Auto insurance helps you pay expenses that arise from an accident. Depending on your policy, it may also cover damage caused by forces of nature like hailstorms, hurricanes, and falling trees. Without insurance, there's a high probability that you wouldn't be able to pay for the damages caused to cars or people.

In most cases, auto insurance is mandated by law. But it's not enough to just get the minimum coverage required (find out Why You Need More than the Statutory Minimum When You Buy Auto Insurance). Understanding the following five types of coverage will help you figure out just what you need.

1. Uninsured/Underinsured Motorist Protection

Uninsured/underinsured motorist protection is very important. Although most states require drivers to buy car insurance, some people still drive around without it (something that contributes to the Highest Auto Insurance Rates) or only purchase the bare minimum, which is often not enough.

Uninsured/underinsured motorist coverage protects against the risk of getting into an accident with a driver who doesn't have insurance, whose insurance is minimal, or who does a hit-and-run. However, it only applies when the other driver is at fault and may cover medical expenses, property damage, lost wages, and even the expense of a rental car until your vehicle has been fully repaired (see 5 Rental Car Insurance Tips Worth Knowing for related advice).

2. Liability Insurance

When you cause an accident, liability insurance either pays for expenses related to damages done to the other driver and any passengers (bodily injury liability) or damage to another party's property (property damage liability).

Keep in mind that when you drive someone else's car or lend your own, it can greatly complicate insurance claims. Moreover, liability insurance may follow the car or the person, depending on the specifics of each policy. In any case, the only way to avoid buying liability insurance for your car is by proving that you have sufficient financial resources to cover the minimal requirements of the state your car is registered in.

3. Collision Coverage

Collision coverage offers protection against crashes with a stationary object or another vehicle. It covers the cost of repairs or replacement to your car. However, if the cost of repairs is higher than the value of your car, then the insurance coverage will only pay the value of the car. If you have an old car that's worth very little, collision coverage may not be worthwhile. Over the years, you can easily pay more in additional premiums than the car is worth. This is because you can only be reimbursed the actual cash value of the car, not its original buying price.

4. Comprehensive Coverage

Comprehensive coverage covers various types of damage to your car that result from perils other than a collision. This may include natural disasters like tornado and earthquake, theft, vandalism, fire, falling objects, civil disturbances like a riot, and damage from animals. Verify what exactly a policy covers before purchasing it.

Purchasing comprehensive coverage makes more sense for newer and higher-value cars, especially if you are still making payments on yours.

5. Personal Injury

Personal injury protection (PIP) is a no-fault policy, meaning that it may pay out benefits regardless of who is at fault. It may cover as much as 80 percent of medical and other expenses, such as lost wages, rehabilitation, and funeral costs, as a result of a covered accident for you and your passengers. Because it may cover other costs beyond medical treatment, it differs from medical payments coverage.

PIP also applies in case you incur injuries as a passenger in someone else's car or as a pedestrian.


Since you likely have to purchase auto insurance where you live, keep in mind that the legal requirements are likely not sufficient. Protect yourself and your car against the risks you deem worth insuring and enjoy peace of mind while on the road.