Auto Insurance: Minimum Requirements And Their Importance

Auto insurance requirements vary across states in the US. While some states require drivers to have a minimum amount of car insurance to drive legally, others allow drivers to satisfy minimum requirements in other ways, such as through a bond or cash deposit. The type of coverage and minimum coverage amount also differ by state. Liability insurance, which covers any damages to another driver, is a requirement in most states. Other types of coverage that may be required include uninsured/underinsured motorist coverage, personal injury protection, and medical payments coverage. It's important to note that minimum car insurance may not cover all potential costs associated with an accident, and it's recommended to consider additional coverage for more protection.

Liability insurance

Each state sets its own minimum liability coverage requirements, which drivers must meet to drive legally. For example, a state might require liability insurance that covers $25,000 for injuries to one person, $50,000 for injuries to multiple people, and $10,000 for property damage. Drivers can typically purchase more liability insurance than their state's required minimums, and it is recommended to do so since medical bills can be very expensive.

The cost of liability insurance depends on various factors, including the coverage limits selected, driving record, age, location, driving frequency, and the value of the vehicle. It is important to understand the liability coverage limits and choose a policy that fits one's needs and provides adequate financial protection.

Bodily injury liability

While it is essential to meet the minimum requirements for your state, experts recommend purchasing higher limits if you can afford to. This is because the cost of medical care and legal fees can quickly exceed the minimum coverage limits, leaving you with significant out-of-pocket expenses. For example, the national average cost of bodily injuries in an accident was $24,211 in 2022, and experts recommend carrying at least $100,000 in bodily injury liability coverage for one injured person and $300,000 for multiple victims.

If you are unable to pay for the damages caused in an accident, you could be sued, and your savings, house, and other assets could be at risk. Therefore, it is crucial to have adequate bodily injury liability coverage to protect yourself financially in the event of an accident.

Property damage liability

The cost of property damage liability insurance varies depending on factors such as location, age, gender, driving record, and credit history. The average annual cost for liability car insurance (including both property damage and bodily injury liability) is $650.35, but rates can range from as low as $312.30 in North Dakota to as high as $1,023.91 in Louisiana.

When purchasing property damage liability insurance, it is important to consider the total value of your personal assets and choose a coverage amount that will adequately protect you in the event of an accident. While state-mandated minimums exist, they may not be sufficient to cover all property damage in a major crash. Ideally, you should have enough coverage that you do not need to pay out of pocket if you cause an accident.

When filing a property damage claim, be sure to exchange information with the other driver, including insurance details and license plate numbers. The owner of the damaged property can then file a claim through your insurance company, which will assess the damage and pay for repairs up to your policy's liability limits.

Uninsured/underinsured motorist coverage

Uninsured motorist coverage comes into effect when the other driver involved in the accident has no auto insurance. This coverage ensures that your injuries and those of your passengers, as well as any damage to your vehicle, are covered. It is important to note that uninsured motorist coverage also typically extends to hit-and-run accidents, offering financial protection in such situations.

Underinsured motorist coverage, on the other hand, comes into play when the at-fault driver does not have adequate insurance to cover the damages and injuries resulting from the accident. This coverage ensures that you and your passengers receive the necessary compensation for injuries, and it also covers the cost of repairs to your vehicle.

While not all states mandate uninsured and underinsured motorist coverage, it is highly recommended for all drivers. In some states, such as Illinois, both types of coverage are required, while others, like Massachusetts and South Carolina, only mandate uninsured motorist coverage. It is important to check the specific requirements of your state.

Personal injury protection

PIP is mandatory in states with no-fault insurance laws, where every driver must file a claim with their own insurance company after an accident, regardless of who caused it. These states include Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.

In other states, PIP is optional. For example, in Texas, PIP insurance is not mandatory, but you must sign a waiver if you want to decline the coverage.

The cost of PIP insurance varies depending on your location, the amount of coverage you want, and your driving history. It typically covers reasonable medical costs, rehabilitation therapy, lost income resulting from the accident, and replacement of necessary services provided by the injured party, such as family care or household maintenance.

Frequently asked questions