The Different Types of Car Insurance Coverage | Ellis Law
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What are the Different Types of Car Insurance Coverage?

Posted on: February 5, 2021

Drivers are required to be financially responsible to operate a vehicle on the road. In New Jersey and most of the country, car insurance represents this obligation. It ensures the policy holder will not have to pay full costs of property damage and medical bills if they are ever involved in a motor vehicle accident. Yet, because there are so many types of insurance, choosing the right policy can feel like a daunting undertaking. However, one thing is clear: individuals caught driving without mandatory car insurance face serious consequences, including fines, license suspension, and even jail time. Do not make that mistake. Use the following information to make decisions about car insurance for financial protection and peace of mind.

Liability Coverage

Auto liability coverage is mandatory in most states, with drivers required to purchase the minimum level of coverage by law. When a driver causes an accident, liability coverage pays for the other person’s expenses related to that crash. Liability coverage has two components:

Bodily Injury Liability Coverage: When the policy holder causes an accident that injures another person, bodily injury liability coverage pays for that person’s medical care. Without this coverage, the at-fault driver pays those costs out of pocket.

Property Damage Liability Coverage: If the policy holder causes an accident damaging another person’s property, property damage liability coverage pays for those repairs. Without this coverage, the at-fault driver pays for repairs out of pocket.

Limits on Liability Coverage

When selecting an auto insurance policy, consumers must decide on coverage limits that best meet their needs. Most states have minimum coverage requirements, but drivers often opt to purchase added coverage. Auto insurance policies generally contain three liability coverage limits:

  • Bodily injury liability per person: The maximum payout available for each person injured in a crash.
  • Bodily injury liability limit per accident: The total an insurance provider will pay out for medical bills for everyone injured in a single accident.
  • Property damage liability limit: The maximum paid out for auto repairs and other property damage caused by the policy holder.

Many drivers consider adding additional liability coverage beyond the state minimum. With a serious auto accident involving multiple injured victims, the costs for care can be significant.

Personal Injury Protection (PIP) Insurance

Personal Injury Protection (PIP), also known as no-fault insurance, covers medical costs incurred by the policy holder regardless of who caused the car accident. PIP insurance not only covers the insured person, but it also covers their passengers, other drivers on the policy, and immediate family members living in the home. PIP coverage kicks in even if the injured person was not driving at the time. For example, if a car hit the person as they were crossing the street, PIP may cover their X-rays, surgery, and other treatment costs. It should be noted that PIP is not available in every state.

Medical Payment Coverage

Medical payment coverage (MedPay) pays for some medical costs associated with injuries after an accident involving the insured vehicle. The policy holder, their family members, and passengers in the vehicle at the time of the crash are covered. Medical payment coverage includes:

  • Hospital visits
  • Surgery
  • Rehabilitation
  • Dental care
  • X-rays and other tests
  • Funeral costs

Some states require MedPay. In other states, it is optional.

Collision Insurance

Collision insurance coverage pays for damage to the driver’s car in certain scenarios:

  • A crash the driver causes with another driver
  • A collision with another vehicle or object, such as a tree or street sign
  • Damaged caused when another driver hits their car

While collision coverage is not mandatory, most auto lenders require it for consumers who finance or lease a vehicle.

How Does a Collision Insurance Deductible Work?

Most collision insurance coverage comes with a set deductible. That deductible is the amount of money automatically subtracted from a collision claim check. A typical deductible amount ranges anywhere from $500 to $1,500. If a driver who a $1,000 collision deductible, but needs $1,300 to fix the damage, the insurance company will pay the total amount minus the deductible, which comes to $300. If damages are less than their deductible, the driver will not file a claim. In this case, the insurer would not pay, and the claim would likely only increase their rates going forward.

Coverage for Uninsured and Underinsured Motorists

Imagine the stress of not only being in a serious car accident, but also finding out the person who caused it does not have coverage to pay for medical bills and vehicle damage. This is where uninsured and underinsured insurance coverage comes into play. This coverage protects the person who incurs expenses if an at-fault driver does not have sufficient coverage to pay those costs. Like other types of insurance, state requirements for uninsured and underinsured motorist coverage vary. States can require all, some, or none of the following:

  • Uninsured motorist coverage for bodily injury
  • Uninsured motorist coverage for property damage
  • Underinsured motorist coverage for bodily injury

Guaranteed Asset Protection Insurance

Guaranteed asset protection (GAP) insurance coverage fills a financial gap when a vehicle is stolen or totaled. That gap is the difference in cost between what the insurance determines the car is worth and what the owner still owes on it. Because most vehicles depreciate rapidly the moment they hit the road, drivers tend to owe more than their vehicle’s value. GAP is a good investment for anyone who puts a small down payment on their vehicle or owns a make and model that tends to depreciate significantly over time.

Comprehensive Coverage

It is not just other motorists who cause costly damage to vehicles. Comprehensive auto coverage covers other types of damage, including:  

  • Vandalism and theft
  • Damage caused by falling objects
  • Fire and flood damage
  • Damage from animals
  • Damage from natural disasters
  • Damage to glass

The law does not generally require comprehensive insurance, but it is mandatory for most consumers who lease or finance a vehicle. Generally, it is purchased along with collision insurance and makes up the bulk of most standard car insurance policies.

New Jersey Car Insurance Requirements

In the state of New Jersey, drivers are required to carry no-fault insurance. Regardless of who causes an accident, no-fault insurance reimburses for medical costs, lost income, and funeral costs, if necessary. Liability coverage for property damage and bodily injury is mandatory. The minimum coverage required in New Jersey is $15,000 for bodily injury per person, with a total of $30,000 per accident, and $5,000 for damage to another’s property. Most personal injury lawyers in New Jersey would suggest considering comprehensive coverage, collision coverage, PIP, and coverage for uninsured and underinsured persons as well.

Car insurance is a costly expense. Some drivers find it hard to comply with state insurance laws because the price is cost-prohibitive. To better meet their needs, the New Jersey Automobile Insurance Cost Reduction Act made it a requirement for a Basic Policy to be available to every driver. This Basic Policy offers less protection, but also comes at a lower price.

Freehold Car Accident Lawyers at Ellis Law Help Clients Obtain the Compensation They Deserve

After a serious car accident, the last thing an injured person wants to do is deal with insurance companies, especially when they dispute liability and try to settle for as little as possible. To learn more about our services or schedule a free case review, contact the Freehold car accident lawyers at Ellis Law. Call 732-308-0200 or contact us online today. Located in Freehold, New Jersey, we serve clients throughout East Brunswick, Toms River, Middletown, Jersey City, Neptune, Hudson County, Union County, Essex County, and Ocean County, as well as Brooklyn and New York City.