An automobile insurance policy can protect you against financial losses if you're involved in an accident, but coverage isn't one-size-fits-all. There are six types of car insurance to choose from.

• Bodily Injury Liability (BI)
• Property Damage Liability (PD)
• Medical Payments or Personal Injury Protection (PIP)
• Collision
• Comprehensive
• Underinsured/Uninsured Motorist

Whether you're required to have all six types of car insurance can depend largely on where you live, as certain coverages may be mandatory while others are optional. Knowing the difference between each type of car insurance can make it easier to choose a policy that provides the level of protection you need.

Six Types of Car Insurance Coverage, Explained

The six types of car insurance you can get each serve a different purpose, in terms of what they protect against. Some cover your vehicle or another driver's, while others cover property damage or personal injury. Here's a closer look at how each one works. 

Bodily Injury Liability Insurance (BI)

Bodily injury liability insurance is designed to pay expenses for someone else if you injure them in an accident where you're deemed to be at fault. This coverage can apply to you and to anyone else who's listed as a driver on your policy.

In terms of what this coverage can pay for, the list includes:

• Medical expenses
• Lost wages
• Pain and suffering
  

State law can determine the minimum level of bodily injury liability insurance coverage you need.

Property Damage Liability Insurance (PD)

Property damage liability insurance also covers you in accidents in which you're at fault. It pays for repairs to the other driver's vehicle or other property you may damage.

For purposes of this coverage, "other property" can include:

• Walls
• Fences
• Equipment, including mailboxes

Property damage liability coverage can also pay for damages to someone else's home. For instance, say you're driving through a neighborhood and your brakes suddenly fail. Your car leaves the roadway, traveling into someone's yard and eventually stopping after colliding with their front porch.

In that case, your property damage liability coverage would pay for repairs to the home, up to your policy's coverage limit. The homeowner could then use their homeowner's insurance policy to cover any remaining amount needed to finish the repairs.

Medical Payments or Personal Injury Protection Insurance (PIP)

If you or a passenger in your vehicle are hurt in an accident, medical payments coverage can pay for any resulting medical bills. Benefits are paid out up to the limit stated in your policy and can reduce any amounts that need to be paid by your health insurance coverage.

Adding personal injury protection coverage to your policy can help to replace lost wages if you or an injured passenger are unable to work or funeral expenses if someone in your vehicle dies because of an accident. The amount of coverage you're required to have can depend on where you live.

In Michigan, for example, drivers can opt out of PIP coverage if covered by Medicare Parts A and B. However, it's also possible to get unlimited PIP coverage for yourself and all passengers in your vehicle at the time an accident occurs.

Collision Coverage

While property damage liability insurance pays for damage to someone else's vehicle or property following an accident, collision coverage pays for damage to your own vehicle or property. That can include damages caused by a collision with another vehicle or hitting a stationary object, such as a tree or fence.

Whether you need to have collision coverage can depend on the state you're getting insured in and if you have a loan on the vehicle. Your state insurance department may not require collision but if you're borrowing money to buy a car, the lender might require you to have it until the loan is paid off.

Comprehensive Coverage

Comprehensive coverage reimburses you for loss, theft, or damage to your vehicle caused by something other than a collision with another vehicle or object.

For example, comprehensive coverage can protect you from damage related to:

• Fire
• Theft
• Larceny
• Falling objects or projectiles
• Explosion
• Earthquake
• Windstorm or hail
• Floods
• Malicious mischief
• Civil unrest
• Contact with a bird or animal
• Glass breakage

Again, whether you're required to have this coverage or not can depend on where you live and if you still have an outstanding loan on the vehicle.

Underinsured/Uninsured Motorist Coverage

Underinsured motorist coverage can protect you if you're involved in an accident where the driver who's at fault doesn't have sufficient insurance. Uninsured motorist coverage is meant to protect you if you're in an accident with a driver who has no insurance at all.

Either type of coverage can pay for medical bills or repairs to your vehicle. You might consider adding on this type of coverage if you live in a state with a high number of uninsured or underinsured drivers.

How Insurance Coverage Requirements Vary by State

Every state but New Hampshire requires you to have both bodily injury liability and property damage liability coverage. (New Hampshire drivers do have to meet certain financial responsibility requirements to forgo liability coverage.)

In the remaining states, there are also minimum dollar amounts for the coverage you must carry. Bodily injury liability can have two dollar limits: one per person and another per accident, while there's only one limit for property damage.

Coverage limits are typically expressed in your insurance policy by a sequence of numbers. So, for example, if your policy has a $25,000 bodily injury liability limit per person, a $50,000 bodily injury liability limit per accident, and a $25,000 property damage liability limit, your policy would express it as 25/50/25. 

It's important to note that the minimum coverage limits are just that—minimums. You can opt to purchase coverage above those limits, and that's often a smart idea.  Keep in mind that the more coverage you have, the more you might pay for car insurance. Whether you're legally required to carry medical payments/PIP insurance, collision coverage, comprehensive coverage, or underinsured/uninsured motorist coverage depends on your state. And again, the minimum coverage amounts you're required to have for each one can vary. 

Other Kinds of Optional Car Insurance Coverage

Depending on the insurance company, you may be able to add other types of car insurance to your policy besides the six listed above.  For example, that might include:

• Roadside assistance insurance
• New car replacement coverage
• Gap insurance
• Towing and labor insurance
• Death and disability coverage
• Coverage for other vehicles, such as a golf cart
• Rental car reimbursement insurance

There are also scenarios that may require specialty insurance coverage. For example, if you have a classic or antique car you may need an insurance policy that takes the car's age, value, and how often you drive it into account. You could also purchase specialty coverage for a vehicle that you leave in storage or if you use your car to offer ride-sharing services. 

What Happens If You Don't Have Car Insurance?

Regardless of where you live, it's against the law to drive a vehicle without car insurance or by meeting financial responsibility requirements, in the case of New Hampshire. Financial responsibility laws require you to furnish proof that you can pay damages yourself if you're involved in an accident.

If you drive without insurance and an accident occurs, several things can happen. First, you could be ticketed and/or charged with a driving violation, according to the laws in your state and based on the circumstances of the accident. At a minimum, you may have your driver's license suspended or revoked.

Additionally, you could face a civil lawsuit if you're at fault in the accident and cause physical injury or property damage. Without an insurance policy to pay damages, you could be held financially responsible for covering someone's medical bills and/or for repairs to their vehicle. Depending on the extent of their injuries or the property damage, that could be financially devastating.

Shopping for Car Insurance

If you need car insurance, it pays to research different companies and policies first to see what kind of coverage is available in your state and what you can expect to pay. Car insurance rates can depend on things like your age, driving record, where you live, the type of car you have and what you use it for (i.e., travel to work or school, leisure travel, etc.). The best car insurance company for you will meet any special needs you have and offer the best price.

Getting quotes from multiple insurers can help you figure out who has the most affordable rates for car insurance. When comparing options, remember to pay close attention to the policies' premiums and deductibles so you can make a fair cost comparison. 

Bottom Line

Car insurance can cost you money if you're paying monthly premiums but it could save you big in the long run if you're involved in an accident. Knowing the difference between the different types of car insurance is important for ensuring that there are no gaps in coverage that could result in you having to pay for repairs or medical expenses out of pocket. Researching the best car insurance companies is a good place to start when looking for your first policy or your next one.