What Are the Different Types of Auto Insurance?

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Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - May 31, 2021

While you're looking for your next auto loan, it's wise to explore different types of auto insurance and your coverage costs. Full coverage car insurance is required when you’re financing a vehicle, but there are other optional insurance coverage types, too!

Types of Auto Insurance Coverage

Auto insurance is an essential part of owning and driving a vehicle. Its purpose is to help you repair damage, or recover the value of your car after an accident, theft, fire, or other unfortunate events. It’s also required in nearly every state.

The vast majority of states – 48 of them – have a minimum requirement for how much insurance coverage you need to legally drive your car on the road. This requirement is usually fulfilled with basic coverage called personal liability and property damage, or PLPD for short.

While PLPD is typically the minimum requirement of many states, if you’re financing, you need full coverage for your car. Full coverage is typically a combination of collision, liability, comprehensive, and uninsured/underinsured motorist coverage. This extra coverage is required because your lender owns the car until you pay it off, they want it fully protected during the loan term. Once you remove the lien from the title, you can choose your level of coverage. The minimum coverage required by most states is usually cheaper than full coverage but doesn't have as many benefits, either.

Breaking Down Auto Insurance

What exactly do PLPD and full coverage actually cover?

We’ve broken down what each coverage option does so you know what you’re paying for when you insure your vehicle.

  • Personal liability and property damage liability – Covers damage done to property and medical coverage for individuals involved in the accident when you’re at fault.
  • Full coverage – A combination of collision, liability, comprehensive, and uninsured/underinsured motorist coverage.
    • Comprehensive – Helps cover non-vehicle-related damage such as fallen trees, fire, animal strikes, or floods.
    • Collision – Assists you in paying for repairs done to the car from a vehicle accident (whether you’re at fault or not).
    • Uninsured/underinsured motorist coverage – If you're involved in an accident with another driver that doesn’t have insurance, or inadequate insurance, this coverage steps in to help cover damages.

Different optional insurance coverage types can include:

  • Roadside assistance – This coverage can help in many situations; locksmith services, dead battery, towing assistance, or other roadside emergencies. The cost is usually added to your total insurance premium.
  • Guaranteed asset protection (GAP) insurance – GAP insurance covers the “gap” between your vehicle’s value and your loan balance. Other insurance coverage typically only pays out to the car’s value at the time of the event or accident, but GAP insurance steps in to pay for your remaining loan balance if it’s higher than the vehicle’s value.
  • Classic car coverage – If you have a vehicle that’s over 15 years old and is driven less than 5,000 miles a year, then your classic vehicle may qualify for optional classic car coverage. It also needs to be your secondary vehicle, in most cases, and it must be stored in a garage or storage unit when not in use.
  • Credit life insurance – If a borrower dies before the auto loan is paid in full, then this coverage pays the remaining balance. The cost is typically included in the monthly payment.
  • Credit disability coverage – Also called accident and health insurance, it’s a type of insurance that makes payments on your loan while you’re unable to. Typically covers a certain number of payments or caps out at a certain amount paid.

The Two Exceptions to Minimum Insurance Requirements

Virginia and New Hampshire are the odd states out when it comes to insurance requirements. Every other state mandates their drivers have insurance to drive their cars on the road, but these two states have their own set of rules.

New Hampshire requires that you pay for injury or damage that happens to other property or people if you’re at fault in an accident, but they don’t require that you have insurance to drive your vehicle. If you opt out of auto insurance on your vehicle in New Hampshire, you’re expected to cover all costs out of pocket during an auto accident.

Virginia doesn’t require their drivers to carry insurance, either. If you choose to not purchase car insurance, you must pay a $500 Uninsured Motor Vehicle fee to the Virginia Department of Motor Vehicles, according to the legal site Nolo.com. If you opt-out of insurance coverage, you’re responsible for any injuries or damage to other drivers if you’re in an accident and at fault.

If you live in one of these two states, make sure to read up on what the possible consequences could be if you choose not to insure your vehicle.

What Determines My Auto Insurance Costs?

The vehicle you’re looking to insure and the different insurance coverage you choose are the largest factors in your total insurance cost. A few other things such as your marital status, age, credit score, and geographic location can influence your costs, too.

Generally, married, older drivers tend to get lower insurance premiums, and good credit borrowers that live in states that allow credit scores to be a factor in insurance costs can get lower rates, too. Where you live can influence your insurance costs, too. Michigan, Louisiana, and Nevada have been dubbed the most expensive states to insure a vehicle.

Newer vehicles are usually more expensive to insure because they may be more of a risk for theft and can be costly to repair. Used cars tend to be a little more affordable to purchase and insure. If you’re a bad credit borrower looking for an affordable vehicle with an affordable insurance premium, then a used car may be a good choice.

Ready for Your Next Vehicle?

Choosing the right auto insurance coverage for your situation can take time. Be sure to contact multiple insurance companies to compare rates – many can offer over-the-phone estimates for the car you’re looking to buy.

But what if you’re struggling to get auto loan approval? If your credit score is worse for wear, it’s not always easy to find a lender able to work with credit challenges. But here at CarsDirect, we’ve created a nationwide network of special finance dealerships that are signed up with subprime lenders. These lenders consider more than your credit score while they’re determining your eligibility for a car loan.

Instead of looking all over town for a dealer that has bad credit lending resources, fill out our free auto loan request form and we’ll look for a dealership for you. There's never an obligation to buy once you've been matched to a dealer, so start today!

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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