Jane Dotson
Auto insurance in the US is designed to protect drivers from financial risk in the event of an accident, theft, or damage. It provides financial protection for drivers in case of accidents, vehicle damage, personal injury, or theft. The cost of insurance depends on the driver's age, location, driving history, vehicle type, and insurance score. Most states require drivers to have a minimum level of liability insurance, which covers the cost of damage or injury caused to others. Beyond this, drivers can choose from a range of optional coverages, including comprehensive, collision, and uninsured motorist coverage, to tailor their policy to their needs and budget.
| Characteristics | Values |
|---|---|
| Purpose | To provide financial protection in the event of an accident, vehicle damage, personal injury, or theft. |
| Requirement | Mandatory in most states, except New Hampshire and Virginia. |
| Types of Coverage | Bodily injury liability insurance, property damage liability insurance, medical payments (MedPay) coverage, personal injury protection (PIP) insurance, collision insurance, comprehensive insurance, gap insurance, roadside assistance coverage, rental reimbursement, uninsured motorist coverage, classic car insurance, new-car replacement insurance, mechanical breakdown insurance, rideshare insurance |
| Cost Factors | Driving record, location, vehicle type, vehicle use, demographics, credit score, coverage history, vehicle details, driving habits, deductible amount |
| Deductible | The amount paid out-of-pocket before insurance coverage kicks in |
| Limit | The maximum amount an insurance company will pay out for a claim |
What You'll Learn
Bodily injury liability insurance
In the tragic event that an accident results in a fatality, bodily injury liability insurance can help cover funeral costs.
The specific coverage and requirements for bodily injury liability insurance vary by state, so it is important to review the laws and regulations in your state to ensure you have adequate protection.
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Property damage liability insurance
The amount of coverage required varies by state, and each state sets its own minimum coverage requirements. It's important to note that the minimum coverage may not be sufficient, and you may want to consider purchasing additional coverage. This is especially true if you own a home or other expensive items, frequently drive in high-traffic areas, or live in an area with many expensive vehicles.
If you are found to be at fault in an accident, the other driver will file a claim with your property damage liability insurance to cover the cost of repairs to their vehicle or property. It's important to choose an adequate amount of coverage to protect yourself financially in the event of an accident.
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Medical payments coverage
MedPay is especially useful for those without health insurance, as it can help avoid the financial burden of major medical expenses. Even for those with health insurance, MedPay can help cover out-of-pocket costs, such as deductibles and co-pays. It is important to note that MedPay does not cover lost wages due to missing work as a result of injuries sustained in the accident. Additionally, MedPay will not cover injuries caused to other drivers.
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Personal injury protection insurance
Personal injury protection (PIP), also known as "no-fault insurance", covers medical expenses and related costs resulting from a car accident, regardless of who caused it. PIP covers medical expenses for both injured policyholders and passengers, even if they don't have health insurance.
PIP is mandatory in some states and optional or not offered in others. In no-fault states, drivers are required to carry PIP coverage so that their medical expenses are covered by their insurance, regardless of who is at fault. No-fault states also restrict the right to sue, so only lawsuits involving severe injuries can be filed. The intention is to reduce the cost of auto insurance by keeping lawsuits over minor injuries out of the courtroom.
PIP may cover:
- Medical bills for the policyholder and those covered on their policy.
- Lost wages if the policyholder or their passengers are injured and unable to work.
- Household services such as childcare, house cleaning, or yard work.
- Disability and rehabilitation costs.
- Death benefit (paid to the family if the policyholder is in a fatal car accident).
In some states, PIP coverage may include a deductible, with a range of deductible amounts to choose from.
If the cost of necessary medical care exceeds the auto insurance policy's PIP limits, health insurance may cover further expenses. PIP policies have a minimum coverage amount and a per-person maximum coverage limit.
Personal injury protection is not the same as liability insurance. With PIP, medical costs are covered for the policyholder and anyone in their vehicle, regardless of who is at fault. With liability insurance, medical costs are covered for the third party, not the policyholder, if it is determined that the policyholder is at fault.
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Collision and comprehensive insurance
When choosing your comprehensive and collision deductibles, you need to determine how much you would be willing to pay out of pocket if your car was damaged. For example, if you have $500 in savings for vehicle repairs, you should choose a deductible of $500. The higher the deductible, the lower the premium. The maximum possible payout for both collision and comprehensive insurance is the value of the vehicle before the accident, minus the deductible amount.
Comprehensive and collision coverage are equally important for protecting your vehicle from physical damage. You should choose the coverage that fits your budget and needs.
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