The three main types of car insurance are liability, collision, and comprehensive, each of which can be used to cover different types of injuries and damages. Liability insurance exists to pay for any damage or injuries that the policyholder causes. Different limits typically apply to property damage and bodily damage, and many areas legally require all drivers to have this type of car insurance. Collision and comprehensive insurance both cover damage to the policyholder's own vehicle, so they are often optional. If a vehicle is on a lease or was purchased with a loan, there may be a stipulation that comprehensive insurance must be obtained.
Liability car insurance is important because it can protect the policyholder's personal assets. Property damage liability insurance covers any damage that is done to another vehicle, but can also pay for virtually anything else that can be hit or ran over. If a vehicle is driven into a fence or the side of a building, property damage liability insurance can be used to pay for it. In this same way, bodily injury liability insurance can pay for the medical bills or other costs associated with injuring a person with a vehicle. A car insurance policy typically has various limits associated with these coverages, and the monthly premium can be more expensive for larger amounts.
In addition to property damage and bodily injury insurance, some areas require uninsured motorist coverage. This type of insurance can cover the policyholder if he is hit by someone that does not have insurance. There are usually limits on how much these policies will pay out, just like regular liability insurance.
The other types of car insurance are used to repair the policyholder's own vehicle. Collision insurance can typically only be used when a car hits something or is struck by another vehicle, though it can pay for a wide range of different repairs. Comprehensive can be used for virtually any other type of damage, including theft, vandalism, and natural causes. If a tree falls on a vehicle or a hailstorm damages the paint or glass, comprehensive insurance can pay for it. These types of car insurance have deductibles, which is the amount of money that the policyholder needs to pay out of pocket when repairs are performed.
Most areas do not require collision or comprehensive insurance, though lease companies and lenders often do. If a leased vehicle is totaled, the lessee can be financially responsible for the replacement cost of the vehicle. In the same way, a lender can demand a loan be paid back if the vehicle that was purchased with it is totaled. Owners of older vehicles often forgo both of these types of insurance if the monthly premiums are too large in comparison to the replacement cost of the vehicle.
