Auto Insurance In The Us: Understanding Coverage And Costs

Auto insurance is required by law in most states in the US. Each state has its own minimum coverage requirements, which usually include liability insurance to cover the cost of damages to other vehicles and injury to other people in the event of an accident. While collision and comprehensive insurance are not mandated by state law, they are often required by auto loan lenders.

Liability insurance

Bodily Injury Liability Coverage

This component of liability insurance covers medical expenses incurred by individuals other than the insured driver in an accident. It includes hospital and medical bills, rehabilitation services, and in-home healthcare services. The coverage limit is typically set per person and per accident, ensuring that multiple injured parties receive compensation.

Property Damage Liability Coverage

Property damage liability coverage, as the name suggests, pays for any damage caused to another person's property, including their vehicle, as a result of an accident caused by the insured driver. This coverage ensures that the affected party's property is repaired or replaced without them having to bear the financial burden.

Importance of Liability Insurance

Customisable Coverage Limits

State Requirements

While most states mandate liability insurance, the minimum coverage limits vary. For example, California requires $15,000 for injury/death to one person, $30,000 for injury/death to more than one person, and $5,000 for property damage. On the other hand, Oklahoma has higher minimums, requiring $25,000 for injury/death to one person, $50,000 for multiple people, and $25,000 for property damage.

Collision insurance

The cost of collision insurance can vary, but it tends to be expensive. However, people can save on premiums by choosing a higher deductible. According to a recent analysis, the average cost of full coverage insurance, which includes collision and comprehensive insurance, is $1,718 per year.

When deciding whether to get collision insurance, consider the value of your vehicle, your ability to pay out of pocket, and whether your vehicle will be in storage for an extended period. Collision insurance may be worth it if you drive an expensive car or if you wouldn't be able to afford repairs after a crash. On the other hand, if you have an old car with a low market value, collision insurance may not provide much benefit in the event of a total loss.

Comprehensive insurance

The cost of comprehensive insurance varies depending on factors such as the car's value, make, and model, as well as your driving history and chosen deductible amount. According to the Insurance Information Institute, the average cost of comprehensive insurance is about $134 per year, but it can be higher or lower depending on your specific circumstances.

When deciding whether to purchase comprehensive insurance, consider your budget, the value of your car, and your tolerance for risk. If you have a new vehicle that would be expensive to repair or replace, comprehensive insurance can provide valuable protection. On the other hand, if you drive an older vehicle and feel confident about covering unexpected repairs, comprehensive insurance may not be necessary.

Personal injury protection

PIP covers medical expenses for both injured policyholders and their passengers, even if they don't have health insurance. It also covers medical expenses for pedestrians or cyclists who are struck by a vehicle. In addition to medical costs, PIP can also provide coverage for:

• Lost wages due to injuries
• Rehabilitation costs
• Replacement services for tasks that the injured person can no longer perform, such as house cleaning or childcare
• Funeral expenses and death benefits

The requirement for PIP varies from state to state. It is mandatory in some states, optional in others, and not available in a few. As of February 2024, there were 14 no-fault jurisdictions in the US that required some form of PIP insurance:

• District of Columbia
• Florida
• Hawaii
• Kansas
• Kentucky
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New York
• North Dakota
• Pennsylvania
• Utah
• Puerto Rico

Additionally, a few other states also require PIP coverage, including Arkansas, Delaware, Maryland, and Oregon. In total, PIP is required in 15 states and Puerto Rico, and optional in 4 states and Washington, D.C.

PIP has minimum coverage amounts and per-person maximum coverage limits set by state governments and insurance companies. If the cost of medical care exceeds the PIP limits, health insurance may cover the additional expenses. PIP claims are paid regardless of who is at fault, providing prompt payment for car accident injuries without waiting for liability lawsuits to be resolved.

Uninsured/underinsured motorist coverage

Uninsured motorist coverage comes into effect when you are hit by a driver who does not have any auto insurance. Underinsured motorist coverage, which often comes alongside uninsured motorist coverage, protects you if you are hit by a driver whose insurance coverage is insufficient to pay for the damages or injuries they caused. These coverages can help pay for medical bills, vehicle repairs, lost wages, and other expenses that may arise after an accident.

In some states, uninsured/underinsured motorist coverage is mandatory, while in others, it is optional. Even if it is not required in your state, it is essential to consider the risks of driving without it. According to the Insurance Research Council, about one in eight motorists is uninsured, and in some states, the number of uninsured drivers exceeds 20%. Without this coverage, you could be responsible for paying for medical bills or vehicle repairs out of your own pocket.

Uninsured motorist bodily injury (UMBI) and uninsured motorist property damage (UMPD) are two components of uninsured motorist coverage. UMBI covers medical expenses for you and your passengers, while UMPD covers damage to your vehicle. Underinsured motorist bodily injury (UIMBI) and underinsured motorist property damage (UIMPD) are the equivalent coverages when the at-fault driver has insufficient insurance.

When purchasing uninsured/underinsured motorist coverage, you will need to decide on the limits of your coverage. Typically, the bodily injury coverage limit is set per person and per accident, while the property damage coverage has a separate limit. It is recommended to match the uninsured/underinsured coverage limits to your liability coverage limits.

In addition to the financial protection it offers, uninsured/underinsured motorist coverage can also provide peace of mind. It ensures that you have a way to cover the costs associated with an accident, without having to rely solely on legal action against the at-fault driver.

To summarize, uninsured/underinsured motorist coverage is a valuable form of protection for drivers. While it may not be mandatory in all states, it is a wise investment to protect yourself and your passengers financially in the event of an accident with an uninsured or underinsured driver.

Frequently asked questions