What Are the Different Types of Car Insurance?

By Robert Vaux

  • Overview

    Car insurance is vitally important to anyone who drives a vehicle regularly. Moreover, it is a legal obligation in many states. Even in places where it isn't, the cost of medical and repair bills for an accident can be astronomical--enough to bankrupt most people if they aren't careful. Insurance companies offer numerous policies covering different circumstances. A basic overview of those policies and some of the key elements involve are discussed below.
  • Third Party Insurance

    Third party (or third party liability) insurance is the most basic type of auto insurance sold. It covers damages if you are involved in an accident and you are at fault. The "third party" refers to the owner of the other car (you are the first party and the insurance company is the second party). The insurance company pays for the damages to the third party, but not yours. Accordingly, third party insurance is much cheaper than other kinds of insurance, and if often used by people whose cars are old or not worth much. There are two basic kinds of third party insurance: bodily injury (which covers the other person's medical bills) and property damage (which covers the other person's car and other pieces of property).
  • First Party Expense

    First party expense insurance covers the policy holder in the event that the other person was at fault in the accident (and doesn't have insurance), the other person cannot be found (a hit and run), or no one was at fault in the accident. Specific types of first party expense insurance vary from company to company, but tend to fall into three or four broad categories. Collision insurance protects the policy holder's vehicle in the event of an accident, regardless of where the fault lies. Comprehensive insurance--often the most expensive type of insurance--covers everything unrelated to a collision, including fire, theft, vandalism, and acts of God. Uninsured coverage pays your damage and medical bills in the event the other party was uninsured or cannot be found. Finally, medical coverage handles your hospital bills (including lost wages in some cases) regardless of who is at fault.

  • RCV and ACV

    Many types of auto insurance refer to the cost of the car as either replacement cost value (RCV) or actual cost value (ACV). RCV will replace a damaged car with a new car. ACV, on the other hand, pays for repairs to the existing car or replacement with a car of the same value as its current condition. Needless to say, the premiums on RCV coverage tend to be higher than those on ACV.
  • Car or Driver?

    Typically, car insurance policies are defined by the car itself--regardless of who is driving it--in order to address circumstances where a friend or a family member is behind the wheel. At the same time, however, premiums are often determined by the primary driver of the car, and someone other than the owner who drives the car the most needs to be listed as such on the policy. To do otherwise may constitute fraud.
  • Rental Car Coverage

    Rental car coverage usually refers to the cost of renting a car while the damaged vehicle is in the repair shop. It can also refer to short-term coverage offered by rental car agencies when you use one of their cars (it comes as a token fee added to the cost of your rental). In the former case, it is only recommended if you don't have access to another car. In the latter, it is rarely necessary, but should always cover the rental car itself as well as any third parties involved in the accident.
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