When we talk about car insurance, we typically refer to it as if it’s a single product. In a general sense, that’s true. But more specifically, car insurance is something of an umbrella policy that can have as many as a dozen different sub-policies in certain cases.

To show you all the moving parts of a car insurance policy – and to help you be a better, more informed consumer – let’s break down the many different components of that insurance product we simply refer to as “car insurance”.

State Minimum Car Insurance Requirements

Before we get into the many types of car insurance, you should know the minimum legal insurance requirements in your state before shopping for a policy. Coverage requirements can vary substantially from one state to the next, and while some types of coverage may be required in your state, others may not.

Every state in the US requires drivers to have car insurance. The only exception is New Hampshire, but even in the Granite State you’ll be required to have coverage if you have a loan on your car.

Like virtually every other industry, the car insurance industry has its own “language”. State minimum coverage requirements are usually expressed as three numbers. That will look something like 25/50/25.

Each of those numbers represent coverage in thousands. For example, it would be more accurate to show it as $25,000/$50,000/$25,000. But the XX/XX/XX seems to be some sort of commonly accepted industry shorthand.

The three numbers represent the minimum required coverage for the following parts of your car insurance policy:

  • Bodily injury liability maximum for one person injured in an accident
  • Bodily injury liability maximum for all injuries in one accident
  • Property damage liability maximum for one accident

Please keep in mind when shopping for car insurance that the state minimum requirements are just that, minimums. They may represent an acceptable level of insurance for a young driver with no assets, looking for lowest possible premium. But if you’re older than 25, and you have significant assets – like a house and savings – you’ll need higher coverage.

That’s because one of the primary reasons for car insurance is to protect your assets if you’re in an accident that’s your fault. The higher coverage amounts will do that.

Let’s move on to the many types of car insurance.

The Big Three: Liability, Collision and Comprehensive

These are the policy types most consumers are most familiar with. But they may not always be aware of exactly what each does.


Liability is the core coverage in every car insurance policy. It will pay a claim if you’re involved in an accident where you’re determined to be at fault. That can include personal injury to the occupants of the other vehicle, as well as damage to their car.

It essentially represents the 25/50/25 (or similar) equation outlined above, providing for bodily injury liability and property damage liability.

It’s important to remember this part of your coverage will pay the other party, not you. But if the situation is reversed, where you’re in an accident that’s the other party’s fault, their liability coverage will pay you.


Collision covers the cost of repairs for damage to your vehicle whether you or the other party are determined to be at fault. It does not pay for damage sustained by the other driver, but that’s what liability is for.

Collision may not be required by your state, but it will be required by your lender if you have a loan on the vehicle. The lender will want to make certain that your car will be fully repaired if you’re in an accident, to protect the value of their collateral.

You may not need collision if you don’t have a loan on your vehicle, or if the car is old and of little value. For example, if your car is worth less than $2,000, the cost of the collision coverage may exceed the benefit of the provision if your car is totaled.

Read more: Comprehensive vs Collision: What You Need to Know


Comprehensive is probably more mysterious than collision because the word “comprehensive” isn’t especially descriptive. It works similar to collision, except that while collision covers damage to your vehicle while it’s moving, comprehensive covers damage that happens when the car is parked.

For example, comprehensive will pay if your car has been stolen. It will also cover damage to your vehicle from natural disasters, like hurricanes and earthquakes. It’ll even pay if a tree limb breaks off and falls on your car, crushing the roof.

Think of it as collision = movement, comprehensive = parked.

Other Car Insurance Coverages

There’s a long list of other car insurance types in this group, and you’re probably not familiar with most of them. Some will be state minimum requirements, while others fall in the “nice to have” category. Here are the primary ones:

Uninsured Motorist Coverage

This is the coverage type in which the car insurance company will pay your medical expenses if either you or passengers in your vehicle are injured in an accident caused by a person who doesn’t have car insurance. It will also pay for repairs for damages sustained by your vehicle.

Even though it’s illegal to drive without car insurance in most states, it’s not exactly uncommon. If you have the misfortune to be in an accident caused by someone without insurance, you’ll be really glad you have this provision in your policy.

Uninsured motorist coverage has two parts:

  • Uninsured motorist bodily injury coverage: Covers you and your passengers for medical expenses, lost wages and pain and suffering that are the result of an accident with an uninsured driver. It also covers injuries from a hit-and-run collision.
  • Uninsured motorist property damage coverage: Covers damage your car as a result of an accident caused by an uninsured driver.

Uninsured motorist coverage is required in most states. Even though it will increase your premium, it’s coverage is well worth having.

Under-insured Motorist Coverage

Remember we talked about state car insurance minimum requirements? Let’s say you get into an accident with someone who has the minimum coverage required by law. It might meet state law, but it may not be sufficient to fully cover an accident caused by that driver.

For example, the third number in that 25/50/25 liability requirement is property damage liability maximum for one accident. That means the driver has $25,000 to cover damage to your vehicle if he is at fault in the accident.

But you just bought a brand-new car for $50,000, and the accident caused by the driver totaled your vehicle. The at-fault driver’s policy will only cover $25,000. The remaining balance will be covered by your own under-insured motorist coverage.

Like uninsured motorist coverage, under-insured motorist coverage is well worth having, even if it isn’t required by state law.

Personal Injury Protection (PIP)

This is commonly referred to as “no-fault” coverage. It pays for bodily injury claims in accidents where fault can’t be determined. It not only pays for medical expenses (not covered by health insurance) sustained in the accident, but also covers lost income, childcare, and payment for funeral arrangements.

PIP isn’t required in most states, but it’s an excellent provision to have. It’ll come in handy if you’re involved in an accident where the only “evidence” is he said/she said. It’s also an excellent provision if you don’t have health insurance at all.

Personal Umbrella Policy (PUP)

Remember how I said you should have more than the state mandated minimum coverage if you have substantial assets? Most conventional car insurance policies limit liability coverage to no more than $300,000. If you’re worth more than that, you may want to add a PUP provision to your policy.

It can add $1 million or more in additional protection in case you’re hit with a lawsuit from an accident where you’re determined to be at fault.

Guaranteed Auto Protection (GAP)

Do you know how many auto loans are available for 100% or more of the value of the vehicle you’re buying? If you have that kind of financing arrangement, you’re almost certainly what’s known as upside down on your car. That’s a car industry term that describes a person who owes more on their vehicle than the vehicle is worth.

If that describes you, you’ll need GAP coverage.

Let’s say you purchase a car for $30,000 with 100% financing. As soon as you drive the car off the lot it’s worth maybe $27,000. But a block away from the dealership you’re hit hard by a pickup truck driving 30 miles over the limit. Your car is totaled.

Car insurance will only cover up to the value of the vehicle – $27,000. But since you still owe $30,000 to the lender, you’ll need to come up with $3,000 out-of-pocket to satisfy the loan.

But if you have GAP coverage, the shortfall will be covered by the insurance company.

GAP isn’t a standard provision, but highly recommended for anyone who’s even close to being upside down on their vehicle.

Rental Reimbursement

This is a car insurance provision that will provide reimbursement for a rental vehicle while your car is being repaired as part of an insurance claim.

They typically have limits, such as $30 per day, and may even require you to rent from a specific car rental company. But it’s excellent coverage to have since repairs from major accidents can take weeks.

Which Type of Car Insurance Do You Need?

Not all the policy types listed above will be required by your state, but they’re still good to have. Even though each will raise the premium on your policy, it’ll seem like a small price to pay if you encounter any of the covered events.

Always remember that the entire purpose of car insurance is to protect from the unexpected.

The more policy provisions you have – and the higher the dollar amount of the coverage – the better you’ll be protected. That’s a lot more important than simply getting the lowest car insurance premium. (For more information, read our “Do You Need Car Insurance In The United States?”)