Auto Insurance: Is It A Legal Requirement?

Auto insurance requirements vary across different states in the US. In Colorado, for instance, drivers are legally required to carry a minimum amount of liability insurance. This means that if a driver causes an accident, their liability insurance will cover the other driver's losses, including vehicle damage and medical expenses. It may also cover legal fees if the other driver sues. However, liability insurance does not cover injuries or damages to the insured person's property.

Minimum liability coverage

Nearly all states in the US require drivers to have a minimum amount of liability insurance. This is to ensure that drivers can pay for any injuries or damages they cause in a car accident, including those of the other driver and their passengers. Liability insurance covers bodily injury per person, bodily injury per accident, and property damage per accident.

For example, in Colorado, the minimum liability coverage requirements are $25,000 in bodily injury coverage per person, $50,000 in bodily injury coverage per accident, and $15,000 in property damage coverage per accident. These limits are often expressed as a series of numbers, such as 25/50/15. This means that, in the event of an accident, the insurance company will pay out a maximum of $25,000 for injuries to a single person, $50,000 in total for injuries per accident, and $15,000 for property damage.

While liability insurance is mandatory in almost every state, the minimum coverage requirements vary. For instance, Alabama's minimum liability coverage is 25/50/25, while Alaska's is 50/100/25. It is important to note that these are the minimum requirements, and drivers may want or need additional coverage, especially if they have a high-value vehicle.

Failing to carry the minimum liability insurance required by your state can result in expensive fines, and you could be held personally liable if you cause an accident. Therefore, it is essential to understand the insurance minimum laws in your state and any state you plan to visit, as different states follow different laws that could affect your coverage in the event of an accident.

Required by law

In the United States, auto insurance is required by law. However, each state determines the specific limits on different types of coverage. In Colorado, for instance, drivers are legally required to carry a minimum amount of liability insurance. This means that if a driver causes an accident, their liability insurance will pay for the other driver's losses, including vehicle damage and medical expenses. It may also cover legal fees if the other driver sues.

Colorado drivers must carry a minimum of:

• $25,000 in bodily injury liability coverage per person
• $50,000 in bodily injury liability coverage per accident
• $15,000 in property damage liability coverage per accident

This can be expressed as 25/50/15, and all drivers in Colorado are required to carry proof of insurance in their vehicles and present it when requested by law enforcement. This proof of insurance is also required to register a car with the Colorado Department of Motor Vehicles.

While purchasing liability-only coverage can keep insurance premiums low, it might not offer sufficient financial protection in the event of an at-fault accident. Car accidents can be expensive and lead to high out-of-pocket expenses. For example, if a driver causes $30,000 in property damage but only carries the mandated minimum of $15,000 in property damage liability coverage, they would be responsible for the remaining $15,000 out of pocket.

Additionally, minimum coverage does not offer any protection for the driver's vehicle. If a driver accidentally hits a neighbour's mailbox and their car is damaged, they would have to pay for all the repairs themselves. Minimum coverage insurance also does not cover hit-and-runs, theft, or vandalism.

Colorado takes uninsured driving very seriously. If found guilty of driving without insurance in the state, penalties include:

• Four points added to the driver's license
• First offense: Minimum $500 fine and license suspension until the driver can show proof of insurance
• Second offense: Minimum $1,000 fine and a four-month license suspension
• Third and subsequent offenses: Minimum $1,000 fine and an eight-month license suspension
• Up to 40 hours of community service

Therefore, it is essential to maintain the appropriate levels of car insurance to avoid potential penalties and adequately protect oneself financially.

Proof of insurance

• The name and address of the insurance company
• The policy number and National Association of Insurance Commissioners (NAIC) number
• The effective date and expiration date of the policy
• The first and last name of the insured individual
• The insured vehicle's make, model, year, and Vehicle Identification Number (VIN)

How to Obtain Proof of Insurance

Most insurance companies provide immediate access to proof of insurance after purchasing a policy. You can typically obtain this documentation through various means, including:

• Online access: Many insurance companies offer digital insurance cards that can be accessed through their mobile apps or websites. This electronic proof is accepted in almost every state, except for New Mexico, where a physical card is required for traffic stops.
• Printed copy: You may print a copy of your insurance card yourself or request a mailed copy from your insurance company. Keeping a physical card in your vehicle is recommended as a backup, especially when travelling to states like New Mexico.
• Fax or email: Some companies provide the option to fax or email the insurance card, allowing you to choose between a digital or printed copy.

Importance of Proof of Insurance

Self-insurance

There are three main ways to self-insure a vehicle:

• Cash deposits: Self-insured drivers can choose to make a cash deposit into a savings account and put the account information on file with the DMV. The amount of money required in the account will vary from state to state. The local DMV will monitor the account and withdraw money from it directly to pay for any damage caused in an at-fault accident. If the balance of the account gets too low, it is the equivalent of letting your insurance policy lapse, and you may be penalised as if you are driving without insurance.
• Certificate of self-insurance: Depending on the laws in a given US state, people who have a certain number of vehicles registered in their name (often 25) can obtain a certificate of self-insurance. This document states that they can cover medical bills, repair costs, property damage, and bodily injury liability costs. To be self-insured, individuals must prove to the state that they can afford to pay these costs in the event of an at-fault accident.
• Surety bonds: Some states permit the purchase of a surety bond that guarantees the policyholder will cover the costs (including both bodily injury and property damage expenses) if they are at fault in a car accident. If, for whatever reason, the policyholder is unable to pay those costs, the surety company will pay them and seek repayment at a later date.

Each US state has its own options and limitations when it comes to self-insuring a vehicle. For example, in Texas, there is a law that allows individuals to self-insure to prove they can fulfil their financial responsibility in the event of an auto accident. However, for most people, the only option that looks worthwhile is to deposit $55,000 worth of securities with the comptroller. In California, one of the options is a cash deposit of $35,000 with the DMV, which only addresses the minimum required insurance limits.

Optional coverage

While liability insurance is required by law in most states, there are several types of auto insurance coverage that are optional. These optional coverages can provide additional protection and benefits to drivers and their vehicles. Here are some examples of optional coverage that you may consider for your auto insurance policy:

Comprehensive Coverage

Comprehensive coverage protects your vehicle from damages that are not caused by a collision. This includes repairs needed due to theft, weather events, fire, flood, hail, falling objects, and even encounters with wildlife. For example, if your car is damaged by a falling tree branch or broken into and vandalized, comprehensive coverage would help pay for the repairs. This type of coverage is typically optional, but your lender or leasing company may require it if you have an auto loan or lease to protect their investment.

Collision Coverage

Collision coverage, as the name suggests, covers the cost of repairs to your vehicle if it collides with another vehicle or object. This includes accidents such as backing into a pole, hitting a parked car, or sideswiping another vehicle. While it is not required by law, collision coverage can provide valuable protection if you are in an at-fault accident. Again, your lender may require this coverage if you have an auto loan to protect their financial interest in your vehicle.

Medical Payments Coverage

Medical payments coverage, also known as Med Pay or MPC, helps cover the medical expenses for you and your passengers after an accident, regardless of who is at fault. This can include ambulance fees, hospital stays, surgery, and other medical bills related to the accident. While it is optional, adding medical payments coverage to your policy can provide peace of mind and financial protection in the event of injuries.

Rental Car Reimbursement

If your car is in the repair shop due to a covered accident, rental car reimbursement coverage will help pay for a rental car to use in the meantime. This optional coverage ensures that you can still get around and carry on with your daily activities while your vehicle is being repaired. It's important to note that there may be limits on the amount of time or money covered for a rental car, so be sure to review the policy details.

Roadside Assistance Coverage

Roadside assistance coverage is designed to help you in the event of common car troubles, such as a flat tire, dead battery, or breakdown. This coverage typically includes services like towing, battery jump-starts, lockout assistance, and fuel delivery. While it may be offered as optional coverage by your insurance company, there are also separate membership programs that offer similar services, so it's worth comparing the benefits and costs before deciding.

Uninsured/Underinsured Motorist Coverage

Uninsured/underinsured motorist coverage (UM/UIM) protects you if you are hit by a driver who doesn't have insurance or doesn't have enough insurance to cover the costs of the accident. This coverage can help pay for your medical bills, lost wages, and other damages caused by an uninsured or underinsured driver. While it is optional in most states, it provides valuable protection in the event of an accident with a driver who lacks sufficient insurance.

These are just a few examples of the optional coverages available to enhance your auto insurance policy. It's important to review your policy and understand the types of coverage included and any additional options that may be beneficial to you. Remember, while some of these coverages are not required by law, they can provide valuable protection and peace of mind in the event of an accident or vehicle-related incident.

Frequently asked questions