage called coverage for loss of use or personal property coverage, which varies by insurer and state.

How to choose the right combination for your situation

Start by checking your state's minimum requirements for liability and uninsured motorist coverage. You can find this information on your state's insurance commissioner website or by calling your state's department of insurance.

If you have a car loan or lease, your lender's contract will specify the minimum collision and comprehensive coverage you must carry. This is usually stated as a deductible amount — for example, "comprehensive and collision coverage with deductibles not to exceed $1,000." You can choose a lower deductible (like $500) if you want more protection, but you cannot choose a higher one.

If you own your car outright, the decision about collision and comprehensive coverage depends on three factors: your car's current value, how much you could afford to pay out of pocket for repairs, and your comfort level with risk. A general rule is to drop collision and comprehensive coverage when your car's value falls below $5,000 to $7,000, though this varies based on your personal finances.

Common mistakes when choosing coverage

One frequent mistake is choosing liability limits that match your state's minimum without considering your actual assets. If you own a home, have savings, or earn a steady income, a lawsuit from a serious accident could result in wage garnishment or a lien against your home. Carrying higher liability limits is inexpensive insurance against that risk.

Another mistake is declining uninsured motorist coverage to save money. The savings are usually $10 to $20 per month, but if you are hit by an uninsured driver and suffer serious injuries, you have no way to recover those costs. Your own health insurance may not cover all expenses, and you cannot sue the other driver if they have no assets.

A third mistake is choosing a deductible you cannot actually afford to pay. If you choose a $1,000 deductible to lower your premium but do not have $1,000 in savings, you will be unable to get your car repaired after an accident. A $500 deductible costs more per month but is more realistic for most households.

Frequently Asked Questions

Do I need uninsured motorist coverage if I already have health insurance?

Yes. Your health insurance covers medical bills, but uninsured motorist coverage also covers lost wages and pain and suffering, which health insurance does not. Additionally, if you are hit in a way that damages your car, uninsured motorist property damage coverage pays for repairs — your health insurance covers nothing for vehicle damage.

What happens if I get in an accident and I only have liability coverage?

Liability coverage pays for damage you cause to the other person's car and injuries to the other person. It does not pay for damage to your own vehicle. If you caused the accident, you would have to pay out of pocket for your own repairs, or your own health insurance would cover your medical bills (though it would not cover your car).

Can I lower my insurance costs by choosing higher deductibles?

Yes. Choosing a $1,000 deductible instead of $500 typically lowers your monthly premium by $15 to $30 for collision and comprehensive coverage combined. However, you must be able to afford that deductible if an accident happens. If you cannot pay $1,000 out of pocket, a higher deductible creates a false sense of savings.

Is there a difference between uninsured motorist coverage and underinsured motorist coverage?

Yes. Uninsured motorist coverage applies when the other driver has no insurance at all. Underinsured motorist coverage applies when the other driver has insurance but their limits are too low to cover your injuries. Some states require underinsured motorist coverage; others make it optional. Ask your insurer whether your policy includes it.

Do I need collision coverage if I have a newer car?

If you financed or leased the car, yes — your lender requires it. If you own it outright, collision coverage is optional but recommended for newer cars because repair costs are high. As your car ages and its value drops, the cost-benefit calculation shifts, and you may eventually decide to drop collision coverage.