11 Most Common Types of Car Insurance: Which Coverage Do You Actually Need?

Car insurance is a mandatory expense that every driver needs to have, but not all policies are created equal. While certain types of car insurance, like liability or uninsured/underinsured motorist coverage, are mandatory in many states, there's a handful of optional coverage options that you can add to your policy.

Investing in car insurance outside the bare minimum can save you from huge expenses down the line. It’ll provide peace of mind, and if an accident does occur, your auto insurance company can help you manage the process.

But as car insurance premiums continue to rise — rates rose 12% on average over the last year, according to Bankrate — many drivers are reevaluating their current policies. To strike the right balance between budget and coverage, it's important to think about what kind of car insurance you really need and what coverage you're comfortable skipping. Here's what you need to know about the different types of car insurance to make those choices.

If you already know what you need or want to get a better idea of how much each type will cost you, use our tool, in partnership with Bankrate, to compare car insurance rates from top carriers:

1. Liability insurance

If you cause a car accident, liability coverage covers the cost of any damages and injuries to the other driver. In most states, apart from New Hampshire and Virginia, liability insurance is mandatory. There are two types of liability insurance: bodily injury liability and property damage liability.

Bodily injury liability: In the event that you cause a car accident, bodily injury liability insurance is used to cover the other party’s medical expenses.

Property damage liability: If you are at fault in an accident, property damage liability insurance will cover repair costs to the other party’s property, such as their car, fence, or mailbox.

2. Uninsured/underinsured motorist coverage

In some states, uninsured and/or underinsured motorist coverage is also mandatory. This type of insurance covers any expenses that arise in an accident where the other driver is at fault, but doesn't have insurance or doesn't have a policy with enough coverage to pay for all of the expenses.

There are four different types of coverage in this category that could be required:

• Uninsured bodily injury: This covers your medical expenses if you are in an accident and the at-fault driver has no bodily liability insurance.
• Underinsured bodily injury: This covers your medical expenses if you are involved in an accident and the at-fault driver’s insurance has insufficient liability limits to cover everything.
• Uninsured motorist property damage: This type of insurance pays for any repairs needed if you are in an accident and the at-fault driver is uninsured.
• Underinsured motorist property damage: If an at-fault driver’s property damage liability insurance is not enough to cover repair costs to your vehicle, this type of insurance will cover the difference.

3. Collision insurance

Regardless of who is at fault in an accident, collision coverage will pay for any damages to your vehicle. It will also cover any damages to your vehicle if you get into a single-car accident, or collide with an object. This coverage is optional in all states, but if you lease or still owe money on your loan, the lender or leaseholder might require you to include it.

Say you're in an accident and your insurer determines that you're at fault. With liability coverage alone, the insurer would only pay for the damages to the other driver's car. You'd be on the hook for repairing your own car. The same is true in cases where there are no other drivers, such as your car skidding off the road or crashing into a fence.

Keep in mind that collision insurance covers up to the actual cash value of your vehicle and carries a deductible. This is the amount you'll pay before insurance pays the rest of the claim. It also only covers your car, not any medical bills you may incur for injuries.

While this is good coverage to have in most cases, you may be able to skip it in some scenarios. Namely, if your car is older or has a lot of mileage on it, the current cash value may not be very high.

In that case, after minor accidents, the repairs might not be expensive enough to exceed your deductible. In major accidents, the actual cash value might not be nearly enough to even cover a decent down payment on a new car. Instead of collision insurance, stashing the extra money you'd pay in premiums for the added coverage into a savings account to buy a new car might be a better use of the cash.

4. Comprehensive insurance

Comprehensive insurance covers your vehicle if it is stolen or if it's damaged by anything other than a car accident, such as vandalism, hail, or flooding. Like collision insurance, this is optional but your lender or leaseholder might require it while you're still making payments on the car.

Also like collision insurance, comprehensive coverage is usually limited to the current cash value of your car and comes with a deductible.

This is really good coverage to have if you live in an area that's prone to natural disasters or has a higher rate of car theft, especially if you don't have a garage. But check the estimated cash value of your car regularly to make sure the payout you'd receive if your car were seriously damaged is still worth it.

5. Personal injury protection

Personal injury protection is required by law in 16 states,* though some have opt-out options. Personal injury protection (PIP) helps cover any medical bills for you and your passengers in the case of an accident, regardless of who was at fault. This can include any deductibles and copays that you would normally have to pay out of pocket with your existing health insurance.

Just as collision coverage pays for your car repairs when you're at fault or when there are no other drivers involved in the accident, PIP will cover medical bills related to any injuries you sustained in those same situations. This even includes accidents where you weren't driving or weren't even in a car. Some insurers will also include other indirect expenses resulting from your injuries like lost wages and supportive services you might need like child care or house cleaning services.

While you may be able to forego collision coverage if you're driving in an older or well-worn car, PIP insurance is good to have no matter what car you drive or how often. Even if you have health insurance, it generally won't cover things like lost wages or supportive services. It also won't cover other passengers in your car.

With that said, if you don't often drive with passengers, or only with your spouse or family members who are already covered by your health insurance, you might be able to skip PIP. Moreover, if you're already retired, you may not really need the extra coverage for lost wages or services.

Just compare the cost of your health insurance's deductibles and copays to the additional premium you would pay to include PIP in your car insurance. If the savings from skipping PIP to lower your premium are substantial enough, it might make more sense to just pay those out-of-pocket health insurance costs in the event of an accident.

*States where PIP coverage is required: Arkansas, Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania, Texas, and Utah.

6. Medical payments coverage

Medical payments (MedPay) coverage is like personal injury protection, but more limited. It's mandatory in Maine and New Hampshire. In Pennsylvania, you can choose MedPay as an alternative to PIP insurance, but you need to have one or the other.

Essentially, MedPay covers your medical bills in the same situations that PIP insurance would. However, it doesn't cover other expenses like childcare or lost wages.

If you live in a state where PIP insurance is available, it's usually a better value than MedPay. But if PIP isn't an option, MedPay can still save you money on medical bills.

7. Gap insurance

If you're in the market for a new car this year or you recently bought one, gap insurance is a lesser known but important type of coverage to add. If your car is stolen or totaled in an accident while you're still making payments, the insurer's payout may not be enough to cover the remaining balance of your auto loan.

Gap insurance covers that difference. That way, you're not stuck making car payments on a car you no longer have.

If you’re leasing or financing a car, you might be required to carry gap insurance. But even if your lender doesn't require it, it's great to have while you're making payments. Then, once you've paid off your car, you can drop gap insurance to lower your premium.

8. New car replacement coverage

Even if you opt for extra coverage like collision or comprehensive car insurance, these typically only pay up to the current cash value of your car. In most cases, that cash value won't be enough to pay for a brand new car.

That's where new car replacement coverage comes in. With this coverage, your insurer won't just write your a check if your car is totaled or stolen. It will buy you a replacement car of the same make and model.

Typically, this optional coverage is only offered for newer cars and not all insurers will offer it. So make sure you understand the eligibility criteria before adding it. Once your car is too old to be eligible, make sure you remove it from your policy so you're not paying for coverage you wouldn't be able to use.

9. Rental reimbursement

While you're waiting for your car to be repaired after an accident, you might find yourself in need of using a rental car to get around. Standard car insurance won't help you there.

With rental reimbursement coverage, your insurer will cover the cost of the rental car until you get your own car back.

But be sure to read the fine print. This coverage usually only kicks in if your car was damaged in a covered incident. You'll also typically have either a daily price limit, an overall price limit, and/or a set number of days your insurer will cover. For example, if your insurer has a daily limit of $40, but your car rental costs $50 per day, you'd be on the hook for that extra $10.

If you only have the one car, rental reimbursement coverage can definitely be worth it. However, if you have more than one car or a family member at home who can drive you where you need to go while your car is in the shop, it may be better to skip this coverage to save on your car insurance.

10. Classic car insurance

Standard car insurance relies on the actual cash value of a car, which depreciates over time. But antique or classic cars tend to defy that normal depreciation rate. A 1969 Chevy Camaro is worth far more than a Toyota Corolla from the same year. Classic cars also aren't necessarily as easy to replace or as affordable to repair as other cars.

With classic car insurance, you can ensure that your prized car is covered up to its true value. Typically, you'll work with your insurer to set an agreed value for your car based on its rarity, condition, and other details. You can also add in coverage for original parts, otherwise your insurer may only cover the cheaper, aftermarket or non-original parts.

If you have a classic or high-value car, this extra protection is essential for ensuring you can get the full value of your car and cover the higher cost of repairs.

11. Ride-share coverage

Drivers who earn extra cash by driving for a ride-share service like Uber or Lyft should add ride-share coverage to their car insurance policy. While ride-share companies do provide basic insurance for their drivers, it typically only kicks in when you're either picking up a passenger or driving with your passenger in the car.

During those times in between when you're logged into the app, but haven't accepted any trip requests yet, you enter insurance limbo.

According to the commercial insurance provided by the ride-sharing company, you're not actively working so any damage or accident isn't covered. But according to your personal insurance which doesn't cover "business use" of your vehicle, you're still logged into the app, which means you're on the clock and therefore any damage or accident isn't covered.

Adding ride-share coverage to your personal car insurance covers that gap. Essentially, it's an agreement from your insurer to cover any business use of your car that isn't covered by the commercial insurance policy the ride-share company offers.

The bottom line

Once you understand the different types of car insurance, you can begin shopping around for a policy that fits your needs without paying for add-ons that you have no use for.

First, make sure to get quotes from various car insurance companies in order to score the lowest rates possible for the coverage you need. You can compare rates at Insurance.com or InsuranceQuotes.com.

Also, check out our articles, Six Steps to Get Lower Car Insurance Rates and 12 Ways to Lower Your Auto-Insurance Premiums to learn more about how you can save, whether it's by taking advantage of available discounts, working with an agent, or bundling policies.

Another thing to note: While shopping for the lowest rates, make sure you're not underinsured. You don't want to be stuck with inadequate coverage in the event of an accident — you could end up paying way more than that slight increase on your premium.

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