Auto Insurance Requirements: Understanding The Two Laws

Auto insurance is a legal requirement for drivers in many states, with laws varying across the US. The two laws for auto insurance requirements are that drivers must show financial responsibility and have liability insurance. Financial responsibility laws state that drivers must be able to pay for any injuries or damage caused when driving. Most drivers show financial responsibility by purchasing auto liability insurance, which pays for the repair or replacement of another driver's car or property, as well as their medical expenses. Liability insurance is a legal requirement in states such as California, Florida, Texas, Georgia, and New York.

Minimum liability limits

The minimum liability limits vary from state to state. For example, in California, the minimum liability coverage is $15,000 for the death or injury of any one person and a total of $30,000 for the death or injury of more than one person in any one accident. On the other hand, Florida requires a minimum of $10,000 in Personal Injury Protection (PIP) and Property Damage Liability (PDL) coverage.

It is important to note that these minimum liability limits may not be sufficient in the event of a serious accident. If the insured is at fault in a major collision, the cost of medical bills and property damage could exceed the minimum coverage limits. Therefore, it is recommended to consider purchasing higher liability limits or additional insurance coverage to ensure adequate protection.

In addition to the minimum liability limits, some states also require other types of car insurance coverage, such as uninsured motorist coverage and personal injury protection. It is essential to review the specific requirements of your state to ensure compliance with the law and to have the appropriate level of protection.

Bodily injury liability

In most states, bodily injury liability coverage is legally required, with minimum coverage limits specified. For example, Illinois mandates a minimum of $25,000 per person and $50,000 total per accident for bodily injury liability. These limits are crucial to understand because they define the maximum amount your insurance company will pay in the event of an accident. If the medical expenses of the injured parties exceed these limits, you will be responsible for covering the remaining costs out of pocket. Therefore, it is generally recommended to purchase higher limits to adequately protect yourself financially.

The specific expenses covered by bodily injury liability insurance include medical bills, such as emergency care, hospital fees, follow-up visits, and medical equipment. It also covers lost income if the injured person is unable to work due to their injuries and funeral costs in the unfortunate event of a fatality. Additionally, it can provide coverage for pain and suffering if the injured individuals experience long-lasting emotional trauma or pain due to the accident.

Another important aspect of bodily injury liability insurance is its coverage of legal fees. If you are sued by someone affected by the accident, your policy can cover the cost of a defence attorney and court fees, provided your liability limit is sufficient.

When considering the amount of bodily injury liability insurance to purchase, it is generally recommended to have coverage of at least $100,000 per person and $300,000 per accident. However, it is essential to evaluate your financial situation and assets to ensure adequate protection. If your net worth exceeds the coverage limits offered by standard auto insurance policies, you may need to consider purchasing umbrella insurance to provide additional protection.

Property damage liability

In the US, property damage liability insurance is one of the coverages required by most states. However, each state sets its own requirements for how much coverage is needed. For example, in Florida, a minimum of $10,000 in property damage liability insurance is required, whereas in Illinois, the minimum is $20,000.

When choosing a property damage liability insurance policy, it is worth considering whether you own a home or other expensive items, whether you usually travel in high-traffic areas, and whether there are a lot of expensive vehicles driven in your area. If the answer to any of these questions is yes, you may want to consider a higher level of coverage.

In addition to property damage liability insurance, bodily injury liability insurance is also required by most states. This covers the cost of injuries or death to other people involved in an accident.

Uninsured motorist coverage

There are two types of uninsured motorist coverage: Uninsured Motorist Bodily Injury (UMBI) and Uninsured Motorist Property Damage (UMPD). UMBI provides compensation for medical expenses for both you and your passengers if you're injured by an uninsured driver. It may also help cover non-medical expenses, such as pain and suffering. UMPD, on the other hand, provides coverage for repairs to your vehicle if it is damaged by an uninsured motorist. In some states, UMPD will not cover hit-and-run incidents, so you may need collision coverage for those situations.

When purchasing uninsured motorist coverage, you can usually add more coverage in $5,000 increments. It is recommended to add enough property damage coverage to replace your vehicle if it is totaled. Additionally, you should consider matching the amount of your liability coverage for the bodily injury portion.

In some states, such as Nevada, uninsured motorist coverage is not mandated by law but is offered as optional coverage. Insurance companies in these states are required to offer this protection at a level no less than the minimum liability limits. On the other hand, some states, such as Illinois, require both uninsured and underinsured motorist coverage to be included in every policy.

Underinsured motorist coverage

The definition of "underinsured" and how underinsured motorist coverage works varies by state. Some states require drivers to have underinsured motorist coverage, while in others, it's available as an optional endorsement on an auto insurance policy.

• Bodily injury coverage, which covers medical bills and may cover lost wages.
• Property damage coverage, which covers the cost to repair or replace your vehicle.

However, in some states, only bodily injury coverage is available. It's important to note that you can't file a claim for more than the actual costs you incurred as a direct result of the accident.

As an example, let's say you are in a car accident in Manassas, Virginia, and the other driver is at fault. The negligent driver has minimum liability auto insurance limits of $25,000/$50,000/$20,000, while your auto insurance has liability and underinsured motorist coverage limits of $100,000/$300,000/$50,000. If the value of your case is $100,000, the other driver's insurance carrier will pay its minimum "per person" liability limit of $25,000, and your insurance company will pay the difference through underinsured motorist coverage. In this case, the difference is $75,000 ($100,000 minus $25,000), which will be paid to you by your insurance company.

Frequently asked questions