Car insurance plans: What type of car insurance policy is right for me?

Car insurance plans: What type of car insurance policy is right for me?

Whether you just purchased your first car or have been driving for years, finding car insurance coverage can be tricky and overwhelming — believe us, we get it. To start, there is an abundance of insurance providers in the market and the policies and add-on options available within each can be vastly different. Furthermore, the type of coverage available to you can depend on your personal circumstances like vehicle type, your personal driving record, what is required by your state laws, and even what your financial goals are. To ease the process and help you feel confident you have the car insurance policy that’s right for you, here is our guide to understanding the most common types of policies available.

What is car insurance and why do you need it?

Car insurance protects you and your vehicle. It is a binding contract, called a policy, between you and an insurance company, or provider, through which the provider protects you against financial loss in the event of a car accident, car theft, etc. In exchange for paying a monthly premium, the insurance provider agrees to cover the losses up to the coverage limits agreed upon in your policy.

Even if you consider yourself an overall safe driver, all it takes is just one mistake on the road for you to cause an accident. Not to mention, accidents can be completely out of your control when caused by other drivers. So, no matter who is to blame, car insurance gives you the extra layer of protection should you ever face financial loss resulting from the accident you weren’t expecting or planning for.

How car insurance works

Before entering into a contract with an insurance provider, you’ll need to agree on a policy that insures you and your car with a specified amount of coverage in case you are involved in an accident. Depending on where you live, you will likely need a policy covering the bodily injury, property damage, and liability aspects of insurance.

Once you have a policy in place, if you are a part of a car accident or your car is somehow damaged, you will need to file an insurance claim through your policy. This claim will be made to cover qualifying damages that have occurred and the amount of claimable coverage available depends on your policy type.

Is car insurance required?

Simply put, yes, auto insurance is mandatory in almost every state in the US. Not having insurance, on the other hand, means a driver is uninsured. Since car accidents can impose vast costs, whether from physical damage or medical expenses, every driver is required to have a minimum level of coverage. One exception is New Hampshire. In New Hampshire, while coverage is optional drivers must show they are financially secure enough to cover damages in the event of an accident.

Furthermore, the required levels of liability coverage can also vary between states. Liability coverage protects you as the insured driver and pays damages to other drivers when you’re deemed to be at-fault for an accident. For example, in 2022 Florida has lower limits personal injury protection, or PIP, and property damage liability, or PDL, of around 10/10, meaning $10,000 per person per accident, for liability insurance. Other states require varying levels with an average of 25/50, meaning $25,000/$50,000 per person, per accident.

While for the most part, yes, car insurance is required, states have varying  levels of minimum coverage necessary for drivers. So, we highly suggest always checking with your insurance provider to understand the requirements in your state. And, have you ever heard the saying “more is better?” Well, that sure is applicable when it comes to car insurance too — experts suggest a coverage level of around 100/300, or $100,000/$300,000 per person/per accident.

What are the most common insurance plans?

Insurance providers each offer unique coverage limits, plans, and add-ons, and finding a policy that best suits your individual needs is crucial. To help you get started on your journey to discovering the right car insurance for you, here are the most widely sought after and common insurance plans available in the market:

• Comprehensive physical damage coverage: This coverage covers you against any non-collision-based vehicle damage caused by storms, flooding, vandalism, animal impacts, or other natural disasters or events.

• Collision coverage: Collision coverage covers damage to your insured vehicle in the event you have hit another car or objects on the road, not including wildlife.

• Property damage liability coverage: This coverage can help pay for any damage done to someone else’s property where you are deemed at-fault for.

• Uninsured/underinsured motorist coverage: This type of coverage can help you if you’ve been involved in an accident with an uninsured or underinsured driver. Learn more about uninsured motorist coverage.

• Medical payments coverage: This coverage can help pay for both the driver’s and passengers’ medical recovery costs for injuries sustained as a result of the crash.

Car insurance physical damage coverage

Physical damage coverage is a type of car insurance coverage that protects your vehicle. The two most common forms of this coverage are comprehensive physical damage coverage and collision coverage.

Comprehensive physical damage coverage is a form of insurance that will protect your car against physical damage from anything outside of hitting another vehicle. This damage could be caused by car theft, environmental factors, colliding with animals or objects, or even weather-related damage such as hail, fire, flooding, or fallen tree limbs.

Collision insurance, on the other hand, is specifically targeted at covering damage incurred by hitting another car. With this coverage, if you are involved in a car crash as an insured driver, you can often file a collision claim through your insurance company whether you were the at-fault driver or not.

If you have a newer car, comprehensive paired with collision coverage is often the most popular combination of insurance as it will provide the highest level of protection. If you have an older vehicle with more miles and with lower equity, it may not be worth having a comprehensive plan. Alternatively, you may instead want to opt for collision only since it is a less expensive limited policy option that aims at protecting you as a driver during auto-related collisions.

Car insurance liability coverage

Liability coverage will cover another driver’s costs if you’re found to be at-fault for causing an accident. 

If you’ve caused injury to the other driver or have damaged their car, liability insurance has two main components that will compensate the other driver — property damage liability and bodily injury liability. Property damage liability will be paid if the other driver’s car has been damaged and is in need of repair bodily injury liability will be paid to cover the other driver and passenger medical costs. Payout limits depend on the level of your insurance coverage.

While it is not mandatory in all states, like parts of Alaska, it is best practice to obtain some level of auto liability insurance no matter where you live. As we mentioned earlier, getting the minimum amount of coverage like a 10/10 or a 25/50 policy may not be enough to cover you completely.

Uninsured and underinsured motorist insurance

While in most states it is illegal to drive without any form of car insurance, studies indicate that around one in eight drivers in the US were completely uninsured in 2019. If you were to end up in an accident with one of these drivers you would not be able file a claim against the other driver’s insurance policy, leaving you to cover all costs of the accident. If you collided with an underinsured driver, you would still be able to file a claim, but you may find only a portion of the damages covered. In both cases, you could be left with paying for the majority of the whole cost of the accident that was not your fault.

This is where uninsured and underinsured insurance comes in — both options protect you from facing potential financial loss. If you or your passengers have been injured in a collision with an uninsured driver or a hit-and-run driver, uninsured motorist bodily injury coverage will help pay medical bills and uninsured motorist property damage coverage will help cover any vehicle damage. It is important to note that uninsured motorist insurance is mandatory in some areas like Washington D.C.

The most important aspect to remember with underinsured coverage is that it will apply if another driver doesn’t have enough insurance to cover your costs. In those situations, you file the claim with your own insurance provider and they will contact the other insurance provider to seek the remainder of your costs to be paid out through subrogation. The insurance policy can be used to cover any of your medical or property-related bills.

Medical payments coverage 

Whether or not you already partake in some type of personal medical insurance, a little known fact is that you can take out additional medical payment insurance through your car insurance plan. This type of coverage add-on can help pay for medical costs caused by  auto accidents regardless of who is deemed to be at-fault. It can be used to cover any medical bills incurred by you, as the driver, as well as any expenses related to injuries, rehabilitation, and medical bills inflicted on your passengers. Depending on the specifics of your coverage, this kind of insurance could also potentially apply if you have been involved in a car accident as a pedestrian. This type of coverage is typically optional no matter where you live.

So, which car insurance policy is right for you? 

When it comes to feeling confident you have found the type of car insurance policy that is right for you, it really is a personal decision dependent on many individual factors. You will want to work with your insurance provider to pick and choose exactly what policies and add-ons you want, the most common of which we covered above. 

For instance, maybe you prefer the most complete coverage with  a comprehensive collision insurance policy that helps to cover repairs to your car in a myriad of situations. Or, you can choose to keep things simple with basic liability coverage as a fall back for a worst case, at-fault accident. Keep in mind, though, that while this latter liability-only policy would help you save money on insurance in the short term, it most likely will not provide enough coverage for repairs to your vehicle leaving you to pay them out of pocket.

Another factor to consider when selecting car insurance: how much will your monthly payments be and does it fit within your financial budget and goals? The amount you pay your car insurance provider monthly, or monthly premiums, is directly associated with the level of coverage you choose as well as the age of your vehicle.

For example, if you chose a comprehensive physical damage coverage plan on a new 2022 Dodge Charger, you would be paying significantly more than if you only chose liability coverage. While only having liability would save you money in the short term, it could also potentially put your vehicle at risk of uncovered damages if you are involved in an accident.

So, as you assess the level of car insurance coverage you want, pay close attention to how much you are paying towards the policy. While paying smaller monthly premiums may seem more cost-effective in the short-term, you may still need to pay a larger amount out-of-pocket in the future for an accident that falls outside of limited coverage policies.

At Caribou, we save you time and money when it comes to finding the right insurance for you. Discover how much you could save and get your auto insurance quote today.

Car insurance FAQs

• What is car insurance for your vehicle? Car insurance is a binding contract, called a policy, between you and an insurance company, or provider. It helps to protect you and your vehicle against financial loss in the event of a car accident, car theft, or other claimable event.

• What are the most common insurance plans? The most common types of car insurance plans include comprehensive physical damage coverage, collision coverage, property damage liability coverage, uninsured/underinsured motorist coverage, and medical payments coverage.

• Why do you need car insurance? You may consider yourself a safe driver, but what about all of the other drivers on the road? All it takes is one bad accident and your car may be left undrivable. Having insurance can help get your car back on the road or replace your vehicle.

• How does car insurance work? First, you will need to select a coverage policy. The different coverages include bodily injury, property damage, and liability plans. Next, you are considered covered under your provider. If you have a claimable accident, you can file an insurance claim with your provider with the policy providing financial assistance up to your coverage limits.

• Is car insurance required? Yes, car insurance is required in most states. Several areas have optional requirements like New Hampshire, where coverage is optional if you can prove financial security, and Florida, where the limits are lower.

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Learn about uninsured motorist coverage

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