What are the different types of policy?

All auto insurance policies are contracts. You pay a premium and, if one of the listed events occurs, the insurance company pays out up to the set limit. The first and most important difference between these contacts is those paying out to you, and those paying out to third parties. A liability policy pays out to anyone else injured as a result of your bad driving. These policies are mandatory in all but three US states. Why? Not everyone has a big cash sum sitting in their bank accounts. So if you are at fault and injure someone, that person might never get any money to pay for hospital treatment, have his or her vehicle repaired, and so on. So fairness says everyone must carry a minimum amount of auto insurance to pay out a basic amount to those you injure. Check out the minimum for your state. It will usually be written as three numbers like, 50:100:50 where your insurer pays up to $50,000 if one person is injured or $100,000 shared between all injured in one accident, with up to $50,000 for any damage to property.

Some states make Personal Injury Protection (PIP) and uninsured or underinsured motorist (UM) coverage mandatory. It’s your responsibility to check your local laws to see what is required and what the penalties are if you are caught without the mandatory coverage in place — some states tow your car and, if you fail to get insurance, send it for crushing. As to UM coverage, there are a significant number of people driving illegally without insurance. Rather than face paying all your own losses, some states require you to insure for your own medical treatment and the repair of your car.

Some states operate a no-fault scheme. The law of tort relies on proving negligence, awarding damages payable by the one at fault. A case going through the courts can take time and this delay operates unfairly to the victims. So some states order insurers to pay out regardless of who is at fault. This is very bad for the local trial lawyers.

As to damage to vehicles you have collision coverage which pays out for all damage to the vehicles that collide, and for any damage to property in the same accident. Comprehensive coverage pays for all the other damage you might suffer other than from a collision. So if someone steals your car, vandalizes it, or it gets washed away in floods, you can claim for your loss.