What are the 2 main types of car insurance?

Third-party liability insurance is insurance that pays when the policyholder injures another person or causes damage to another person’s property. In car insurance, third-party liability insurance is required in almost every state, and it only applies when the policyholder causes an accident. Third-party liability insurance does not pay for the policyholder’s own injuries or property damage.… read full answer

The Parties in Third-Party Liability Insurance

In third-party liability insurance, the first party is the policyholder and the second party is the insurance company. The third party is anyone else who becomes involved. Since liability means legal responsibility, third-party liability refers to the policyholder’s legal responsibility to someone else.

For example, say that Driver A accidentally rear-ends Driver B at a stop-light, causing minor damage to both cars’ bumpers. Driver B can file a claim with Driver A’s third-party liability coverage to pay for the damage. However, Driver A cannot file a claim with their own third-party insurance, since they are the first-party in this scenario. Instead, Driver A would need to have collision insurance for the damage to their own car to be covered.

Types of Third-Party Liability Car Insurance

Third-party liability car insurance incorporates two subsections: bodily injury and property damage liability. In addition, car insurance policies usually include three separate payout limits to cover different aspects of third-party liability. For instance, a policy written as 25/50/25 refers to limits of $25,000 for bodily injury claims per person, $50,000 for bodily injury claims per accident, and $25,000 for property damage claims.

Third-party liability car insurance is a term most frequently used outside the United States. In the U.S., insurance companies will usually just call it liability insurance instead.

The three types of car insurance that are universally offered are liability, comprehensive, and collision insurance. Drivers can still purchase other types of auto insurance coverage, like personal injury protection and uninsured/underinsured motorist, but they are not available in every state.

3 Major Types of Car Insurance

1. Liability insurance… read full answer

Liability car insurance is coverage that pays for other people’s expenses after accidents that you cause, and there are two components of it. Property damage liability insurance pays for any damage that you cause to someone’s property, and bodily injury liability insurance pays for their medical bills.

Liability coverage is the most common type of car insurance. It is required in almost every state.

2. Comprehensive insurance

Comprehensive car insurance pays to repair or replace your vehicle when it is damaged by something other than an accident, such as vandalism or a natural disaster. It is not required in any state, but it is usually mandatory for vehicles that are leased or financed.

3. Collision insurance

Collision insurance is a type of car insurance that covers damage to your vehicle that is caused by an accident, regardless of who was at fault. It is not required in any state, but it’s usually mandatory for vehicles that are leased or financed.

Other Types of Car Insurance

In addition to the 3 major types of car insurance – liability, collision and comprehensive – there are several other types of coverage that are less frequently required but still helpful in the right situation, including:

• Personal Injury Protection (PIP): Pays for several different medical-related expenses after an accident, including loss of income and child care.
• Medical Payments (MedPay) Coverage: Covers medical bills after an accident.
• Uninsured/Underinsured Motorist Insurance: Pays for your vehicle repairs and medical bills if you are involved in an accident with someone who doesn’t have enough insurance coverage.

To learn more, check out WalletHub’s guide to the different types of car insurance.